Tata Motors has announced plans to divide its business into two distinct entities, with shareholders set to receive one free share in the new company post-split. This strategic demerger will result in one company focusing on commercial vehicles and related investments, while the other will center on passenger vehicles, including electric vehicles (EVs), Jaguar Land Rover (JLR), and their associated investments.
The demerger process will be executed through a National Company Law Tribunal (NCLT) scheme of arrangement. Shareholders of Tata Motors Limited will retain the same shareholding in both new companies. The company will soon announce a record date to determine eligibility for receiving the new equity shares. Let’s explore the implications with an example:
Initially, suppose you own 100 shares of Tata Motors priced at Rs1000 each. Post-split, the share price adjusts to Rs500, and the number of shares doubles to 200. Importantly, the total invested amount remains unchanged, barring market fluctuations. This means shareholders now hold twice the number of shares, each valued at Rs500.
Alternatively, in a demerger scenario, if you have 100 shares before the split, after the 1:2 ratio, you would receive 100 shares in each of the two resulting companies. Assuming a Rs500 per share post-split price, this results in ownership of 200 shares across the two entities, each priced at Rs500.
In both cases, while the number of shares increases proportionately after the split, the overall value of the investment, unless influenced by market conditions, remains consistent.
In the first quarter of the fiscal year 2025, Tata Motors reported total vehicle sales of 229,891 units, both domestically and internationally, marking a slight increase from 226,245 units in the same period the previous year. Despite this overall growth, commercial vehicle sales saw a 7% decline in June 2024, with 31,980 units sold compared to 34,314 units in June 2023. Similarly, passenger vehicle sales, including EVs, dropped by 8% to 43,624 units in June 2024 from 47,359 units in June 2023.
On the stock market, Tata Motors shares were trading 1.73% lower at ₹984.70 per share on the NSE. However, the stock has seen a remarkable appreciation of over 25% this year. Over the past one and two years, the stock has delivered returns of 65% and 138%, respectively. In the last five years, Tata Motors’ stock has surged over 500%, reflecting strong investor confidence despite recent sales challenges.
