Tata Motors' newly demerged Commercial Vehicle (CV) branch has made an impressive market entry, trading at a remarkable 28% premium over its implied value, demonstrating strong investor enthusiasm for India's commercial vehicle sector, which is poised for growth. The separate listing of the CV business allows investors to assess its value independently, bolstering confidence in this stable and cash-generating entity. Shares started trading at Rs 335 on the NSE and Rs 330.25 on the BSE, significantly higher than the estimated base price of Rs 260.75. Following a successful start, shares rallied to Rs 345 on the NSE.
The demerger enables shareholders to receive one share of Tata Motors Commercial Vehicle for each Tata Motors share they own, ensuring no dilution of ownership. This move not only separates the growing passenger vehicle segment from the more established CV business but also enhances the ability to measure each unit's worth. Analysts see this separation as pivotal. They underline the robust demand in the commercial vehicle market driven by improvements in freight activity and an easing of commodity prices alongside a reduction in the Goods and Services Tax (GST) from 28% to 18%.
Tata Motors' CV division is firmly positioned at the core of India's economic development, supporting key sectors such as logistics, mining, and infrastructure. Analysts expect a surge in demand triggered by fleet replacements and new orders from construction and logistics companies. The company's financial outlook appears promising, with projected revenues for FY25 reaching ₹75,055 crore and an EBITDA of ₹8,856 crore, yielding an 11.8% margin.
Brokerage firms maintain an optimistic stance regarding the future trajectory of Tata Motors' CV segment, viewing it as a favorable market implication post-demerger. The corporation's recent acquisition of Italy's Iveco Group NV enhances its market position significantly, providing technological advancements and increased operational scale. Valuation assessments suggest TMCV's fair value could range between ₹320 to ₹470. This highlights the market's anticipation of ongoing growth potential driven by infrastructure needs and global market positioning.
TMCV's successful debut signals a significant moment in the broader scope of India's automotive sector, reflecting an evolving landscape that investors are keen to engage with. However, there may be short-term volatility as the market adjusts to the restructured equity post-demerger. Analysts advise potential investors to consider a medium-term investment strategy, spanning three to five years, to capitalize on anticipated growth and uphold financial discipline in this dynamic segment of the economy.