Shares of Tata Motors gained 1 percent to Rs 660 per share on November 15 after S&P Global Ratings upgraded credit rating of the auto major and its wholly-owned subsidiaries to ‘BB+’ on strong operating cash flow, assigning a ‘positive’ and ‘stable’ outlook. The S&P BSE Sensex was up 461 points or 0.7 percent to 65,395 levels, as of 9:20 am.
So far this year, the stock of Tata Motors has raced past 68 percent as against 6 percent rise in the benchmark Sensex. Earlier, it hit 52-week high level of Rs 677 apiece on October 16, 2023.
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Highlighting the rationale behind the rating upgrade, S&P Global Ratings said, “Tata Motors' debt reduction will likely accelerate over the next 12-18 months, driven primarily by strong free operating cash flow (FOCF) at JLR. We expect Jaguar Land Rover (JLR) to report positive FOCF in both fiscals 2024 (year ending March 2024) and 2025. This will likely drive sharp deleveraging at Tata Motors.”
The positive outlook, they added, also reflected their expectation that JLR will make progress in its electric vehicle (EV) transition strategy, with key model launches in 2024 and early 2025.
Tata Motors has a strong market position in the Indian EV space, with a market share of about 75 percent, as of six months ended September 30, 2023. The company has already raised $1 billion in compulsorily convertible instruments that will translate to a 11 percent-15 percent stake in the EV business.
Some of the key risks to rating revision could be if JLR's planned electrification strategy does not progress in line with the analysts’ current expectations.
“Any potential mis-steps in the preparedness of the company's new EV model releases, or indications of subdued market reception related to an insufficiently competitive proposition could trigger lowering or revision of rating action,” the credit ratings agency added.
ALSO READ: Moody's upgrades Tata Motors', JLR ratings to Ba3; outlook remains positive
In Q2FY24, Tata Motors reported a net profit of Rs 3,764 crore as against a loss of Rs 944 crore in the year-ago period. Revenue, on the other hand, jumped 32 percent on-year to Rs 1.4 lakh crore.
Tata Motors’ UK arm JLR posted 30.4 percent on-year growth in revenues in the September-ended quarter.
The management said that they remain confident of sustaining this momentum with a strong product pipeline, seasonally stronger H2, and continued focus on cash accretive growth.
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