Standard & Poor's Ratings Services revised its outlook on India-based automobile maker Tata Motors to positive from stable. At the same time, we affirmed our 'BB' long-term corporate credit rating on Tata Motors.

"We revised our outlook to reflect the stronger performance of Tata Motors' U.K.-based subsidiary Jaguar Land Rover Automotive PLC (JLR). If JLR sustains the good operating performance, Tata Motors' consolidated financial ratios over the next 12 months are likely to be stronger than our conservative estimates," it said.

''JLR's successful launches of models such as Evoque and New Range Rover in the past two years have sustained the positive momentum in sales and margins and there is a likelihood that its operating performance this year may be stronger than our expectation,'' said Standard & Poor's credit analyst Abhishek Dangra.

JLR's reported EBITDA margin of about 20% for the quarter ended June 2014 is above our expectation.

''We expect good operating performance for Tata Motors, supported by JLR and a  recovery in India operations,'' Dangra said.

''The positive outlook reflects our expectation that JLR's strong operating performance, if sustained, can result in higher free operating cash flows than what we expect. This can lead to Tata Motors sustaining ratio of FFO to debt above 30%, despite significant increase in capital expenditure,'' Dangra said.

We may raise our rating on Tata Motors if strong operating performance of JLR partly offsets the increased capital expenditure, such that Tata Motors' ratio of FFO to debt stays above 30%. We may also upgrade Tata Motors if successful positioning of the Jaguar range of vehicles improves Tata Motors' business risk profile.

We may revise the outlook to stable if the ratio of FFO to debt declines toward 25%. This may happen if Tata Motors' operating performance weakens for reasons such as lower demand for JLR's products in major markets like China or new product launches, or if capital expenditure is higher than expected.

Shares of the company declined Rs 3.45, or 0.66%, to settle at Rs 516.40. The total volume of shares traded was 258,171 at the BSE (Tuesday).