ICRA has upgraded the long- term rating outstanding on the various working capital facilities and non-convertible debenture (NCD) programmes of Tata Motors from 'AA-' to 'AA'. The outlook on the long- term rating has been revised to 'Stable' from 'Positive'. ICRA has also reaffirmed the short-term rating outstanding on the commercial paper (including STD) programme and also the working capital facilities and of the company at 'A1+'.   

The rating upgrade reflects improvement in Tata Motors' consolidated financial metrics driven by stronger than expected performance of Jaguar Land Rover (JLR) and expectations of further strengthening of JLR's business profile going forward. ICRA believes that JLR's ongoing investments in developing new models, setting up facilities to produce engines in-house and manufacturing facilities in emerging markets would strengthen its market position within the luxury segment through wider model offerings and scale-up in operations.

Despite profitability pressures in India amid slowdown automobile demand in India, ICRA believes that Tata Motors is likely to maintain its comfortable credit metrics (at consolidated basis) aided by strong operating cash flows from JLR, sizeable cash reserves and liquid investments.

The assigned ratings also take into consideration Tata Motors' weakening market position in the Indian PV industry which requires it to invest in developing new models and compete more effectively with incumbents as well as foreign OEMs in India. With domestic CV industry going through a cyclical downward phase and expectation of industry volumes to recovery only gradually, the company's profitability in the domestic business would also remain weak in the near-term.

That apart, JLR has also significantly revised its capital expenditure plans from GBP 2.75 billion in 2013-14 to GBP 3.5-3.7 billion for 2014-15. While we believe, JLR would continue to generate strong operating cash flows; the considerable increase in its investment plans along with subdued outlook on the demand for CV and PVs in India in the near-term would require the group to depend on external funding. Accordingly, Tata Motors' consolidated borrowings levels would continue to rise going forward. Nevertheless, its credit metrics is expected to be maintained given JLR's strong cash flows. 

Shares of the company gained Rs 5.3, or 1.3%, to settle at Rs 414.45. The total volume of shares traded was 323,121 at the BSE (Wednesday).