According to the ratings firm, JLR's new strategy and financial targets, announced in February towards electrification, improving profitability and free cash flow generation are positive
NEW DELHI :
Credit Rating agency Moody’s Investors Service has revised its outlook on Tata Motors Ltd from "negative" to "stable" as a result of overall improvement in its consolidated financials and turnaround in operations of Jaguar Land Rover, its luxury vehicle manufacturing business in important markets. The ratings agency also maintained B1 rating on the debt instruments of the company.
According to the ratings firm, JLR's new strategy and financial targets, announced in February towards electrification, improving profitability and free cash flow generation ares positive. Moreover, JLR I expected to deliver credit metrics appropriate for the B1 rating during the fiscal year ending March 2021 (FY21) and the recovery is expected to sustain, Moody’s said in statement.
It further added that JLR's restructuring efforts and its solid growth in China, as well as the recovery in other key markets such as Europe and North America over the coming quarters, will improve its profits and leverage.
The British carmaker constitutes half of Tata Motors’ global unit sales, but accounts for almost 80% of the company’s consolidated revenues and adjusted ebitda.
Earlier in February, Jaguar Land Rover announced a new global strategy, Reimagine, wherein the company will reposition and redesign Jaguar as an all-electric luxury car brand by 2025, and Land Rover will also evolve as a manufacturer of luxury electric sports utility vehicles globally, as part of this strategy. Electric vehicles will form 60% of Land Rover’s annual sales by 2030 and the company will expect to stop sales of combustion engine vehicles by 2036 as part of JLR’s overall aims to become ‘net zero carbon business’ (carbon neutral) by 2039.
Moody’s also mentioned that the B1 Corporate Family Ratings reflects Tata Motors’ leading market position in commercial vehicles in India, 100% ownership of luxury car manufacturer, JLR and its improving market position in passenger vehicle in India and the improving trajectory of its financial metrics.
“The stable outlook reflects Moody's expectation of a continued recovery in auto sales in each of TML's operating markets. The stable outlook also incorporates Moody's view that any impact from the resurgence in coronavirus infections in India would be limited to the current quarter," the statement mentioned.
According to Kaustubh Chaubal, a vice president and senior credit officer, Moody’s, the rating affirmation and change in outlook to stable reflect the continued recovery in Tata Motors’ consolidated revenue and profitability from the trough during the pandemic in the first quarter of the fiscal year ending March 2021.
“We expect the recovery to sustain over the upcoming 12 to 18 months, strengthening TML's credit metrics, with debt/ebitda leverage tracking below 4.0x and ebitda margin of 3%-4%. Our adjusted free cash flows for TML will likely stay negative with its continuous product development and capital expenditure, although the improving profitability and leverage support our view that the imminent risk of a downgrade has now been averted," added Chaubal.
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