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S&P upgrades Tata Motors' long-term issuer, issue credit ratings to 'BB'

A "BB" rating signifies that the entity is less vulnerable in the near-term but faces major ongoing uncertainties due to adverse business, financial and economic conditions

Tata Motors

Abhijit Lele Mumbai

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Rating agency Standard and Poor’s has raised Tata Motor Ltd’s (TML) long-term issuer and issue credit ratings from 'BB-' to 'BB' on improvement in earnings and potential deleveraging.

A “BB” rating signifies that the entity is less vulnerable in the near-term but faces major ongoing uncertainties due to adverse business, financial and economic conditions, the rating agency said.

The outlook is stable. The agency also upgraded the rating for TML’s core subsidiary, TML Holdings Pte Ltd from “BB-” to 'BB'.

TML’s cash flow should strengthen over the next 12-18 months on improving operating conditions in India and at its 100 per cent subsidiary, Jaguar Land Rover Automotive PLC (JLR).

Solid earnings and free operating cash flow (FOCF) will support debt reduction. The India-based company will be able to further reduce debt if it successfully lists its subsidiary, Tata Technologies Ltd, as planned, S&P added.

The stable outlook indicates that Tata Motors' cash flow and leverage will steadily improve over the next 12-18 months, with support from improved operational performances, especially at JLR.

Tata Motors' leverage will likely decline over the next 12-18 months, driven by positive FOCF at JLR. The rating agency said, “We expect improved volumes, profitability, and positive working capital flow to support JLR's FOCF in fiscal 2024 (year-end March 31, 2024), which may exceed GBP 750 million. This is despite our expectation that the company's capital expenditure (capex) could climb to about GBP 3 billion." JLR's wholesale volumes could increase to 390,000-420,000 units in fiscal 2024, it added.

Tata Motors' Indian operations should maintain their recent solid performance. Both commercial vehicle (CV) and passenger vehicle (PV) volumes could increase about 10 per cent year on year in FY24. This follows two successive years of very strong growth.

The company's CV and PV volumes increased at compounded annual rates of about 30 per cent and over 50 per cent in the last two fiscal years. But given that CV volumes expanded from a small base, volumes in FY24 could still remain about 7 per cent below the previous peak of about 500,000 units in FY19.

FOCF at the Indian operations will likely be immaterial for overall deleveraging. This is given increased capex. “We expect capex of about Rs 7,000 crore in FY24, up from about Rs 4,500 crore in FY23,” it said.

EBITDA (adjusted for capitalised development expenses) should rise about 10 per cent year on year to Rs 6,500 crore, reflecting the group's underlying operating health and our expectation of improved profitability.

Tata Motors' financial policy is expected to aid deleveraging. The company intends to turn net auto debt-free by FY24. Achieving this over the next 12-18 months would need substantial inorganic transactions, the agency added.

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First Published: Apr 26 2023 | 9:51 AM IST

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