Tata Group's Mega Auto Stock Nears 52-Week High On Demerger Plan; Moody's Affirm Ba3 Corporate Family Rating

Tata Group-backed auto flagship, Tata Motors' engines have accelerated at full speed on its demerger into two separate listed companies. This led to an immense bullish trend in Tata Motors as the stock is near its 52-week high levels. Also, Moody's affirmed Tata Motors Limited's (TML) Ba3 corporate family rating. Concurrently, Moody's has affirmed TML's Ba3 senior unsecured instrument ratings.

Also, Moody's has maintained a positive outlook on all ratings.

According to Moody's, the rating affirmation follows TML's announcement earlier this week that its board of directors have agreed in principle, the demerger of its operations into two separate listed companies for commercial vehicles (CVs) and passenger vehicles (PVs), respectively, subject to shareholder and regulatory approvals. The demerger will likely be completed within the next 12-15 months.

Kaustubh Chaubal a Moody's Senior Vice President said, "While the demerger would result in TML's remaining operations comprising only CVs, the company's strong foothold with about 40% share in India's growing CV industry and the business' demonstrated ability in generating large free cash flow through industry cycles will support its credit profile."

Chaubal added, "With unit sales of less than 0.5 million, revenues of around $9 billion and EBITA margin at about 8%, TML's CV operations will likely generate ample free cash flow with credit metrics substantially strong for a Ba3 CFR."

Moody highlighted as part of the demerger, that all TML shareholders will have identical shareholding in both listed companies - the PV subsidiary (PV-CO) and the CV subsidiary (CV-CO). As such, the Indian PV and EV operations as well as TML's global premium passenger car business through wholly-owned Jaguar Land Rover Automotive Plc (JLR, Ba3 positive) will be housed under the PV-CO. The proposed structure would enable optimizing synergies across TML's PV and EV businesses in India and JLR.

Post the demerger, Tata Motors will be split into the Commercial Vehicles business and its related investments in one entity, and the Passenger Vehicles businesses including PV, EV, and JLR and its related investments in another entity.

The demerger will be implemented through an NCLT scheme of arrangement and all shareholders of TML shall continue to have identical shareholding in both the listed entities.

Over the past few years, the Commercial Vehicles (CV), Passenger Vehicles (PV+EV), and Jaguar Land Rover (JLR) businesses of Tata Motors have delivered a strong performance by successfully implementing distinct strategies. Since 2021, these businesses have been operating independently under their respective CEOs.

The demerger is a logical progression of the subsidiarisation of PV and EV businesses done earlier in 2022 and shall further empower the respective businesses to pursue their respective strategies to deliver higher growths with greater agility while reinforcing accountability, Tata Motors filing said.

On Thursday, Tata Motors' share price ended at Rs 1,039.35 apiece, up by 2.14% on BSE. Its market cap is over Rs 3.45 lakh crore.

The stock's 52-week high and low is at Rs 1,065.60 and Rs 400.40 apiece.

Tata Motors is a multi-bagger as it has risen by a whopping 159.57% from its 1-year lows.

Part of the USD 128 billion Tata group, Tata Motors, a USD 42 billion organization, is a leading global automobile manufacturer of cars, utility vehicles, pick-ups, trucks and buses, offering an extensive range of integrated, smart and e-mobility solutions. With 'Connecting Aspirations' at the core of its brand promise, Tata Motors is India's market leader in commercial vehicles and amongst the top three in the passenger vehicles market.