Moody’s upgrades Tata Motors on JLR boost, strong domestic ops

By: | Published: September 28, 2016 6:28 AM

Ratings agency Moody’s on Tuesday improved the corporate family rating (CFR) of Tata Motors to Ba1, which means stable from the present rating of Ba2.

Ratings agency Moody’s on Tuesday improved the corporate family rating (CFR) of Tata Motors to Ba1, which means stable from the present rating of Ba2. Moody’s also assigned the same ratings to the senior unsecured instruments to be issued by the company in the future.

“The upgrade of TML’s ratings reflects our expectation of its continued strong performance, in particular, led by its wholly owned subsidiary, Jaguar Land Rover Automotive Plc’s (JLR, Ba1, positive) successful track record of solid operations, and the improvement in TML’s Indian business, mirroring in turn the recovery in the commercial vehicle cycle,” Kaustubh Chaubal, Moody’s vice president and senior analyst, said.

JLR accounted for around one half of TML’s group volumes in FY 2016, it generated more than 82% of group revenues and over 86% of the group’s operating profit (Ebitda). Analysts also pointed towards the diversification of the JLR’s manufacturing capacities outside Britain which will reduce the impact of Britain’s exit of European union.

“While Ebitda margins of 4.1% in FY 2016 were lower than our upward rating trigger, we expect modest recovery over the next 12-18 months. More importantly, we expect consolidated leverage to further improve towards 2.0x by March 2018 from 2.5x at end-March 2016 which is well positioned for the rating level,” added the analysts.

The improvement in Tata Motors’s domestic operations is reducing the divergence in the credit profiles of the company’s domestic business and that of JLR.

The stable outlook from Moody’s reflects JLR’s relative strength and the ratings agency expects that although capex and product development requirements are high over the next two years, its sizeable cash balances, strong operating cash flows, and long-dated debt maturity profile will allow it time for free cash flows to return to positive.

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