While the Tata Motors demerger into commercial and passenger vehicle businesses seems to be a step in the right direction, Motilal Oswal said it does not foresee any need to revisit its target price, which is already based on SoTP valuation.
Despite factoring in most of the positive triggers, it sees limited upside potential for Tata Motors given the recent sharp run-up in the stock. The brokerage has downgraded Tata Motors to 'Neutral' from 'Buy' with an unchanged target of Rs 1,000 per share.
"On the back of a strong performance across its key business segments, the stock has significantly outperformed key indices with 204 per ecnt return in the last 36 months against 50 per cent return in the Nifty. Also, we have already factored in most of the positive triggers in our estimates. Given limited upside after the recent sharp run-up in the stock, we downgrade Tata Motors to Neutral," it said.
Nomura India also suggested an unchanged price target of Rs 1,057 on Tata Motors. This brokerage, however, believes that the Tata Motors PV business potential to create better value over the next few years. The CV business in the future can see some more re-rating driven by its improving market share and profitability, Nomura said.
"There can be potential upside from success in e-Buses and e-LCVs to which we do not assign any value currently," it added.
From competition point of view, the PV business can now directly compete with the market leader Maruti Suzuki India, with the global ammunition in the form of JLR and bridge the gap on valuation front, said Ashwin Patil, Senior Research Analyst at LKP Securities.
"With Hyundai's listing on the cards and M&M as the fourth rival, the tussle in the PV space will be interesting to watch and can give an investor a fair choice to select between four of them. On the CV front, TTMT will compete straightaway with the pure play domestic player Ashok Leyland," he said.
Patil said a better cash utilisation should add to the positive sentiments. Since its an equal split, we can't take a call on valuations. He stayed positive on the stock.
Emkay Global said i does not envisage major fundamental changes as both businesses were run independently. It has revised upward its SOTP-based price target marginally to Rs 950 from Rs 925 earlier, as it factored in 10 per cent premium multiple to Tata Motors CV business against Ashok Leyland for potential pure-play optionality on CVs with higher scale.
Once the demerger is complete and the smaller entity (CV business) becoming a standalone entity, the CV entity will exit Nifty and Sensex. Nuvama said it move will materialise in around 15 months, said Nuvama Institutional Equities.
It gave an example of Jio Financial Services Ltd (JFS), which got demerged from Reliance Industries Ltd (RIL). While Jio Financial got listed separately it eventually in next few days got excluded from the domestic indices.