Moody’s Ratings has given a boost to the corporate family rating (CFR) of Tata Motors, elevating it from Ba3 to Ba1.

What Happened: The announcement of the ratings upgrade was made on Tuesday. Along with the CFR, Moody’s also upgraded the ratings of Tata Motors’ senior unsecured instruments from Ba3 to Ba1. The positive outlook on all ratings was maintained.

Kaustubh Chaubal, a senior vice president at Moody’s Ratings, attributed the two-notch rating upgrade to the Tata Group company’s consistent revenue growth, improving profitability, and debt reduction, despite significant capital expenditure for product refreshment.

The upgrade also takes into account the auto giant’s robust governance practices, creditor-friendly financial policies, and prudent management, which Moody’s views as credit positive. TML’s leverage, as measured by Moody’s adjusted consolidated debt/EBITDA, declined to 1.8x as of March 2024 from 3.9x a year prior and is projected to remain at 1.3x-1.5x over the next two fiscal years.

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Moody’s also highlighted strong underlying demand in key geographies and business segments, a refreshed product portfolio, and cost rationalization efforts as factors contributing to the company’s improved operating profile. The company’s adjusted consolidated EBITA margin is expected to improve to 8%-8.5% over the next two years from 7% in FY24.

The rating agency also upgraded JLR‘s ratings to Ba2 from Ba3, on the back of consistently strong earnings, and maintained a positive ratings outlook. The analysts forecast that JLR’s revenue growth will slow to around 3% in FY25 and FY26. However, profitability is expected to improve due to higher average sales prices and increased contribution margins from new products.

Earlier this month, the auto manufacturer’s net automotive debt increased by 16% to ₹18,600 crore in the April-June quarter of 2024. The company’s June quarter net profit soared by 73% to ₹5,566 crore, beating estimates. The company’s revenue also saw a 6% increase from the corresponding quarter of the previous year.

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