Tata Motors saw a substantial drop of almost 40% in its share price on Tuesday. This sharp fall occurred as the stock began trading ex-value of its commercial vehicles business, marking a pivotal moment in the company’s planned split into two distinct listed entities. The demerger aims to better highlight the value of its diverse business segments.
During a special one-hour trading session on the BSE and NSE, Tata Motors’ shares were priced at ₹400. This represents a 39.5% decrease from the previous day’s closing price of ₹660.75. The adjustment reflects the market’s reaction to the separation of the company’s truck and bus operations into a new, independent company.
This specialized trading session, a mechanism introduced by Indian exchanges to manage volatility during demergers, facilitated price discovery for the newly structured entities.
The Historic Split of Tata Motors
The trading on Tuesday signifies the culmination of Tata Motors’ demerger plan, initially announced in March 2024. The core objective is to create distinct value propositions for its passenger vehicle (PV), electric vehicle (EV), and Jaguar Land Rover (JLR) businesses, separate from its commercial vehicle (CV) segment.
As part of the plan:
- The existing listed entity, now renamed Tata Motors Passenger Vehicles Ltd. (TMPVL), will continue to house the passenger vehicle, EV, and JLR businesses.
- The commercial vehicle segment has been spun off into a new company, Tata Motors Commercial Vehicles Ltd. (TMLCV), which is expected to eventually adopt the Tata Motors Ltd. name.
- Shareholders will receive one share of TMLCV for every Tata Motors share they hold, maintaining a 1:1 entitlement ratio.
October 14 was set as the record date to identify eligible shareholders. The shares of TMLCV are yet to be listed, with their debut on the stock exchanges anticipated within 45 to 60 days, likely by mid-November.
Analyst Valuations for the Commercial Vehicle Unit
JLR’s Challenges Cast a Shadow
The demerger occurs during a challenging period for Tata Motors. Its luxury division, Jaguar Land Rover (JLR), has encountered several setbacks this year, including US tariffs on UK-made vehicles and a significant cyberattack that disrupted production and necessitated government intervention. Although production has begun to recover, these challenges have impacted the company’s performance.
Tata Motors’ stock had already been under pressure leading up to the split. It closed 2.7% lower on Monday, extending a streak of declines and showing a nearly 29% decrease over the past year, contrasting with a 1% rise in the broader Nifty 50 index.
Name Changes and Listing Timeline
Following regulatory approval from the Ministry of Corporate Affairs on October 13, the company officially transitioned its name from Tata Motors Ltd. to Tata Motors Passenger Vehicles Ltd.
The commercial vehicle unit is expected to assume the Tata Motors Ltd. name once its listing process is finalized. Typically, the listing and trading approvals for spun-off entities are completed within four to six weeks after the record date.
Tata Group Chairman N Chandrasekaran views this demerger as a crucial strategic step. It is designed to streamline the group’s structure, enhance business focus, and better align capital allocation with key growth areas, particularly in the burgeoning EV market and the competitive global luxury car segment.