Tata Motors demerger: PV business to give direct competition to market leader Maruti, say analysts

Tata Motors share price: With Tata Motors separating its business into two separate entities, viz., commercial vehicle (CV) and passenger vehicle (PV), the Tata Group company's PV business is expected to give direct competition to the market leader Maruti. 

Also Read: Will Tata Motors exit Nifty50 and Sensex after demerger?

Further, Hyundai and Mahindra & Mahindra (M&M) are also predicted to be in the race with Tata Motors' PV business. 

"From a competition point of view, the PV business can now directly compete with the market leader Maruti, with the global ammunition in the form of JLR, and bridge the gap on the valuation front. 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," said Ashwin Patil, Senior Research Analyst at LKP Securities.

On the CV front, Patil expects Tata Motors to compete directly with domestic player Ashok Leyland.

This competition can be a concern, as per a recent report by InCred Equities. 

"High competition intensity in the car business, both for India operations and Jaguar Land Rover (JLR), is a cause of concern," the report read. 

Also Read: Tata Motors demerger: UBS doesn't see any material value; maintains 'Sell'

Further, LKP Securities' Patil is positive on the stock as he sees demerger as a smart move by the company. 

"The announcement of the demerger of Tata Motors businesses into CVs and PVs shall split the business value in half and should enable a focused approach and flexibility. Further, the synergies are lacking in both businesses, which explains the move. Their volume performances, margins, drivers, and competitors are totally diverse. Therefore, it is a smart move by the company, which has always been on the anvil for a while now," said Patil. 

Echoing similar views, Emkay Global believes this development signifies management’s confidence that the two businesses will continue to operate independently with greater agility and self-sustaining cash flows (particularly the PV business). 

Also Read: Tata Motors to demerge CV and PV businesses into separate listed companies

Additionally, Abhishek Gaoshinde, Deputy Vice President – Research, Sharekhan by BNP Paribas has a positive outlook on Tata Motors, anticipating that the appreciation in its business values will be primarily driven by improved fundamentals. Moreover, as per Gaoshinde, the separate listings of the CV and PV businesses will provide investors with the flexibility to capitalise on the growth cycles of each segment.

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