Moody's affirms 'Ba3' rating to Tata Motors, positive outlook post demerger

As per Moody's obligations rated 'Ba' are judged to have speculative elements and are subject to substantial credit risk with modifier 3 indicating ranking in lower end of that generic rating category

Rating agency Moody's on Wednesday said it has affirmed Tata Motors' Ba3 corporate family rating while maintaining a positive outlook on all ratings.

Concurrently, Moody's has also affirmed Tata Motors Ltd's (TML) Ba3 senior unsecured instrument ratings, Moody's Investors Service said in a statement.

As per Moody's obligations rated 'Ba' are judged to have speculative elements and are subject to substantial credit risk with the modifier 3 indicating a ranking in the lower end of that generic rating category.

"Moody's has also maintained a positive outlook on all ratings," it added.

The rating affirmation follows TML's announcement earlier this week that its board of directors have agreed in principle the demerger of its operations into two separate listed companies for commercial vehicles (CVs) and passenger vehicles (PVs), respectively, subject to shareholder and regulatory approvals, it said.

 

"While the demerger would result in TML's remaining operations comprising only CVs, the company's strong foothold with about 40 per cent share in India's growing CV industry and the business' demonstrated ability in generating large free cash flow through industry cycles will support its credit profile.

"With unit sales of less than 0.5 million, revenues of around USD 9 billion and EBITA margin at about 8 per cent, TML's CV operations will likely generate ample free cash flow with credit metrics substantially strong for a Ba3 CFR (corporate family rating)," said Moody's Senior Vice President Kaustubh Chaubal.

The Ba3 CFR continues to incorporate a one-notch uplift, reflecting Moody's expectation of extraordinary support for TML from its parent Tata Sons Ltd in times of need, the statement said.

In Moody's view, the extraordinary support from Tata Sons will continue even after the demerger, keeping the one-notch uplift intact, it added.

The rating agency said the positive outlook reflects its view that the upgrade momentum on TML's ratings should continue with or without the proposed demerger.

Moody's expects all of TML's businesses to continue to deliver on their strategic growth priorities while maintaining a balanced financial policy that focuses on achieving net-zero automotive debt by March 2025, it added.