Tata Motors stock rises post Moody's ratings upgrade, positive outlook

Moody's said Tata Motor's two-notch rating upgrade with a positive outlook follows the company's sustained track record in achieving revenue growth, improving profitability and reducing debt.

Shares of Tata Motors were trading higher by 2.5 per cent at Rs 1,051 on the BSE in Thursday’s intra-day trade in an otherwise subdued market after Moody's Ratings on Wednesday upgraded the company's corporate family rating by two notches to Ba1 from Ba3 citing sound governance practices. The rating agency also maintained its positive outlook on all ratings.

At 10:36 am; Tata Motors was trading 2 per cent higher at Rs 1,045, as compared to 0.54 per cent decline in the BSE Sensex. The stock had hit a record high of Rs 1,179.05 on July 30.

"Tata Motor's two-notch rating upgrade with a positive outlook follows the company's sustained track record in achieving revenue growth, improving profitability and reducing debt using its large free cash flow despite its elevated capital expenditure to refresh its products," Moody's Ratings Senior Vice President Kaustubh Chaubal said.

Meanwhile, last month, brokerage firm Nomura upgraded Tata Motors stock to a 'Buy' rating and a target price of Rs 1,294 per share.

Analysts at the Japanese brokerage Nomura noted that Jaguar and Land Rover’s (JLR's) transition from premium to luxury will help it stay one level above the high competition segments. Furthermore, the strategy, analysts said, is working well as incentives for Land Rover have been well under control despite an increasing trend across the rest of the original equipment manufacturers (OEMs).

JLR is the overseas luxury passenger vehicle (PV) arm of Tata Motors and has been subject to volatile earnings and cash flow generation in the past. With indigenous working on the product side, cost initiatives and consequent lowering of breakeven levels, JLR has staged a remarkable turnaround.

JLR expects global demand to be muted with commodity prices likely to be range bound. It expects production constraints in Q2FY25 and Q3FY25 due to annual summer plant shutdown and floods at a key aluminium supplier. However, it reiterates EBIT margins guidance for FY25 to be more than 8.5 per cent and achieving net cash positive balance sheet.

Meanwhile, with a promising gross domestic product (GDP) growth outlook, incentives from the government to improve productivity, in both manufacturing and agriculture sectors, and continuous focus on infra, demand for commercial vehicles (CVs) is expected to improve from H2FY25, Tata Motors said in its FY24 annual report.

Elara Capital has an ‘Aaccumulate’ rating on Tata Motors with target price of Rs 1,300 per share. Analysts at the brokerage firm anticipate gradual improvement in domestic demand during the rest of the year on account of continued investments in infrastructure, healthy monsoons, favorable macros and festive demand. Global demand is likely to remain muted. Commodities are likely to remain range-bound.