Jaguar Land Rover, Tata Motors Ratings Upgraded To 'Ba3' By Moody's
The ratings agency said Tata Motors' gross debt to fall by almost 30% by next March from March 2022.
Moody's Investors Service Inc. has upgraded the ratings of Tata Motors Ltd. and Jaguar Land Rover to 'Ba3' with a positive outlook.
Tata Motors' improved credit profile along with strong profitability and free cash flow has helped the company to reduce its borrowings despite higher capital expenditure, the credit ratings agency said in a note on Thursday.
An increasing per capita and disposable incomes along with growing working age population will help boost the passenger vehicles segment. A cyclical recovery and a large push by the government towards infrastructure will help to increase the demand for the electric vehicles, according to Moody's.
It predicts that Tata Motors' commercial vehicle and passenger vehicle businesses will achieve a growth of 2% to 5% in the next two financial years.
JLR’s strong operating performance and improved credit metrics over the past 12 months helped in upgrading its ratings. It stepped up its production volume in the last four quarters as supply chain constraints reduced, Moody's said.
This led to a 25% growth in the rolling 12-month wholesale volume, which was 3.64 lakh units at the end of September from just 2.93 lakh in the year-ago period. The wholesale would increase to at least 4 lakh units by the current fiscal, it said.
Improved Credit Metrics
The ratings agency said Tata Motors remains focused on achieving its net-zero automotive debt target and expects its gross debt to fall by almost 30% by next March from March 2022.
Amid softer input prices, Tata Motors will increase its margin to 8–9% over the next two fiscals, from around 4% in the last fiscal, the agency said.
Tata Motors will maintain the improvement in all three of its automotive operations: CV and PV business in India, and its global premium passenger car business through wholly owned subsidiary Jaguar Land Rover Automotive Plc.
The continued strong growth in vehicle sales has rapidly improved JLR's credit metrics, with a sharp decline in leverage, mostly driven by substantial Ebitda growth, it said.
Moody's forecasts adjusted debt to decrease to around 5 billion pounds by the end of the fiscal, partly through the recently completed $400 million equivalent bond buyback and the expected repayment of bonds and loans with excess cash as they become due.
It said the rating action is underpinned by JLR's "increasingly conservative financial policy".
Key Challenges
In the coming fiscals, Tata Motors may lose market share, earn lesser profit and lower returns on its EVs and on inability to manufacture vehicles due to constraints in the supply of essential materials.
Moody's finds some operational challenges for JLR related to its electrification strategy majorly in 2025 and 2026.
This transition requires substantial investments in product development and in the company's production facilities. But the recent ban on petrol and diesel cars from 2030 by the U.K. government will give JLR some more time to achieve its ambitious targets as the U.K. has high shares in JLR's revenue.
