Moody's Ratings raised Tata Motors Ltd.’s (TML) corporate family rating to Ba1 from Ba3 and its senior unsecured instruments' ratings to Ba1 from Ba3.

The rating agency also maintained the positive outlook on all ratings.

"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," Kaustubh Chaubal, a Moody's Ratings Senior Vice President, said in a statement.

Chaubal, who is also the Moody's Ratings lead analyst for TML, said the Indian automaker’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.

The rating action considers the impact of TML's sound governance practices, particularly its creditor-friendly financial policies, track record and management prudence on its credit profile, which Moody's views as credit positive, according to the statement.

Moody's said strong underlying demand in key geographies and business segments and a refreshed product slate that caters across different price points have paved the way for the continued improvement in TML's operating profile. These factors, alongside its cost rationalization efforts, have assisted in its margin recovery, it added.

Moody's said its adjusted consolidated EBITA margin for TML will improve to a solid 8%-8.5% over the next two years from 7% in the fiscal year ended 31 March 2024 (FY24) and 2%-4% over FY21 and FY23.

The rating agency said TML will sustain the improvement in all three of its automotive operations: commercial vehicle and passenger vehicle 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 (JLR, Ba2 positive).

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