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Research Update: Tata Motors, TML Holdings Upgraded To 'BB+' On Strong Free Operating Cash Flow, Deleveraging Prospects; Outlook Positive

Rating Action Overview

  • Debt reduction at Tata Motors Ltd. is likely to accelerate over the next 12-18 months, supported by the company's strong free operating cash flow and financial policy to have zero net debt for its auto business by March 2025.
  • The improvement will be despite fairly elevated capital investment of about Indian rupee (INR) 380 billion annually, largely toward the electrification strategy of Tata Motors' 100% subsidiary, Jaguar Land Rover Automotive PLC (JLR).
  • On Nov. 14, 2023, S&P Global Ratings raised its long-term issuer and issue credit ratings on Tata Motors and its core subsidiary, TML Holdings Pte. Ltd., to 'BB+' from 'BB'.
  • The positive rating outlook reflects the potential for further improvement in Tata Motors' credit quality over the next 12-18 months from stronger earnings and cash flow, and as the company pursues its debt target. The ratings on TML Holdings are equalized with those on Tata Motors.

Rating Action Rationale

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 JLR to report positive FOCF of over £2 billion in both fiscals 2024 (year ending March 2024) and 2025, compared with about £500 million in fiscal 2023. This will likely drive sharp deleveraging at Tata Motors.

In our base case, we expect Tata Motors' adjusted debt to drop to about Indian rupee (INR) 250 billion by March 2025, from about INR680 billion as of March 2023. The company's leverage (as measured by the ratio of adjusted debt to EBITDA) will correspondingly decline to slightly below 1x by March 2025, from close to 3x as of March 2023. The ratio of funds from operations (FFO) to debt will also likely be well over 60% over the next 18 months, from about 20% in fiscal 2023.

JLR's profitability and FOCF will continue to strengthen. The company's wholesale volumes are steadily improving as operations recover from the chip shortage. We expect revenue to grow about 30% in fiscal 2024, and adjusted EBITDA margin to exceed 10%, from 8% in fiscal 2023. Higher volumes, a better product mix, and cost cutting measures will support the improvement. While we anticipate JLR's revenue and EBITDA will grow more modestly in fiscal 2025, FOCF is likely to remain at similar levels as in fiscal 2024.

Tata Motors' Indian operations are also sustaining solid operating performance.  In addition, debt reduction will be driven by the monetization of non-core assets. The company has announced a pre-IPO sale of 9.9% holding in its subsidiary, Tata Technologies Ltd., for a consideration of about INR16 billion. An IPO is likely to follow, which would result in further proceeds.

We believe Tata Motors is also building substantial value in its electric vehicle (EV) business, which can be monetized at some point. However, this is not a major driver of the current rating action. Tata Motors has a strong market position in the Indian EV space, with a market share of about 75% for the six months ended Sept. 30, 2023. The company has already raised US$1 billion in compulsorily convertible instruments that will translate to a 11%-15% stake in the EV business.

Tata Motors' publicly stated financial policy aids deleveraging.  The company intends to be net debt free for the auto business by fiscal 2025. Strong FOCF at JLR and asset monetization at Tata Motors will likely help the company meet this target. S&P Global Ratings' computation of debt, however, differs from the company's calculation of auto debt. Our adjustments to debt totaled about INR160 billion as of March 2023, mainly for securitization of receivables, acceptances, and product and legal liabilities.

Record of deleveraging and EV transition at JLR will be key considerations for a higher rating.  Tata Motors's deleveraging has been recent and sharp. As recently as March 2023, the company's debt-to-EBITDA ratio was about 3x and ratio of FFO to debt was about 20%, levels that did not support a 'BB+' rating. Therefore, our visibility and confidence in the company maintaining low leverage will be important considerations when we consider any rating upside.

Moreover, JLR has been lagging its peers in EV transition, in our view. The company is implementing "Project Reimagine" to transition to a full EV player. It is likely to spend £3 billion annually on the transition. The large capital expenditure (capex) makes FOCF generation highly dependent on operating performance. Successful execution of the transition will be important for the company to preserve both its business and financial profiles. Adequate progress on the transition and readiness to launch new EV models over the next 12-18 months will also be key rating considerations.


The positive rating outlook reflects our expectation that Tata Motors will deleverage further over the next 12-18 months. The company will benefit from strong FOCF at JLR, and a stated intention to be free of auto debt.

The positive outlook also reflects our expectation that JLR will make progress in its EV transition strategy, with key model launches in 2024 and early 2025.

The ratings on TML Holdings are equalized with those on Tata Motors.

Downside scenario

We may revise the outlook to stable if Tata Motors fails to sustain its strong positive FOCF. A significant reduction in JLR's cash flow, due mainly to a fall in volumes, is likely to result in such a situation. Tata Motors' FFO-to-debt ratio falling to less than 40% on a sustained basis would indicate such deterioration.

We could also revise the outlook to stable or lower the rating if JLR's planned electrification strategy does not progress in line with its 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 such a rating action.

Upside scenario

We could upgrade Tata Motors in the next 12-18 months if the company continues to sustain its strong cash flows while achieving and maintaining its commitment to low leverage. A willingness to keep the FFO-to-debt ratio at about 60% sustainably would indicate such a scenario. In our base case, we expect Tata Motors' financial metrics to be well above this level.

An upgrade is also likely to be contingent on JLR successfully executing its EV strategy so as to launch new models--such as the new all-electric Range Rover models in 2024 and Jaguar in 2025.

Company Description

Headquartered in Mumbai, Tata Motors is the largest commercial vehicle (CV) manufacturer in India. It had a market share of about 40% as of September 2023. Within the CV segment, the company is particularly strong in heavy commercial vehicles, with a 50% market share.

Tata Motors also manufactures passenger vehicles (PV) in India, where it has steadily gained market share over the past two to three years. As of September 2023, the company had a market share of about 13%, up from about 5% in fiscal 2020.

TML Holdings is a 100% subsidiary of Tata Motors. The company acts as the holding company for Tata Motors' international operations; it has 100% ownership of JLR.

Headquartered in Coventry, the U.K., JLR provides high-performance luxury saloons, specialist sports cars, and four-wheel drive off-road vehicles through its Jaguar and Land Rover brands.

Tata Motors is about 46% owned by the Tata group.

Our Base-Case Scenario

  • U.S., eurozone, China, and India GDP to grow 2.3%%, 0.6%, 4.8%, and 6.0% in 2023, and 1.3%, 0.9%, 4.4% and 6.9% in 2024 respectively.
  • India's CV sales volumes to increase 8%-10% in fiscal 2024 and about 6% in fiscal 2025, following from an about 40% increase in fiscal 2023. About 40% of fiscal 2024 and 2025 sales will be MHCVs.
  • India's PV sales volumes to increase about 10% in fiscal 2024, to close to 600,000 (about 540,000 in fiscal 2023). A more modest 5% growth is likely in fiscal 2025.
  • JLR to sell more than 400,000 vehicles in fiscal 2024, compared to about 355,000 units in fiscal 2023. More modest growth is likely in fiscal 2025.
  • Tata Motors' capital spending, including capitalized and expensed development costs, to be INR380 billion annually, mainly from JLR's spending plan of about £3 billion.
  • No material shareholder payments are likely.
  • We assume Tata Motors will receive about US$400 million from the sale of a 20% stake in Tata Technologies. About half of this has already been raised, in October 2023.

Tata Motors Ltd.--Forecast summary
--Fiscal year ended March 31--
(Bil. Indian rupee) 2022a 2023a 2024e 2025f
Revenue 2,736.3 3,410.4 4,413.7 4,816.2
EBITDA (reported) 248.2 333.8 551.4 513.0
Plus/(less): Other (62.4) (97.3) (152.8) (122.8)
EBITDA 185.9 236.6 398.5 390.2
Less: Cash interest paid (68.6) (71.7) (68.1) (43.7)
Less: Cash taxes paid (18.3) (30.6) (45.7) (42.1)
Funds from operations (FFO) 99.0 134.3 284.7 304.3
EBIT 60.6 114.6 124.4 115.1
Cash flow from operations (CFO) (10.4) 164.6 361.9 384.1
Capital expenditure (capex) 85.1 83.7 135.6 165.6
Free operating cash flow (FOCF) (95.6) 80.9 226.3 218.5
Debt (reported) 1,396.8 1,256.6 797.3 630.1
Less: Accessible cash and liquid Investments (517.1) (458.0) (271.3) (293.4)
Plus/(less): Other (239.1) (203.0) (198.6) (198.6)
Debt 708.2 680.2 445.8 256.5
Adjusted ratios
Debt/EBITDA (x) 3.8 2.9 1.1 0.7
FFO/debt (%) 14.0 19.7 63.9 118.6
FFO cash interest coverage (x) 2.4 2.9 5.2 8.0
EBITDA interest coverage (x) 2.6 3.1 6.1 9.1
FOCF/debt (%) (13.5) 11.9 50.8 85.2
Annual revenue growth (%) 11.6 24.6 29.4 9.1
EBITDA margin (%) 6.8 6.9 9.0 8.1
All figures are adjusted by S&P Global Ratings, unless stated as reported. a--Actual. e--Estimate. f--Forecast.


We view Tata Motors' liquidity as strong. On a consolidated basis, we estimate the company's sources of liquidity will be about 2x liquidity uses over the next two years.

Tata Motors has solid on-balance-sheet liquidity and no large near-term debt maturities. We expect the company to have enough funds to manage its uses even if its EBITDA falls by 30% from our base case. Both Tata Motors and JLR have proactively managed liquidity through multiple debt raisings, usually well ahead of debt maturity.

Apart from on-balance-sheet liquidity, Tata Motors has strong financial flexibility. As a blue-chip Indian company, Tata Motors has good access to funding markets. The company has strong banking relationships, given its association with the Tata group.

At a consolidated level, we have the following estimates for Tata Motors' liquidity for the 12 months ending Sept. 30, 2024:

Principal liquidity sources:
  • Cash and short-term investments of about INR550 billion as of Sept. 30, 2023, of which about INR440 billion was at JLR.
  • Long-term undrawn committed facilities of about INR155 billion at JLR.
  • Cash FFO of about INR400 billion.
Principal liquidity uses:
  • Scheduled debt maturities of about INR235 billion (including uncommitted short-term debt facilities) as of Sept. 30, 2023.
  • Capex of about INR260 billion.

Ratings Score Snapshot

Business risk: Fair
Country risk Intermediate
Industry risk Moderately High
Competitive position Fair
Financial risk: Significant
Cash flow/leverage Significant
Anchor bb
Diversification/Portfolio effect Neutral (no impact)
Capital structure Neutral (no impact)
Financial policy Neutral (no impact)
Liquidity Strong (no impact)
Management and governance Satisfactory (no impact)
Comparable rating analysis Neutral (no impact)
Stand-alone credit profile: bb
Entity status within group Moderately Strategic (+1 notch from SACP)

Related Criteria

Ratings List

To From

TML Holdings Pte. Ltd.

Tata Motors Ltd.

Issuer Credit Rating BB+/Positive/-- BB/Stable/--
Senior Unsecured BB+ BB

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at for further information. Complete ratings information is available to RatingsDirect subscribers at All ratings affected by this rating action can be found on S&P Global Ratings' public website at

Primary Credit Analyst:Neel Gopalakrishnan, Singapore + 65-6239-6385;
Secondary Contacts:Shruti Zatakia, Singapore + 65 6216 1094;
Minh Hoang, Singapore + 65 6216 1130;

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