Moody's Investors Service has affirmed the Ba3 corporate family rating of Tata Motors and maintained the stable outlook.
Moody's expects the group's consolidated results for the financial year ended Mar. 31, 2014 (FY2014), to be announced on May 29, to show a marked improvement on last year, due solely to a record performance from Jaguar Land Rover Automotive plc (JLR, Ba2 stable) which sold 434,311 cars in FY2014, an increase of 15.9% over FY2013.
By contrast the Indian operations have had a torrid time with total unit sales of passenger and commercial vehicles declining by 29% year on year in FY2014 and with market share declines in both segments.
''The current year, FY2015, is critical for the group with both JLR and the Indian businesses facing challenges,'' says Alan Greene, a Moody's VP-senior credit officer.
''JLR will see slower sales growth, primarily due to capacity constraints, although it is likely to retain its strong liquidity profile even as it ramps up investment in new products and starts overseas manufacturing operations,'' continues Greene who is lead analyst for Tata Motors.
''By contrast, Tata in India must find a way to recover lost market share in its commercial vehicle business and to develop its range of cars to compete with those produced by the global industry titans,'' adds Greene.
Moody's notes that JLR's future model roll outs together with the need for additional manufacturing capacity has led JLR to increase its investment from around GBP2.7 billion in FY2014 to between GBP3.5 billion and GBP3.7 billion in FY2015.
Until the investment bears fruit, JLR is potentially capacity constrained even though the first vehicles from its joint venture in China with Chery Automobile Co. (unrated), which has an annual capacity of 130,000 vehicles, could appear by the end of FY2015. Rolling three monthly retail sales growth for JLR slowed to 8% year on year in the last quarter of FY2014 but recovered to 12.7% in April 2014. Moody's expectation is for JLR to increase unit sales in FY2015 by a low single digit percentage, achievable from its available capacity.
''The recovery in Tata's Indian operations hinges on some improvement in the economy following the election which will support commercial vehicle sales, and the enthusiasm of car buyers for Tata's new vehicles the Zest and Bolt, which will arrive in the showrooms in the second half of 2014,'' continues Greene.
''However, until there is some relief in sight for Indian vehicle buyers in the form of lower interest rates, a material recovery in FY2015 is not assured,'' he adds.
Despite the poor operating performance of the parent or standalone company in India, it is likely to report profits in FY2014. This is the result of disposals to its wholly-owned subsidiary, TML Holdings (TMLH, unrated) in Singapore and from the dividend received from TMLH, in essence, passed through from JLR. On a standalone basis TML would have a weaker rating, which can be viewed as balanced by JLR's strength to arrive at TML's consolidated rating of Ba3.
Shares of the company declined Rs 5.45, or 1.21%, to settle at Rs 444.35. The total volume of shares traded was 417,408 at the BSE (Monday).
