Tata Motors surges 15% as TPG Rise to invest Rs 7,500 crore in EV arm

Shares of Tata Motors were temporarily frozen in the 15 per cent upper circuit at Rs 483.90 on the BSE in Wednesday’s intra-day trade after the company on Tuesday after market hours said it will raise Rs 7,500 crore ($1 billion) in its passenger electric vehicle business from TPG Rise Climate at a valuation of up to $9.1 billion. The stock trades in the futures & option (F&O) segment, which has no circuit limits.

Shares of Tata Motors DVR (Differential Voting Rights), meanwhile, zoomed 20 per cent to Rs 237.20 on the BSE in intra-day trade today.

Tata Motors (TML) and TPG Rise Climate have entered into a binding agreement whereby TPG Rise Climate along with its co-investor ADQ, shall invest in a subsidiary of Tata Motors that will be newly incorporated, Tata Motors said in a statement.

TPG Rise Climate along with co-investors shall invest Rs 7,500 crore in compulsory convertible instruments to secure between 11 per cent to 15 per cent stake in this company, translating to an equity valuation of up to $9.1 billion. It is expected that the first round of capital infusion will be completed by March 22 and the entire funds will be infused by end of 2022, it added.

The new company shall leverage all existing investments and capabilities of Tata Motors and will channelise the future investments into electric vehicles (EV), dedicated BEV platforms, advanced automotive technologies and catalyse investments in charging infrastructure and battery technologies, the company said.

Over the next 5 years, it will create a portfolio of 10 EVs and in association with Tata Power, catalyse the creation of widespread charging infrastructure to facilitate rapid EV adoption in India, Tata Motors added.

While this business is still at a nascent stage, this transaction sets benchmark valuations and makes us value this business separately (unlike implicitly valued with the domestic PV business), Motilal Oswal Financial Services said. “Recovery is underway in all of the three businesses of Tata Motors. While the India CV business would see a cyclical recovery, the India PV business would witness a structural recovery. JLR is witnessing a cyclical recovery, supported by a favorable product mix. However, supply-side issues would defer the recovery process," the brokerage firm said while assigning the stock a ‘buy’ rating and target price of Rs 560 per share.

The transaction unlocks EV business value and demonstrates future potential of the changing technology landscape in mobility, noted analysts at ICICI Securities. Given Tata Motors’ status as the clear electric PV leader (>70 per cent market share via Nexon EV), the fundraise will boost its capability to invest further in the sunrise space in areas such as products, platforms, drive trains, manufacturing, charging infrastructure and other advanced technologies (EVCo will invest >Rs 16,000 crore for the same over next five years), the brokerage said, adding that Tata Motors continues to be among its top picks in the auto OEM space for its stated deleveraging intent and EV alertness in India as well as abroad (JLR).