Ratings On Tata Motors Ltd. Raised To 'BB+' With Stable Outlook
11 Dec 2006
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Singapore: Standard & Poor's Ratings Services said today it raised its corporate credit ratings for India's Tata Motors Ltd. (Tata Motors) to 'BB+' from 'BB'. The outlook is stable. At the same time, Standard & Poor's has raised its rating on Tata Motors' senior unsecured notes to 'BB+' from 'BB'.
"The upgrade reflects Tata Motor's improving business profile, as reflected in a consistently strong position in the commercial vehicle segment, improving revenue diversity from a wider product portfolio and market coverage, integrated and efficient operations, and overall adequate financial profile of the company," said Standard & Poor's credit analyst Anshukant Taneja.
Although there has been a marginal weakening in the credit-protection ratios of Tata Motors in fiscal year ended March 2006, they remain strong in comparison with its peers in the 'BB' rating category.
"However, the ratings remain constrained by the company's vulnerability to cyclical changes in the demand for commercial vehicles, the intense competition in its target passenger vehicle segments, and the significant capital commitments toward capacity expansion and vehicle-financing activities," said Mr. Taneja.
Standard & Poor's views Tata Motors' relatively large Indian rupee (Re) 114 billion (US$2.5 billion) capital expenditure plan with concern, given potentially softening demand and increased competition. Lower-than-expected cash flows for funding a part of the capital expenditure could mean additional borrowing, which can result in deterioration in Tata Motor's overall credit-protection parameters. The company's current financial position, adequate liquidity, and relatively high access to financial resources mitigate some of these concerns.
In India, Tata Motors is the largest manufacturer of commercial vehicles and the second-largest manufacturer of passenger vehicles. In fiscal 2006, the company's revenues stood at Re271.4 billion and net income was Re13.6 billion.
The outlook on the ratings is stable. Although the medium-term forecasts for volume growth and operating profitability are somewhat lower than the trend witnessed in the previous years, Tata Motors' business diversity, its passenger vehicles business, and increasing contribution from overseas operations are expected to enhance its ability to manage cyclical downturns in the domestic commercial vehicle segment. The higher levels of operating efficiency, integration, and access to financial resources also add stability to the outlook on the ratings.
A sustained improvement in the business profile and the competitive position of the company across all its businesses, accompanied by prevailing levels of credit-protection parameters and liquidity, could result in an improvement in the outlook or the credit ratings of the company. "However, a downturn in domestic demand conditions, increased dependence on external debt for capital expenditure, large acquisitions or vehicle-financing business could hurt cash flow protection measures, which would place downward pressure on the outlook or ratings," said Mr. Taneja.
"The upgrade reflects Tata Motor's improving business profile, as reflected in a consistently strong position in the commercial vehicle segment, improving revenue diversity from a wider product portfolio and market coverage, integrated and efficient operations, and overall adequate financial profile of the company," said Standard & Poor's credit analyst Anshukant Taneja.
Although there has been a marginal weakening in the credit-protection ratios of Tata Motors in fiscal year ended March 2006, they remain strong in comparison with its peers in the 'BB' rating category.
"However, the ratings remain constrained by the company's vulnerability to cyclical changes in the demand for commercial vehicles, the intense competition in its target passenger vehicle segments, and the significant capital commitments toward capacity expansion and vehicle-financing activities," said Mr. Taneja.
Standard & Poor's views Tata Motors' relatively large Indian rupee (Re) 114 billion (US$2.5 billion) capital expenditure plan with concern, given potentially softening demand and increased competition. Lower-than-expected cash flows for funding a part of the capital expenditure could mean additional borrowing, which can result in deterioration in Tata Motor's overall credit-protection parameters. The company's current financial position, adequate liquidity, and relatively high access to financial resources mitigate some of these concerns.
In India, Tata Motors is the largest manufacturer of commercial vehicles and the second-largest manufacturer of passenger vehicles. In fiscal 2006, the company's revenues stood at Re271.4 billion and net income was Re13.6 billion.
The outlook on the ratings is stable. Although the medium-term forecasts for volume growth and operating profitability are somewhat lower than the trend witnessed in the previous years, Tata Motors' business diversity, its passenger vehicles business, and increasing contribution from overseas operations are expected to enhance its ability to manage cyclical downturns in the domestic commercial vehicle segment. The higher levels of operating efficiency, integration, and access to financial resources also add stability to the outlook on the ratings.
A sustained improvement in the business profile and the competitive position of the company across all its businesses, accompanied by prevailing levels of credit-protection parameters and liquidity, could result in an improvement in the outlook or the credit ratings of the company. "However, a downturn in domestic demand conditions, increased dependence on external debt for capital expenditure, large acquisitions or vehicle-financing business could hurt cash flow protection measures, which would place downward pressure on the outlook or ratings," said Mr. Taneja.
