The Indian bourses have been on a roll since Tata motors declared a strategic separation of its business into two distinct arms – one would focus on commercial vehicles (CV) and the other on passenger vehicles (PV) and EVs. The reorganisation has brought in new hope for investors and analysts alike. Consequently, Tata Motors’ commercial vehicle stock has shot up extremely, catching the eyes of traders, long-term investors and institutional funds.
The two divisions will be able to focus independently on their own businesses and should, in the view of analysts, unlock substantial shareholder value. Passenger vehicle and EV business will focus on technology and sustainable, Commercial vehicle arm is looking at bring its market leadership within logistics and infrastructure stronger. aad Tata Motors, the latter emerged as a potential multi bagger for investors on the back of strong business fundamentals and future-ready strategies.
Decoding Tata Motors’ Business Division
Tata Motors has also greenlit a strategic demerger plan which involves carving out its Passenger Vehicle (PV) and Electric Vehicle (EV) business from its Commercial Vehicle (CV) segment. The move is part of Tata Group’s long-term plan to make its companies more nimble, productive and growth-oriented.
- Two publicly traded companies will emerge from the separation of this business:
- Tata Motors Commercial Vehicles Ltd.
Tata Passenger Vehicles Ltd. – which will consist of the existing IC (Internal Combustion) business for passenger cars plus EV business under Tata Passenger Electric Mobility (TPEM).
This will allow the two divisions to focus more intensely on business, respond more quickly and allocate capital more efficiently. Investors are also particularly enthusiastic about the CV segment, which is now being spun out separately, unlocking latent value in a division that has traditionally been Tata Motors’ cornerstone.
Why Tata Motors CV Stock Is Rallying
In response to the news trading volume and stock price of Tata Motors CV were on fire. There are a few solid arguments for the rally:
Tata Motors commercial vehicles recovery Outlook: Infrastructure development, growth in logistics and government expenditure on roads and transport projects drove the commercial vehicle segment of Tata Motors has recorded a steady improvement post-pandemic.
Meanwhile, the market also believes that the CV business can become more efficient after the split and that division may enjoy greater profitability and operational freedom. Investors are wagering on the company’s potential to increase profits, cut costs and venture into new businesses such as electric commercial vehicles and fleet services.
And finally, given Tata Motors’ strong brand legacy and product portfolio as the leader in the Indian CV market, the standalone CV entity is expected to command a premium valuation post completion of the restructuring, say analysts.
Expert Commentary, Market Predictions
Market analysts from leading brokerages such as Motilal Oswal, HDFC Securities, ICICI Direct have turned positive on the near-term and long-term prospects of Tata Motors.
“The CV business could see a re-rating after it begins trading as a separate entity, said those in the know. Motilal Oswal also believes that standalone commercial vehicle business can command a market capitalization of more than ₹1 lakh crore in two years as strong demand growth is expected to sustain in domestic as well as export markets.
HDFC Securities added that the profitability of the CV segment is expected to increase by 150-200bps with freight rates improving, commodity prices holding steady and replacement demand for trucks and buses rising.
In the interim, foreign institutional investors (FIIs) are rallying once again behind Tata Motors, viewing the demerger as one of the value-unlocking reminiscent of global automakers that have broken up into focused business verticals and found success.
Tata Motors CV Division- A Growth Vehicule
The commercial vehicle (CV) segment is said to be the backbone of Tata Motors. It consists of a large variety of vehicles including trucks, buses, tippers and light commercial vehicles. Tata Motors CV division is the unrivalled leader having over 60% market share in India’s medium and heavy commercial vehicle segment.
In India, in recent years, Tata Motors has taken a line of attack to revamp its CV portfolio with new-generation products promising enhanced fuel economy, levels of comfort and technology integration. The firm is also pumping money into electric and hydrogen-powered commercial vehicles, in line with India’s pledge to reach net-zero emissions by 2070.
Amid a fertile ground: The order book of the CV division, expanding in particular with logistics firms and construction companies, indicates the sector’s bright future. Analysts say the standalone Tata Motors CV entity could become one of Asia’s most valuable commercial vehicle brands in the next decade.
The Split and What it Meant to Investors
The demerger will be value-accretive to the shareholders. Tata Motors’ investors will own shares in two companies following the split. Investors will now have shares in two separate companies — the CV business and PV/EV — each with separate growth stories.
Analysts say the split should make it easier for investors to separately assess the performance of each business. The CV arm, which is a pure-play commercial vehicle company, will appeal to institutional investors looking for stable cash flow and consistent growth. While the PV and EV business will appeal to investors who believe in innovation and the future of mobility.
Such clarity of structure is what the market perceives as “value unlocking event”, and that’s why Tata Motors stock has been soaring since announcement.
Prospects for Tata Motors CV Business
The future looks extremely bright for Tata Motors’ CV business. The commercial vehicles market is going to see a good upward swing riding on India’s growing economy and the government’s focus on infrastructure.
Tata Motors is expanding its export presence in South Asia, Africa and the Middle East. The firm is also developing digital fleet management solutions, autonomy for trucks and next-generation energy-efficient engines.
The CV business is expected to report a revenue growth at CAGR of 12–14% over the next five years, with a significant improvement in margins led by operating leverage and cost rationalization.
At the same time, Tata Motors is preparing to roll out its first-ever electric truck line, turning the logistics and transportation industry on its head by bringing cheap, green solutions to the market.
Tata Motors vs Competitors
In the CV segment, Tata Motors faces competitors such as Ashok Leyland, Eicher Motors (with its JV Volvo Eicher) and Mahindra & Mahindra. However, Tata Motors has a superior advantage because of its huge product range, nationwide service network and well established brand.
While Ashok Leyland excels in south India, Tata Motors rules the northern and western parts of the country. Because of its rural as well as urban transport market exposure, it derives consistent market even in recession period.
Specialists expect that the erstwhile Tata Motors CV entity to get a greater focus on the export-led markets and new technologies, giving it an advantage over those who are still tied to travel models.
Stock Market Reaction and Share Price Target
Tata Motors share price has rallied over 20% in quick time since the announcement of splitting the business. This is just the beginning, analysts say.
Brokerage house ICICI Direct has maintained a buy rating on Tata Motors stock with a target price of ₹1,200, on strong fundamentals and benefits after the demerger. The CV business alone is expected to have a standalone valuation of Rs 500- 600 per share once it gets separately listed.
Wholesale traders are riding the momentum and retail investors are hoarding shares as they wager that Tata Motors is on the cusp of a new era of sustained profitability.
Challenges Ahead
Tata Motors will have challenges to tackle as well, although the prospects seem to be overwhelmingly positive. Commercial vehicles are cyclical and are frequently influenced by fuel prices, government regulations, and the general economy.
Maintaining a leading position in a competitive market, and managing the transition to electric and other alternative-fuel CVs, takes on even greater importance. “The company has incredible business potential with all our ideals, values, compassion and ethics towards society but challenges as well,” Jha said.
Conclusion
The Tata Motors CV share story is a quintessential example of how strategic business re-organisation can rebuild investor confidence. Tata Motors has, with the business division, prepared the way to focus and increase profitability.
With seasoned professionals unanimous in expecting the CV business to become stronger, thanks to fresh decision making, sharper operations focus and more aggressive technology adoption, the outlook looks promising. For investors, this could be one of the biggest auto value creation stories in the Indian industry for a long, long time.
That said, Tata Motors has been surprising the critics in this new era, and the outlook is full of promise as the company embarks on this fresh chapter in its history.