Tata Motors gains 3% on SEBI nod to Tata Tech IPO

After Tata Technologies gained clearance from the market regulator Securities and Exchange Board of India (Sebi) to raise money via an initial public offering (IPO), shares of Tata Motors set a new multi-year high of Rs 589.15, up 3 percent on Wednesday’s intraday trading. This occurred shortly after Tata Technologies received the licence.

Since September of 2016, the trading volume of the shares of the car firm owned by the Tata group has been at its highest level. On February 3, 2015, it reached an all-time high of 606 rupees. It has gained 52% so far in the calendar year 2023, which compares well to the S&P BSE Sensex’s gain of 4.4% so far in the same time period.

On March 9, 2023, a draught red herring prospectus for the initial public offering (IPO) of Tata Technologies, which is a subsidiary of Tata Motors, was submitted to Sebi. The firm plans to raise money via an offer for sale (OFS) of up to 95.7 million equity shares in exchange for cash. This number of shares is equivalent to about 23.60 percent of the company’s paid-up share capital.

The initial public offering (IPO) includes an offer to sell up to 81.1 million equity shares by Tata Motors, up to 9.72 million equity shares by Alpha TC Holdings Pte. Ltd., and up to 4.86 million equity shares by Tata Capital Growth Fund I. These equity shares each represent up to 20 percent, 2.40 percent, and 1.20 percent of the paid-up share capital of Tata Technologies, respectively.

Tata Motors said in its annual report for the fiscal year 2022–23 (FY23) that “if we are unable to divest our non-core investments and unlock value, it could have an impact on our deleveraging plans and increase the interest costs, thus having an impact on our profitability.” Tata Motors’ statement was made in reference to the possibility that the company would not be able to sell its non-core investments and get the value locked inside them.

Engineering, research, and development (E&RD) is what Tata Technologies specialises in, and the company is now developing new technologies such as advanced driver assistance systems (ADAS).

ICICI Securities believes that this is a value-unlocking event for Tata Motors and that it has a sentimentally favourable impact on the company. The trading company estimates that Tata Technologies is worth somewhere in the neighbourhood of Rs 20,000 crore. The resulting value that will accrue to Tata Motors will be around Rs 15,000 crore for a 75% interest, and an additional Rs 40 per share will be added to the equation that determines their target price.

Additionally, the firm would be able to lower the amount of debt on its balance sheet thanks to the proceeds from the OFS, which amount to Rs. 4,000 crore. This fits in well with the company’s larger aim of being net automotive debt-free by FY25E, the statement said.

Tracking profitability at the helm in domestic CV and PV business (including EVs), Jaguar Land Rover’s (JLR’s) progressive volume recovery on the anvil, reiterated commitment towards EVs, and healthy FCF generation are the reasons why analysts at ICICI Securities maintain a ‘BUY’ rating on the stock with a target price of Rs 700 per share.

According to recent reports, a brokerage firm called CLSA has increased its profit projection for Tata Motors by 11 percent for the fiscal year 2024 and by 18 percent for the fiscal year 2025. These increases were primarily driven by better margin expectations for the company’s UK-based arm, JLR, and its Commercial vehicle sector.

Additionally, the brokerage firm has increased its price objective for the shares, moving it up to Rs 690 from Rs 624 before. CLSA anticipates that JLR’s EBITDA margin will be 6.1% for the next fiscal year, 2024. According to the news channel, higher-margin vehicles make up 76% of JLR’s order book overall. These models include the Defender, Range Rover, and Range Rover Sport.