Introduction
Tata Motors had recently restructured its business with a demerger of its commercial vehicles division and has turned its focus to Tata Motors Passenger Vehicles Ltd (TMPVL) and the company’s recently listed Passenger Vehicles division.
Initially there has been some volatility with the TMPVL stock after the demerger. On the 16th of October TMPVL stock decreased after BofA Securities downgraded TMPVL to 'Underperform' with a target of ₹375 which was lower than the previous close of ₹390.75. Irrespective of the downgrade the stock was able to gain almost 2% during the day.
Brokerage Concerns: JLR’s Heavy Influence
BofA Securities and BofA’s analysts are concerned with JLR (Jaguar Land Rover) which is the luxury division and has the most significant impact on the Tata Motors business. JLR makes up approximately 45% of the valuation of TMPVL which is almost half of the total valuation. The analysts at BofA also speculate that the Passanger Vehicles division valuation is still heavily reliant on JLR and its performance overseas.
Challenges Facing JLR
Bank of America (BofA) has noted particular challenges within JLR including:
Threats to cybersecurity after recent breaches of systems;
The possibility of US tariffs on imported automobile parts;
Continued weak demand in key markets - for instance, in Europe and China.
BofA has flagged these issues as possible reasons for JLR to revise its expected growth downwards yet again. The brokerage has also indicated that JB’s vulnerable balance sheet may come under even greater stress and deregister increased borrowing.
BofA also noted that although Tata Motors has increased its domestic PV market share, there are issues with profit margins which will need to be addressed in a greater extent in order to restore investor confidence.
Differing Analyst Sentiment On The PV and CV Businesses
Since the demerger, other brokers, as expected, have also issued commentary and, similarly, have not reached any consensus.
For JLR/PV as a whole, while JLR/ PV was expected to have a positive long-term outlook, Ambit Institutional Equities has noted the following causes of disruption in the short-term: There has been a shift in US tariffs; the macroeconomic environment is weak; China’s luxury tax; greater expectations on the take-up of EVs has not been met.
On the other side, Ambit has indicated that the CV business has greater potential in the short-term to grow due to its: strong market position, ability to generate cash, and possible re-valuation driven by the acquisition of Iveco and expected synergies.
SBI Securities' Perspective
In SBI Securities' opinion, most of TMPVL's fortune is still dependent on global trends, wherein JLR accounts for 87% of revenues as of FY25 and the domestic PV segment only 13%.
SBI JLR continues to cope with:
Disruptions of production due to a cyberattack, and
Weaker consumer demand in North America, Europe, and China.
In the broker's view, any potential upside in TMPVL's shares is most likely correlated to an increase in volume and profitability from JLR, as TMPVL's fortunes rest on JLR.
Snapshot of the Future De-Merger
The record date for the Tata Motors demerger was on October 14. Under the demerger's approved structure:
For every one share of Tata Motors, shareholders will receive one share of Tata Motors Commercial Vehicles Ltd (TMCVL).
The demerger ratio is 1:1.
Post-demerger, TMPL will only focus on the passenger vehicle business. TMCVL, which contains the commercial vehicles division, will operate on its own and is expected to be listed in November 2025.
In the pre-market session on October 15, TMPVL shares were just under ₹400, which suggests TMCVL shares will be worth ₹260.75. This compares to a closing price of ₹660.75 on Monday.
Conclusion
Strategic separation of Tata Motors will create value over the long run. Focus on each of the passenger and commercial vehicle businesses individually will help their growth.
In the near term, the market's sentiment on TMPVL will be driven by the global recovery of JLR, given its revenue dominance. Opinions are mixed; on one hand, commercial vehicle remains a cash flow and profitability goliath, while on the other, there seems to be traction on TMPVL and its potential for growth should macro conditions improve and margins shift.
