S&P Global Ratings has upgraded its long-term ratings on Tata Motors to speculative grade ‘BB’ with a stable outlook on earnings improvements and potential deleveraging.

The rating agency had earlier placed Tata Motors in ‘BB-’.

According to S&P Ratings, a BB grade is less vulnerable in the near term but faces major ongoing uncertainties to adverse business, financial and economic conditions.

Tata Motors’ cash flow should strengthen over the next 12-18 months on improving operating conditions in India and at its 100 per cent subsidiary, Jaguar Land Rover Automotive PLC (JLR), S&P Global Ratings said in a statement.

“We, therefore, raised the long-term issuer and issue credit ratings on Tata Motors and its core subsidiary, TML Holdings Pte. Ltd., to ‘BB’ from ‘BB-’,” it added.

The stable rating outlook reflects our view that Tata Motors’ cash flow and leverage will steadily improve over the next 12-18 months, with support from improved operational performances, especially at JLR, the statement added.

“We expect improved volumes, profitability, and positive working capital flow to support JLR’s FOCF (free operating cash flow) in fiscal 2024 (year-end March 31, 2024), which may exceed £750 million,” S&P said.

It further said, “This is despite our expectation that the company’s capital expenditure (capex) could climb to about £3 billion. JLR’s wholesale volumes could increase to 390,000-420,000 units in fiscal 2024.”

S&P Global Ratings said Tata Motors’ Indian operations should maintain their recent solid performance.

“Both commercial vehicle (CV) and passenger vehicle (PV) volumes could increase about 10 per cent year on year in fiscal 2024. This follows two successive years of very strong growth,” it added.

The company’s CV and PV volumes increased at compounded annual rates of about 30 per cent and over 50 per cent in the last two fiscal years, it said adding, “But given that CV volumes expanded from a small base, volumes in fiscal 2024 could remain about 7 per cent below the previous peak of about 500,000 units in fiscal 2019.”

S&P also stated it expects Tata Motors’ financial policy to aid deleveraging saying, “The company intends to turn net auto debt-free by fiscal 2024. Achieving this over the next 12-18 months would need substantial inorganic transactions, in our view.”