Tata Motors shares up 8%, beat Titan, Axis, Kotak Bank & NTPC in m-cap race

Tata Motors Ltd climbed nearly 8 per cent in Tuesday's trade and, in the process, its market capitalisation (m-cap) topped the Rs 3.5 lakh crore mark. This is even as analysts largely maintained their target prices on the stock post the announcement on demerger of the business into passenger and commercial vehicle segments.

Tata Motors now command higher m-cap than jewellery maker and another Tata group firm Titan Company Ltd, private lenders Axis Bank and Kotak Mahindra Bank and also power generation company NTPC. The Tata Motors stock rose 8 per cent to hit a high of Rs 357.55 on BSE. It was a whisker away from hitting a high of Rs 358 hit on March 4.

As the session progressed, the stock was commanding a m-cap of Rs 3,48,060.76 crore. Axis Bank, whose shares were down 0.62 per cent for the day, commanded a m-cap of Rs 3,39,299.83 crore. NTPC edged higher but commanded a lower m-cap of Rs 3,44,037.71 crore than Tata Motors'. Titan fell 0.3 per cent and commanded m-cap of Rs 3,29,723.78 crore. Kotak Mahindra Bank shares fell 0.8 per cent and commanded m-cap of rs 3,40,327.62 crore.

At the prevailing level, Tata Motors is the 18th most valued company on BSE. As per Tata Motors, the commercial vehicles business and its related investments will be spun in one entity and the passenger vehicles businesses, including EVs, JLR and related investments, in another entity. The demerger is expected to take 15-18 months.

Kumar Rakesh, Analyst – IT & Auto at BNP Paribas  said Tata Motors is streamlining organization and capital structure, which started with American Depository Shares delisting, followed by plans of Differential Voting Rights delisting and now the announcement of separate listing of the Passenger Vehicle (PV) and Commercial Vehicle (CV) businesses.

"We value PV business at Rs 583 per share and CV business at Rs 336 per share. The board will likely appoint a valuation committee in the coming months to determine the share ratios for the demerged entities. This is a strong vote of confidence by the Tata Motors Board in the turnaround of its PV and JLR business, and its sustainability. We think JLR’s turnaround to become a modern luxury brand offers upside potential to our margin and FCF expectations," Rakesh said.

Rakesh said despite the recent re-rating, Tata Motors is trading at an attractive FY25E FCF yield, highest in his coverage. He has Tata Motors as his sector top pick.

"We believe that this is an incremental step taken by Tata Motors to further simplify the organization/capital structure (delisting of ADRs, conversion of DVRs into main shares, etc. have been earlier steps). This announcement will not lead to any material change in our SoTP-based TP, as we are not assigning any holding-company discount to any of the businesses in our valuation," said Axis Capital.

This brokerage sees the stock at Rs 1,030. Motilal Oswal suggested a target of Rs 1,000 on the stock. Nomura India also suggested an unchanged price target of Rs 1,057 on Tata Motors. "We factor in 10 per cent premium multiple to Tata Motors' CV business (vs Ashok Leyland ) for potential pure-play optionality on CVs with higher scale. Downgrade to REDUCE as recent run-up leaves limited upside," Emkay Global said.