However, in the medium term, Nomura believes, the businesses should be able to pursue their respective strategies with greater freedom.

“In particular, we believe Tata Motors PV business has more potential to create value over the next few years. Its PV business has seen a remarkable turnaround after 2020 with market share ramping up from mid-single digits to 13.5 per cent as of 9MFY24. This, in our view, has been driven by its focus on safety, attractive design, and feature-rich vehicles. We had earlier expected that TTMT might have two models among the top 3 SUVs in India,” Nomura India said.

The foreign brokerage said Tata Motors may be aiming to become the second-largest PV player in India by FY25-26F. It said Hyundai Motor India was exploring a potential IPO in India at a valuation of $22-28 billion, but noted that Hyundai does make much hegher margins. For now, Nomura India suggested an unchanged target price of Rs 1,057 on Tata Motors.

“Tata Motors is also at the forefront in its efforts to drive EV penetration in India with 70 per cent+ market share currently and plans to have 10 EV models in its portfolio by FY26. It also aspires to have 50 per cent of its volumes from EVs by 2030. If TTMT is successful in its plan, there can be substantial value creation for the company,” Nomura India said.

While the Tata Motors’ PV business Ebitda margins are at 6.5 per cent, the ICE margins have already improved to 9.4 per cent in Q3FY24. The negative EV margins (negative 8.2 per cent) in Q3) have pull the overall margin down.

“We expect that EV margins will improve over time as most of the losses come from product development costs. The CV business in the future can see some more re-rating driven by its improving market share and profitability. There can be potential upside from success in e-Buses and e-LCVs to which we do not assign any value currently,” Nomura India said.

The demerger would be implemented through the NCLT scheme of arrangement and all existing shareholders of Tata Motors will have identical shareholding in both listed entities.

The demerger can be considered to be the next logical step after the subsidarization of PV and EV business earlier in 2022.

The management expects to have confluence of synergies across the PV, EV and JLR, particularly in the areas of EVs, autonomous vehicles, and vehicle software. It said the approved demerger would have multiple benefits, including superior customer experience, better growth prospects for employees and enhanced value to shareholders.

According to the official company filing, the NCLT scheme of arrangement for the demerger will be placed before the TTMT Board of Directors for approval in the coming months and it will be subject to all necessary approvals of shareholders, creditors and the regulatory authority. It is expected to take 12-15 months to complete

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