Explainer: How will you benefit from the division of Tata Motors? Everything will be understood by Ambani's example - Newztezz Online


Tuesday, March 5, 2024

Explainer: How will you benefit from the division of Tata Motors? Everything will be understood by Ambani's example

Tata Motors, the rapidly growing automobile company of Tata Group, is now going to be divided into two parts. In this, one company will look after only the business of commercial vehicles, while the other company will look after the business of passenger vehicles. In such a situation, what are you going to benefit as an investor? Let us understand...

It is not surprising if Tata Motors, which has been continuously defeating Hyundai in terms of car sales, soon overtakes the country's largest company Maruti Suzuki India in many segments. Ever since Tata Group has changed its car portfolio and increased its focus on safe cars, the same thing is being said about Tata Motors. This is the reason why Tata Motors shares have registered a continuous rise. Now this company is going to be divided, so what benefit are you going to get as an investor?

The board of Tata Motors has announced that it will now divide its business into two separate businesses. There will be a business in commercial vehicles which will include business ranging from Tata bus-truck to small elephant i.e. Tata S. Whereas the second business will be of Tata's passenger vehicles, which also includes its petrol-diesel cars, electric cars and Jaguar Land Rover division. Now if the company is divided, it will affect the shareholders of the company as well, what will that be?

Partition of Tata Motors will be like partition between brothers

If you want to understand the split of Tata Motors, then this is the story of every household in India. Whenever there is a division between brothers in a family, generally the property is divided equally between the two. Now this can happen in many ways. One brother gets the house or the other gets the shop or both get half the house and half the shop.

Exactly the same will happen with the shareholders of Tata Motors. The company's board says that after the split, the valuation of its shareholders' investments in both the companies of Tata Mortus will remain the same. Now if you have 100 shares of Tata Motors, then it is possible that after the split, the valuation of its commercial vehicle business may become lower and the valuation of passenger vehicles may become higher.

Therefore, your 100 shares will be divided in such a way that the value of your investment remains the same. In this you may get more shares of passenger vehicle company and less shares of commercial vehicle company. At present, it is expected that after the split, the shareholders may get 1:1 distribution of shares in both the companies.

In which business will you get more profit?

Now after separation, which company of Tata Motors will benefit more? Let us also understand this with an example. When two brothers get equal amount of property during division, it is not necessary that the progress of both the brothers should be equal. Now look at the example of Mukesh Ambani and Anil Ambani. After the equal distribution in 2005, where did Mukesh Ambani take his business and how did Anil Ambani go bankrupt? Everyone knows this.

Similarly, it is possible that if Tata Motors' passenger vehicle manufacturing company does better business in the future, its share price may touch new heights. If the demand for commercial vehicles decreases, then that company will have to suffer losses and the share price will come down. However, in terms of commercial vehicles, Tata Motors is one of the largest companies in the country. In the case of passenger vehicles, it has a high margin brand like Jaguar Land Rover and the EV segment is also growing rapidly.

It is not a big deal that in future, Tata Motors once again separates the EV business from passenger vehicles to unlock value. Like this current distribution is happening to unlock value. What will happen now is all in the future, for now you can consult your financial advisor to make a strategy for investing in Tata Motors shares.

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