S&P raises Tata Motors credit outlook to positive

Rating rating agency Standard & Poor's today raised auto major Tata Motors' corporate credit outlook to positive on its dominant position in the domestic commercial vehicle market and improving performance of its UK-based subsidiary Jaguar Land Rover.

The global rating agency has upgraded Tata Motors' long-term corporate credit rating to 'BB' from 'BB-'.

"We upgraded Tata Motors because we believe the company's competitive position and cash flow stability have improved. We assess the company's business risk profile as 'fair'," it said, adding, "Our view is based on the improved operating performance of Jaguar Land Rover PLC, which is Tata Motors' fully owned UK subsidiary".

It said that JLR, which accounted for about 60% of Tata Motors' consolidated revenues and two-thirds of its EBITDA in the fiscal year ended March 31, 2012, outperformed expectations.

"Tata Motors' dominant position in the growing Indian commercial vehicle market and JLR's improving competitive position support the company's business risk profile," said Standard & Poor's credit analyst Abhishek Dangra.

JLR's business risk profile improved to "fair" from "weak", it said, adding that the improvement was attributable to some factors including healthy volume growth, particularly in emerging markets, strong demand for the Land Rover brand, and the launch of Evoque, which S&P expected would be the best-selling model for JLR in 2013.

However, it said JLR still faced a challenge in repositioning its Jaguar brand in the technologically advanced and competitive luxury car market and intense competition and weaker competitive position of Tata Motors' Indian passenger vehicle segment was a weakness.

"The positive outlook reflects our expectation that Tata Motors will sustain its operating performance and maintain its debt protection measures, despite an increase in engineering and product development expenditure at JLR," said Dangra.

S&P further said it would upgrade Tata Motors if JLR's business risk profile continued to improve, including a successful positioning of Jaguar; or Tata Motors funds its increased capital development expenditure largely through internal sources.

"We may revise the outlook to stable if we expect Tata Motors' ratio of consolidated debt to EBITDA at more than 3x over a prolonged period due to weaker-than-expected operating performance of JLR or higher-than-expected capital expenditure," it said.