Shares of Tata Motors on Tuesday tumbled up to 1.6 per cent after CLSA expressed deep misgivings about a $9.1 billion valuation given to its domestic passenger vehicle business by a private equity fund and on lower valuation for Jaguar Land Rover (JLR) because of its slower electric vehicle (EV) ramp-up vis-à-vis rivals.
The foreign brokerage also downgraded the stock to sell from buy and lowered the target price to Rs 408 from Rs 450 earlier.
On October 2021, Tata Motors had announced that it has entered into a binding agreement with TPG Rise Climate wherein the latter along with its co-investor ADQ, will invest in a passenger EV subsidiary (of Tata Motors).
TPG Rise Climate along with the co-investors had invested Rs 7,500 crore in compulsory convertible instruments to secure 11-15 per cent stake in this company translating to an equity valuation of up to $9.1 billion.
However, Hitesh Goel of CLSA said in a note that it differs from the street on valuation of the domestic PV business of Tata Motors. “We believe the valuation of $9.1 billion ascribed to it by a private equity fund for Tata Motors’ EV business is too high’’.
The brokerage has valued Tata Motors’s PV business at $ 5 billion assuming its market share in the domestic PV segment increases from 12 per cent in 2021-22 to 16 per cent by 2049-50, and profitability remain elevated till that year.
