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26 Oct 2010
Singapore, October 26, 2010 -- Moody's Investors Service has today upgraded to Ba3 from B2 its corporate
family rating for Tata Motors Ltd ("TML"), and changed the outlook
on the rating to stable from positive.
"The rating upgrade reflects the recovery in the operating performance
of the Jaguar Land Rover ("JLR") business exceeding our expectations and
the company's fast growing Indian business remaining solidly profitable,
which have resulted in a much improved leverage ratio for TML,"
says Alan Greene, a Moody's VP/Senior Credit Officer.
JLR's performance bottomed out around Q3 FY2009 and has been recovering
steadily since then, driven by growing volume, a better geographical
mix, the initial benefits of cost management measures, and
higher revenues and margins on new product launches.
"With several issues affecting the company's UK production
facilities and workforce now settled, JLR has probably re-established
a sustainable and competitive business model," adds Greene,
also Moody's lead analyst for TML.
In addition, TML is seeing a solid recovery in its Indian business,
driven by the strong fundamentals of India's auto sector.
While the commercial vehicle business continues to boom, and represents
the mainstay of its India operation, TML's passenger vehicle
volume growth driven by recent product launches such as the ultra-low
cost Nano and Indigo Manza is supporting strong revenue growth,
allowing for continued double-digit EBITDA margins in India.
As a result of the progress in India and at JLR, the company's financial
profile will improve such that adjusted debt/EBITDA should decline to
below 4.0-4.5x by end-FY2011.
We note, however, that the deleveraging has come from increased
EBITDA rather than an absolute reduction in debt. In fact,
debt at the captive Indian finance company continues to grow in support
of sales volumes. TML consolidates the finance arm in its reported
Although the company raised USD750 million in new equity in September
2010, Moody's expects that TML will continue to look for asset
disposal opportunities in order to cut its gross debt of about USD8 billion
as of June 2010, which is reflected in an adjusted debt/book capitalization
of approximately 80%.
Moody's notes that, despite the favorable operating and financial
momentum TML is enjoying, the company continues to face medium-term
challenges. Automotive demand could suffer in the US and Europe,
as employment and credit growth remains elusive. Moreover,
JLR's performance highlights the substantial degree of operating leverage
that is driving the volatility of its results.
In addition, rising commodity prices will adversely affect the company's
margins if it cannot pass on increased costs through higher prices.
And finally, competition in the fast-growing Indian market
will heat up as other OEMs try to expand their presence; with GM
and Ford on much sounder footings, global competition as a whole
will intensify, pressuring smaller players such as TML.
"The stable outlook reflects the business's more solid footing,
following the market acceptance of new products and with the strategy
of the company's business divisions being steadily implemented,"
The rating incorporates continued progress into the next financial year
but is unlikely to move higher in the next 12-18 months as the
challenges noted above will need to be met.
Further out, the rating could be upgraded if the company's credit
metrics improve such that adjusted debt/EBITDA falls below 3.0-3.5x
and EBITA margins are maintained at the 7-9% range.
Further asset sales or equity-related fund-raising to lower
debt, leading to adjusted debt/book capitalization of 60-70%,
will accelerate the transition towards a higher rating.
Downward pressure on the rating could emerge if TML is unable to sustain
its performance due to input cost pressures, weak markets,
disappointing new products or significant ceding of market share,
all potentially resulting in lower revenues and a decline in recovery
of fixed costs. This could be reflected in various credit metrics
viewed on a sustained basis such as adjusted debt/EBITDA increasing to
over 5x, EBITA margins falling below 5%, or adjusted
debt/book capitalization rising over 75-80%.
Moody's last rating action with regard to TML was taken on April 16,
2010, when the company's B3 corporate family rating was raised to
B2, with a positive outlook.
The principal methodology used in rating TML was "Moody's Global Automobile
Manufacturer Industry Methodology," published in December 2007,
and available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Tata Motors Ltd, incorporated in 1945, is India's largest
manufacturer of commercial vehicles and its second-largest manufacturer
of passenger vehicles. Products include light, medium,
and heavy-duty commercial vehicles (trucks, pick-ups,
and buses), utility vehicles, and cars. TML is 37.02%-owned
(voting rights) by the Tata Group (as of September 2010).
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8318
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's Investors Service Singapore Pte. Ltd.
Moody's upgrades Tata Motors to Ba3, outlook now stable
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