Moody’s Ratings (Moody’s) has upgraded Tata Motors Limited’s (TML) corporate family rating (CFR) to Ba1 from Ba3. 

“Concurrently, we have upgraded TML’s senior unsecured instruments’ ratings to Ba1 from Ba3. We have also maintained the positive outlook on all ratings,” the rating agency said in a statement.

“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,” said Kaustubh Chaubal, a Senior Vice President at Moody’s.

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

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, Moody’s said.

Moody’s believes TML would sustain the improvement in all three of its automotive operations: commercial vehicle (CV) and passenger vehicle (PV) business in India, collectively referred to as TML India; and its global premium passenger car business through wholly owned subsidiary Jaguar Land Rover Automotive Plc. “We forecast JLR’s revenue growth will slow to around 3% in FY25 and FY26. Still, profitability will improve because of higher average sales prices and higher contribution margins from new products,” Moody’s said.