Shares of Tata Motors Limited rose 5% in Wednesday’s trade, making it the top gainer on the Nifty. This rally follows the recent shareholder approval for the long-awaited demerger of its business, as well as the signing of the India-UK Free Trade Agreement (FTA)—two major positive developments that are expected to unlock significant value and boost future growth.
Shareholders approved the Demerger.
In a long-anticipated move, Tata Motors has finally received approval for its strategic demerger into two distinct listed entities: Tata Motors Passenger Vehicles Limited (TMPVL) and Tata Motors Commercial Vehicles Limited (TMCVL). Both companies will now be independently listed on the NSE and BSE, giving investors greater clarity and choice.
This demerger has been eagerly awaited by the market due to its potential for value unlocking. Previously, investors looking to bet solely on Tata’s commercial vehicle segment had no choice but to invest in the combined Tata Motors stock, which included the performance of its passenger vehicles and Jaguar Land Rover (JLR) business. Now, that limitation has been removed.
The restructuring makes strategic sense. Tata Motors' commercial vehicle segment derives nearly 90% of its business from India, and yet it was indirectly affected by global factors like U.S. tariffs under Donald Trump's administration, due to its association with JLR. This created distortions in valuation, as the commercial vehicle business was often penalized for global headwinds unrelated to its core operations.
With the demerger, investors can now make targeted investments:
Those bullish on the Indian commercial vehicle market can invest directly in TMCVL.
Those interested in the passenger vehicles segment and JLR's global footprint can focus on TMPVL.
This split not only improves transparency but is expected to unlock hidden value in both businesses by allowing them to operate and grow independently, with focused strategies and capital allocation.
India-UK Free Trade Deal (FTA)
Adding to the positive momentum, India and the UK have recently approved a Free Trade Agreement (FTA), which is expected to significantly benefit Tata Motors. Under this agreement, Tata Motors will now be able to import Jaguar and Land Rover vehicles from the UK into India at significantly lower duties. Earlier, importing a JLR vehicle attracted around 100% tax, pushing the prices of models like Range Rover, Defender, and Jaguar to premium levels. With the reduction or potential elimination of these import duties, the prices of these cars in India are expected to drop considerably, making them more accessible and boosting sales.
This FTA marks the second major positive development for Tata Motors, alongside the demerger, and further strengthens its growth outlook both domestically and globally.
