1:2 Split: Tata's Auto Stock Gets Credit Rating Upgrade, Big Update On DVR Shares Swap; BUY For Rs 1,156 TP

Tata Group-backed automobile giant, Tata Motors is likely to be in focus on Wednesday after the company fixed a record date for the conversion of DVR shares. Apart from this, the company has received a credit rating upgrade from S&P Global Ratings. YTD, Tata Motors share price soared by nearly 37.5% on BSE. There is room for further buying in this top Tata stock for a target price of Rs 1,156.

Tata Motors Share Price:

This auto stock ended at Rs 1,086.75 on BSE after market hours of August 20, with a market cap of Rs 3,61,307.27 crore. The stock is a couple of rupees away from its 52-week high of Rs 1,179.05 apiece, while it has more than doubled from its 52-week low of Rs 593.50 apiece.

In a year, Tata Motors' share rallied over 75% on BSE. Its current price-to-equity ratio is at 35.57x, while its return on equity is at 33.69%.

Tata Motors Credit Rating:

S&P Global Ratings has upgraded the credit rating of Tata Motors Limited (the "Company") and its wholly-owned subsidiaries. The new ratings are:

1. Tata Motors: BBB/Stable/-- BB+/Watch Pos/--

2. JLR: BBB-/Positive/-- BB/Watch Pos/--

3. TML Holdings Pte Ltd., and ABJA Investment Co. Pte. Ltd., which are 100% subsidiaries of Tata Motors and Tata Steel, respectively, were also upgraded to BBB/Stable.

The new rating upgrade comes after S&P conducted a detailed review of the Tata group company relationships and assessed that the potential for extraordinary support from group parent Tata Sons Pte Ltd. is greater than previously assumed.

Tata Motors DVR Conversion:

Tata Motors has fixed the record date for the reduction of the share capital through cancellation and extinguishment of the 'A' Ordinary Share Capital and issuance of New Ordinary Shares as consideration.

Accordingly, Tata Motors is merging its DVR shares via swap.

Tata Motors BUY Rating?

In its latest report, KR Choksey said, "TML exhibited modest performance in Q1FY25 driven by CV volume expansion, market share gains, and enhanced financial results. Looking ahead, Tata Motors anticipates gradual domestic demand improvement driven by infrastructure investment and festive periods, while global demand remains subdued. With strategic demergers, continued innovation in EVs, and targeted investments, the Company aims to enhance its market position. JLR's focus on maintaining financial targets and resolving supply challenges will be pivotal for future growth."

Further, KR's note added, "We maintain our EV/EBITDA multiple for the JLR segment at 3.2x FY26E EBITDA. We retain the valuation of the Chery-JLR JV business at 2.4x EV/EBITDA, TML-CV at 14.0x, and TML-PV at 16.0x, respectively, as we believe the prospects for these segments remain intact."

Given the positive outlook for the CV and JLR businesses, KR Choksey said, "We expect the Company to perform gradually and steadily in the future. Accordingly, we have revised our target price to INR 1,156 per share (previously: INR 1,043), which includes INR 42.00 for Tata Technologies. Given an 8.2% upside potential, we maintain our rating on Tata Motors shares as "ACCUMULATE."

The auto player is set to split in the ratio of 1:2. The company is planning the demerger of Tata Motors into two separate listed companies housing A) the Commercial Vehicles business and its related investments in one entity and B) the Passenger Vehicles businesses including PV, EV, JLR, and its related investments in another entity.