TPG to invest $1 billion in Tata Motors electric vehicle subsidiary; should you invest?

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Brokerages raised their target price on Tata Motors after the company said it will raise $1 billion (Rs 7,500 crore) in its passenger electric vehicle (EV) business from TPG Rise Climate at a valuation of up to $9.1 billion. The fund will be used to partly fund investment of $2 billion (over Rs 16,000 crore) in the next five years by a new subsidiary of the company for expanding its EV business, including the launching of 10 EV models.

The scrip traded 15% up at Rs 483.90 in the early trade on Wednesday, while the benchmark BSE Sensex was up 241 points, or 0.40%, at 60,525. Edelweiss Securities maintained a ‘Buy’ rating on Tata Motors with a revised target price of Rs 539.

Tata Motors Ltd (TML) and TPG Rise Climate, the dedicated climate investing strategy of private investment firm TPG, have entered into a binding agreement, under which the latter along with its co-investor ADQ, will invest in a subsidiary of Tata Motors that will be newly incorporated, the company said in a statement.

TPG Rise Climate along with co-investors shall invest Rs 7,500 crore in compulsory convertible instruments to secure between 11-15% stake in this company translating to an equity valuation of up to $9.1 billion, it added.

“The Tata Motors (TTMT) and TPG deal is surprising and positive for TTMT as TPG is ascribing a value of $6.7–9bn to TTMT’s India passenger EV business—merely 1k unit sales in Sept-21. It address cash flow needs of the EV business (>INR160bn) for the next five years and the traditional PV business can focus on its goal of double-digit market share, high single-digit margins and being FCF-positive,” Edelweiss said in a report.

On the other hand, HSBC also upgarded target price to Rs 550 from Rs 340 earlier. Global brokerage firms Jefferies and Nomura also raised the target price to Rs 565 and Rs 547, respectively.