Moody's upgrades Tata Motors' rating to 'Ba1' from 'Ba3'

Moody's on Wednesday upgraded Tata Motors Ltd's corporate family rating to 'Ba1' from 'Ba3'. The rating agency also upgraded Tata Motors’ senior unsecured instruments' ratings to 'Ba1' from Ba3 while maintaining the positive outlook on all ratings.

"TML'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," says Kaustubh Chaubal, senior vice president, Moody's Ratings.

Tata Motors' leverage, measured by Moody's adjusted consolidated debt/EBITDA, declined to 1.8 times as of March 2024 from 3.9 times a year prior and will remain at 1.3-1.5 times over the next two fiscal years, underpinned by the company's policies to balance growth with financial discipline, says Chaubal, who is also the Moody's Ratings lead analyst for Tata Motors.

“Today's rating action considers the impact of TML's sound governance practices—in particular its creditor-friendly financial policies, track record and management prudence—on its credit profile, which we view as credit positive,” the rating agency says.

Tata Motors, which acquired JLR (Jaguar Land Rover) from Ford for $2.3 billion in 2008, is on track to make the British luxury carmaker debt‑free in FY25. The India business already became debt-free earlier this year.

This rating upgrade comes on a day when India’s largest electric carmaker announced its entry into the mid-size segment with the launch of Curvv EV.

Tata Motors has almost single-handedly grown India’s electric vehicle four-wheeler industry tenfold from 1,000 units per year in 2018-19 to over 1 lakh units in FY24. The carmaker holds over 70% market share in EVs, which contribute 12% to its overall annual sales.

The automaker, however, witnessed a moderation in the EV fleet segment demand due to the expiry of FAME-II in March 2024. The EV fleet segment accounted for 10% of Tata Motors’ EV sales in FY24. Its share declined to 5% in the first quarter.

Tata Motors reported a 74% year-on-year increase in its net profit at ₹5,566 crore for the quarter ended June 30, 2024 compared with ₹3,203 crore in the same quarter last year. Revenue from operations rose 5.7% year-on-year to ₹107,316 crore for the first quarter compared to ₹101,528 crore in the corresponding quarter last year.

Revenues from its luxury car unit JLR grew 5.4% to 7.3 billion pounds while EBITDA fell 50 basis points to 15.8%. The U.K. subsidiary’s net debt was at 1 billion pounds with gross debt at 4.8 billion pounds.

Operating margin of the domestic passenger vehicle business improved 50 basis points year-on-year to 5.8% in Q1 FY25. On profitability, Tata Motors EBITDA margin in ICE was at 8.5% in Q1 FY25 as against 8.6% in Q1 FY24. The company substantially improved EV EBITDA margin on the back of material cost reduction and aided by tailwinds due to lower battery prices.

The board of Tata Motors also approved the demerger of passenger vehicles and commercial vehicles businesses into two separate listed companies. This is expected to conclude in the next 12 to 15 months.