JLR Drives Tata Motors’ Demerger
The demerger is timely, given JLR’s lessening debt load and announcement of Hyundai’s IPO on Indian bourses, and will provide Indian investors with the option to hold a pure-play global automobile firm.
In an unexpected but natural step, India’s auto juggernaut Tata Motors has announced the separation of its two main business areas, commercial vehicles (CV) and passenger cars (PV), into domestic PV, electric vehicles (EVs), and Jaguar Land Rover. These divisions and affiliated enterprises will be housed in two independent listed organizations, each having an identical ownership to Tata Motors. That is, it will be a straightforward vertical demerger.
Among the numerous operational synergies and capital allocation concerns discussed, this masterstroke of a move offers one key lesson for investors and stakeholders. It addresses a long-standing need to unlock value in the global PV firm, JLR. After all, JLR has risen by leaps and bounds in sales and earnings since the Tatas bought it and revived it from the brink of bankruptcy.
In a recent analysis, Jefferies India anticipated that JLR’s share of Tata Motors’ sales and profits before interest, tax, depreciation, and amortization (Ebitda) would be 67% and 75%, respectively (FY2026 projections). The rest of the PV business contributes for just 14% and 9%, respectively. Even in the new PV business following the demerger, JLR’s revenue and earnings will drive market valuation. The demerger also occurs at an ideal time, since JLR’s cash flows have provided confidence that the business will become debt-free. Finally, it comes at a time when Hyundai Motor India, the Korean automaker’s Indian unit, is apparently considering listing in India!
When investors evaluate three PV firms, Tata Motors stands out because its PV business is really global, as opposed to Maruti Suzuki and Hyundai Motor, which are tethered to the home market and, to a lesser extent, exporters.
In other words, the transaction enables investors to add the flavor of a worldwide PV leader to their portfolio! JLR, after all, sells luxury vehicles in China, Europe, the United Kingdom, and the United States, as well as India. At another level, the demerger is also in accordance with Tata Motors’ prior stated goal of forming a distinct company for EVs and logically relocating all PV entities.
Mutual Funds Offload Rs 1,441 Crore Worth of Tata Motors Shares in January
SBI Mutual Fund topped the January selling binge among mutual funds, selling almost 58 lakh shares worth Rs 476 crore. Axis and Bandhan Mutual Funds then sold around 28 lakh and 16 lakh shares, valued Rs 225 crore and Rs 132 crore, respectively.
Mutual funds profited from Tata Motors’ recent upswing, pocketing around Rs 1441 crore in January. They lowered their total holdings to 32.80 crore shares, down from 34.58 crore shares in December, after selling around 1.78 crore. Tata Motors shares has increased over 2.5 times this fiscal year. Sentiment for the stock was further strengthened when the carmaker announced strong results for the December quarter, with revenues up 25% and net profit up 137% year on year.
SBI Mutual Fund led the January selling binge in Tata Motors shares, selling more than 58 lakh shares for Rs 476 crore. Axis and Bandhan Mutual Funds followed suit, selling over 28 lakh shares and 16 lakh shares for Rs 225 crore and Rs 132 crore, respectively. Edelweiss, ICICI Prudential, DSP, Aditya Birla Sun Life, and Kotak Mahindra Mutual Funds were also net sellers, selling for little more than Rs 100 crore apiece.
Mirae Assets MF upped their Tata Motors shares by roughly Rs 84 crore in January, while HSBC MF and Franklin Templeton MF followed suit, adding around Rs 65 crore and Rs 60 crore to their portfolios, respectively.
Even after the sales, SBI Mutual Fund is the largest shareholder in Tata Motors, with over 7.96 crore shares worth Rs 7034.44 crore, followed by Axis and UTI Mutual Fund, which own over 3.91 crore and 88.54 lakh shares, respectively, valued Rs 3452 crore and Rs 3058 crore. Other stakeholders include HDFC Mutual Fund, Nippon India MF, Aditya Birla Sun Life MF, and DSP Mutual Fund, which own around Rs 2782 crore, Rs 1916 crore, Rs 1830 crore, and Rs 1118 crore, respectively.
The stock has gained for four straight months, with a 26% increase in 2024 thus far. Since January 2023, it has showed sustained growth, with negative returns in only three months: February, August, and October.
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