Rating agency Moody's on March 6 said that it has affirmed Tata Motors’ BA3 ratings with outlook remaining positive.
The rating affirmation follows Tata Motors' announcement earlier this week that its board of directors have agreed in-principle, the demerger of its operations into two separate listed companies for commercial vehicles (CVs) and passenger vehicles (PVs), respectively, subject to shareholder and regulatory approvals. The demerger will likely be completed within the next 12-15 months.
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"While the demerger would result in TML's remaining operations comprising only CVs, the company's strong foothold with about 40% share in India's growing CV industry and the business' demonstrated ability in generating large free cash flow through industry cycles will support its credit profile," said Kaustubh Chaubal a Moody's Senior Vice President.
"With unit sales of less than 0.5 million, revenues of around $9 billion and EBITA margin at about 8%, TML's CV operations will likely generate ample free cash flow with credit metrics substantially strong for a Ba3 CFR," added Chaubal who is also Moody's lead analyst on Tata Motors.
The ratings agency also noted that the positive outlook reflects Moody's view that the upgrade momentum on TML's ratings should continue with or without the proposed demerger.
"The rating agency expects all of TML's businesses to continue to deliver on their strategic growth priorities while maintaining a balanced financial policy that focuses on achieving net-zero automotive debt by March 2025," it said.
Meanwhile, shares of Tata Motors closed 0.35 percent lower at Rs 1,018.30 apiece on BSE.
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