Different lanes

Tata Motors demerger will improve efficiency

The implementation of the decision to reorganise Tata Motors into two independent listed verticals will take 12-15 months. The initial market reaction to the announcement of the demerger was positive, but not very enthusiastic. The conventional wisdom is that such demergers allow “value unlocking”. Investors can better understand where a single and focused business is headed, while managements can also concentrate on the operational dynamics. Hence, markets tend to assign a higher valuation to focused businesses. Paradoxically, this may not have a dramatic effect simply because the company is well-run. It has successfully weathered the ups and downs of Covid