HSBC has valued both Tata Motors’commercial vehicle business and Ashok Leyland at 14 times their estimated FY27 EV/EBITDA.
Tata Motors completed its demerger on October 1, splitting the business into separate passenger vehicle (PV) and commercial vehicle (CV) entities. The CV business is now independently listed.Currently, the CV industry (Ashok Leyland and TMLCV) trades at a 1-year forward EV/EBITDA of around 12x, while the PV industry trades at 15-17x.
HSBC said that historically this valuation gap was justified due to the higher cyclicality and volatile margins in the CV sector. However, with both industries’ profiles now converging, the brokerage believes CV valuations have room to re-rate.
TMLCV vs Ashok Leyland
TMLCV has lost around 3% market share between FY23 and FY25, largely because the MHCV bus segment grew faster than the goods segment. Excluding this mix shift, its market share would have remained broadly stable.
The brokerage said that TMLCV enjoys premium pricing and follows strong pricing discipline in the MHCV segment, which is visible in its superior gross margins.
However, higher operating expenses have prevented these gains from fully flowing through to operating margins. HSBC expects operational efficiencies to improve as management attention sharpens post-demerger.
The commercial vehicles entity made its market debut on November 12 at ₹330 per share, about 28% higher than the pre-open discovery price of ₹260 per share set last month.
This listing came after the passenger vehicle business began trading at ₹400 per share. A day before the demerger record date, Tata Motors shares closed at ₹660.75.
While Tata Motors’ overall business is dominated by its passenger vehicle segment, the CV division typically contributed 18-20% of the consolidated entity’s earnings.
Shares of Tata Motors Ltd. the Commercial Vehicles entity, are trading 1.70% lower at ₹317.10 today.
