According to Moody's Investor Service, the credit ratings of Tata Motors Ltd. have been confirmed with a positive outlook. This is because it is anticipated that a planned demerger within the company will result in growth while simultaneously maintaining a balanced financial strategy. It was necessary to take these steps to guarantee that the organization would continue to preserve that equilibrium.
The credit ratings organization that is located in the United States of America has given the most valuable automobile manufacturer in India a rating of Ba3, which is the highest possible rating. In addition, the agency expressed a positive outlook on the ratings of the company's senior unsecured instruments and corporate family.
Kaustubh Chaubal, senior vice president of Moody's Investors Service, wrote in a note that was published on March 6 that “the company's (Tata Motors) strong foothold, with approximately forty percent share in India's growing CV (commercial vehicle) industry, and the business' demonstrated ability in generating large free cash flow through industry cycles will support its credit profile.” Chaubal's statement was included in the note. Within the context of the fact that Tata Motors holds a significant portion of the market in India, this assertion was put up.
“With unit sales of less than 0.5 million, revenues of around $9 billion, and EBITDA margins at about 8%, TML's CV operations will likely generate ample free cash flow with credit metrics substantially strong for a Ba3 CFR.”
Over the next few years, Tata Motors, which is the most valuable automobile manufacturer in India, is working towards the objective of simultaneously achieving debt-free status and unlocking wealth. To achieve these goals, the company is considering the prospect of separating its operations involving passenger vehicles and commercial vehicles into two separate organizations that are sold on public exchanges.
Even though Tata Motors' free cash flow has improved, going from Rs 5,300 crore in the previous year to Rs 6,400 crore in the third quarter of the fiscal year 24, the firm still has a net automotive debt of Rs 29,200 crore as of the 31st of December, 2023. This is even though Tata Motors' free cash flow has already increased. However, this is even though there has been a rise in the amount of free cash flow. According to the finances for the third quarter of the year, Jaguar Land Rover, the company's luxury vehicle industry, had a free cash flow of £626 million in the third quarter of fiscal year 24 and £1.4 billion in the nine months leading up to December 31. This information was derived from the company's financial statements. The financial accounts of the company are the places where this information was obtained. Even though the firm's debt had practically fallen by half from the previous year to reach £1.6 billion, this was the scenario that the corporation found itself in.
“On our net debt journey, I expect Tata Motors' domestic business to become near net debt zero in FY24 and JLR the following year,” Natarajan Chandrasekaran, Chairman of Tata Sons, announced during the annual general meeting of the vehicle manufacturer in August of the previous year. JLR was the company that held the meeting. It was JLR, the corporation, that played host to the gathering.
Tata Motors had a debt-to-equity ratio of 1.58 as of the 31st of December, which was significantly lower than the 3.68 ratio that the company had three months earlier. From the prior ratio, this represents a decrease.
The credit rating agency Moody's thinks that the company's credit quality will continue to improve regardless of whether or not the demerger is carried out. According to Moody's, this is their opinion. If there was a significant departure from this assumption, the rating would be changed accordingly to take into account the new facts.