The Hindu Business Line : Moody's upgrades Tata Motors outlook to positive

The change in the outlook was prompted by strong improvements in Tata's operational performance since 2001, evidence of strengthening free cash flow, a significant debt reduction resulting from stronger cash flows and a 50 per cent conversion to equity of the company's $100 million (Rs 450 crore) convertible bond. Besides, expectation that the company will consolidate its strong market positions bolstered by the acquisition of Daewoo Commercial Vehicle Company Ltd also contributed to the upgrade.

Moody's said that a number of factors are likely to influence the current outlook and ratings level. "Such factors include an expectation that Tata will make further gains in operating efficiency and cost savings to benefit cash generation that the company will mitigate rising competitive pressures through new model introductions and through additional export of passenger cars to Europe," Moody's said in a news release.

It also expressed confidence that Tata will use the free cash flows to reduce the modest acquisition debt.

The Ba2 rating reflects Moody's expectation that Tata will continue to improve operating efficiencies by ongoing improvements in purchasing, streamlined processes and tight working capital management. It is also expecting Tata to maintain a dominant position in the Indian commercial vehicle sector, further strengthen the competitiveness of its car business and further reduce debt from a positive free cash flow and the expected conversion of the outstanding convertible bond.

The rating also reflects an increasing amount of capital expenditures in order to pursue growth market opportunities.

"Retained cash flow to debt coverage which was at 68 per cent in FY 2003 is expected to remain strong which would accommodate a modest increase in dividends," the release said.

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