Moody’s, the renowned rating agency, reaffirmed Tata Motors’ BA3 ratings on March 6, maintaining a positive outlook amidst the company’s demerger move.
Analyzing Tata Motors’ Rating Affirmation
Demerger Decision and Future Outlook
Tata Motors recently announced its intention to demerge its operations into two distinct listed entities, one for commercial vehicles (CVs) and the other for passenger vehicles (PVs). This strategic move, subject to shareholder and regulatory approvals, is expected to be finalized within the coming 12-15 months.
Strengths in Commercial Vehicles (CVs) Segment
Despite the demerger resulting in Tata Motors focusing solely on the CV segment, the company’s robust position in India’s growing CV industry, boasting approximately 40% market share, augurs well for its credit profile. Moody’s Senior Vice President, Kaustubh Chaubal, highlights the CV business’ ability to consistently generate significant free cash flow across industry cycles. With unit sales nearing 0.5 million, revenues around $9 billion, and an EBITA margin of approximately 8%, Tata Motors’ CV operations are expected to sustain healthy free cash flow, ensuring robust credit metrics aligned with a Ba3 CFR.
Positive Outlook and Strategic Growth Priorities
Moody’s positive outlook underscores its confidence in Tata Motors’ ability to uphold its strategic growth priorities across all business segments, irrespective of the demerger. The agency emphasizes Tata Motors’ commitment to a balanced financial policy, aiming to achieve net-zero automotive debt by March 2025.
Market Response
Despite the announcement, Tata Motors’ shares experienced a marginal decline of 0.35% on the Bombay Stock Exchange, closing at Rs 1,018.30 apiece.
Conclusion
Moody’s affirmation of Tata Motors’ BA3 ratings with a positive outlook reflects the agency’s confidence in the company’s resilience and strategic direction amidst the impending demerger. Tata Motors’ steadfast focus on operational excellence and financial prudence positions it favorably for sustained growth and creditworthiness in the evolving automotive landscape.
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