Moody's Changes Outlook On Tata Motors To Positive From Stable

Moody's Investors Service Inc. has changed its outlook on Tata Motors Ltd. to positive from stable over robust credit metrics.

The agency expects the improvement in the Indian automaker's credit profile to sustain for the next 12–18 months, according to a statement on Friday.

It also forecasts sustained improvement in all three automotive operations—commercial vehicle, passenger vehicle and Jaguar Land Rover Automotive.

In terms of ratings action, it affirmed its B1 corporate family rating and B1 senior unsecured ratings for Tata Motors. Moody's said it would upgrade the ratings if Tata Motors delivers a slightly longer track record of consistent improvement in its credit profile.

"Steadily growing volumes and profitability will support Tata Motors' earnings and free cash flow expansion, enabling debt reduction even as its capital expenditure stays elevated," says Kaustubh Chaubal, senior vice president and lead analyst for Tata Motors at Moody's.

On the company's debt reduction plans, Moody's estimated that Tata Motors would reduce its gross debt by almost 40% by March 2024 from March 2022 levels, having already reduced debt by 25% as of March 2023.

"Sustained debt reduction and earnings expansion will pave the way for Tata Motors' leverage, measured by Moody's adjusted consolidated gross debt/Ebitda, to steadily improve to less than 3 times from around 4 times at March 2023 and 6.4 times at March 2022," Chaubal said.

Demand prospects remain bright for Tata Motors' India operations, Moody's said in its ratings rationale.

"India's favourable demographics comprising its rising per capita and disposable incomes and growing working-age population will lift demand for passenger vehicles, while for commercial vehicles a cyclical recovery and the government's large push towards infrastructure investments will drive demand," Moody's said.

"A steady slew of new models and model variants across different price points, persistent focus on branding and customer satisfaction will, in Moody's view, help Tata Motors' India's CV and PV businesses achieve volume growth of 8–10% during fiscal 2024," it said.

In an earlier report, Moody's forecasted 25% increase in Jaguar Land Rover's wholesale volumes to more than 4 lakh in fiscal 2024, twice its order book of around 2 lakh units in March 2023.

Moody's said it could upgrade Tata Motors' ratings if Jaguar Land Rover's ratings are upgraded. The company's India operations are delivering sustained improvement in operating profile while generating positive free cash flow on a sustained basis could also lead to an ratings upgrade.

On the flip side, substantially weak performance by Jaguar Land Rover could be a reason for a downgrade, Moody's said.