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Tata Motors – Our Perspective on Acquisition

ICICIdirect Research 01 Aug 2025 DISCLAIMER

Tata Motors has announced acquisition of 100% stake in Italian CV manufacturer i.e. Iveco excluding its Defense business for an all-cash offer at 3.8 billion Euros i.e. ₹ 38,000 crore.
Iveco is a significant player in the CV domain with product profile very similar to Tata Motors. It is present across the drivetrain technology namely diesel, CNG, electric etc. as well as has offerings across LCVs to M&HCVs included buses. It has a market share of 11% in the Truck segment in EU and is the 2nd largest bus manufacturer in Europe.
It is also the 5th largest engine manufacturer globally and also has a financial services firm supporting its dealers and customers.
The acquired business possesses a topline of 14.1 billion Euros i.e. ₹ 1.4 lakh crore with adjusted EBIT at 891 million Euros (6.3% margins). The topline of this new business is ~2x the existing size of Tata Motors CV business which clocked sales of ~₹ 70,000 crore in FY25.
It is being executed at a valuation of ~0.3x P/S and ~2x EV/EBITDA.
Tata motors is guiding for EPS breakeven in 2 years and repayment of acquisition debt in 4 years pursuant to this transaction.
Though management is of the opinion that this acquisition provides them with technology niche and geographical as well as portfolio diversification, however in our view, we see this as a less of strategic fit for Tata Motors and will strain its balance sheet which has recently turned net debt free (automotive).
The only solace is that this entity is profitable, generates positive FCF and is being acquired at inexpensive valuations amid industry witnessing a downcycle.
This is also different from JLR acquisition done by the company in the past, in the sense that technology remains largely stable in the CV domain vs. the luxury PV market which is subject to constant tech upgrades and JLR was struggling at the time of acquisition while Iveco is a FCF generating company realizing healthy financial matrix.   
Structurally we turn neutral on this stock with near to medium term horizon with history of not many successful transactions by Indian players in European Assets including Tata group. However, our base case valuation still pegs fair value of the stock above ₹ 750/share, suggesting good accumulation time for long term investments at the CMP of ₹ 650/share.

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