Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable/Crisil A1+’ ratings on the bank loan facilities and debt instruments of Tata Motors Ltd (TML; a part of the Tata group).

 

Crisil Ratings has taken note of the merger of Tata Motors Finance Ltd (TMFL), a step-down wholly owned subsidiary of TML, with Tata Capital Ltd (TCL; ‘Crisil AAA/Stable/Crisil A1+’) post receiving sanction for scheme of arrangement from the National Company Law Tribunal. The appointed date of scheme of amalgamation was April 1, 2024. Consequently, TMFL has ceased to be a step-down wholly owned subsidiary of TML with effect from May 8, 2025.

 

For TMFL, which was a captive finance subsidiary, Crisil Ratings used the capital allocation approach wherein the capital required for maintaining the credit risk profile was factored. Post merger of TMFL with TCL, Crisil Ratings will not be applying the capital allocation approach.

 

As consideration for the transaction, TMF Holdings Ltd (TMFHL; ‘Crisil AA+/Stable’), a wholly-owned subsidiary of TML, received ~18.39 crore shares of TCL. TMFHL has a total debt of Rs. 4845 crore including Rs. 900 crore of non-convertible debentures, Rs. 1800 crore of perpetual bonds and Rs. 2145 crore of inter-corporate deposits (placed by TML). Accordingly, Crisil Ratings has consolidated TMFHL’s debt with the overall debt of TML while arriving at its credit risk profile. 

 

JLR accounted for ~71% of the revenue and ~78% earnings before interest, tax, depreciation and amortisation (Ebitda) of TML in fiscal 2025 (70% and 79% respectively, in fiscal 2024). It derived around 32% sales volumes from North America in fiscal 2025 (26% in fiscal 2024). Given its high dependence on the US market and in a situation of continued tariff, Crisil Ratings estimates a moderation in volume for JLR in fiscal 2026. In line with the expected decline in volumes, Crisil also expects a slight moderation in profitability for JLR for fiscal 2026. However, the company is expected to take mitigating actions such as cost discipline, pricing actions, increase premiumization and improve geographical mix among others. Overall sales volumes remain a key monitorable owing to the high operating leverage.

 

In this regard, Crisil Ratings has taken note of the announcement between the US and the UK for  an alternative arrangement for Section 232 tariffs on UK auto original equipment manufacturers (OEMs) on May 8, 2025, whereby the first 100,000 vehicles imported to the US by UK car manufacturers each year will be subject to reciprocal rate of 10% and any additional vehicles will be subject to 27.5% tariff. While the exact operational modalities of the tariff are not clear, Jaguar Land Rover (JLR) could benefit from the this policy if it becomes eligible, considering it derived significant sales volumes from North America and the US in fiscals 2024 and 2025. Crisil Ratings will closely monitor developments on the imposed tariff and its impact on JLR will remain monitorable.

 

The rating reaffirmation reflects the improved operating performance over the last two fiscals. Operating performance continued to be strong in fiscal 2025 owing to strong volumes in JLR, leading to healthy Ebitda margin. For fiscal 2025, JLR’s wholesale volumes (excluding China joint venture) were ~4 lakh units (4 lakh units in fiscal 2024), along with operating margin of 14.3%, resulting in continued free cash flow generation and deleverage. In line with the domestic business, JLR has also become net debt free at end fiscal 2025. Given the healthy free cash flow generation over 2024 and 2025, TML’s financial risk profile strengthened with adjusted net debt to Ebitda (as per the Crisil Ratings adjusted figures) estimated to reduce below 0.5 time for fiscal 2025. (fiscal 2024: 0.76 time, fiscal 2023: 1.9 times). Despite an expected increase in leverage owing to the impact of US tariffs, the financial risk profile will likely remain comfortable.

 

JLR is implementing a project, Reimagine, to transition into a meaningful electric vehicle (EV) player. It has planned capital expenditure (capex) of ~£ 3.8 billion per annum. In case of lower-than-expected free cash flow generation, ability to recalibrate the capex, leading to no major reliance on external debt, will remain a key monitorable.

 

TML maintained its leading position in the domestic market, with a share of 37.1% in the commercial vehicles (CV) segment in fiscal 2025 (39.2% in fiscal 2024), while its market share moderated to 13.2% (13.9% in fiscal 2024) in the passenger vehicle (PV) segment. The company also has a dominant presence and leadership position in the domestic EV market with market share of ~55% in fiscal 2025 (fiscal 2024: 73.1%). Operating margins of the CV and PV businesses improved to 11.8% and 6.9%, respectively, in fiscal 2025 (10.8 and 6.5%, respectively, in fiscal 2024) owing to benefits from the better realisations, cost savings as well as benefits from Product Linked Incentive (PLI) scheme received in second half of fiscal 2025. The operating margin is expected to sustain over the medium term.

 

TML had earlier announced composite scheme of arrangement amongst TML, TML Commercial Vehicles Ltd (TMLCV), Tata Motors Passengers Vehicles Ltd and their respective shareholders and filed the same with stock exchanges. Upon implementation of the scheme, the CV business, along with all assets, liabilities and employees, will be demerged into a separate listed entity, TMLCV. As part of the demerger, TMLCV will have identical shareholding in resonance with the current shareholding of TML. Crisil Ratings evaluates the demerger to be credit neutral as the sharp deleveraging in the consolidated entity would continue for both the entities. The demerger does not impact the financial risk profile of both the companies.

 

The ratings continue to reflect the strong legacy of JLR in the global luxury automotive (auto) market, robust market position of TML in the domestic CV segment, improving position in the PV segment, leadership position in the EV segment and strong financial support from the Tata group, specifically Tata Sons, given its strategic importance, thereby lending significant financial flexibility. These strengths are partially offset by exposure to intense competition in the global luxury auto sector and inherent cyclicality in the domestic CV and PV businesses.

Analytical Approach

Crisil Ratings has combined the business risk profiles of TML and its subsidiaries, including JLR and its joint venture, Chery Jaguar Land Rover Automotive Co Ltd, in proportion to its shareholding.

 

Crisil Ratings has applied its group notch-up framework to factor in the extent of support available from the Tata group.

 

To arrive at the adjusted net debt, Crisil Ratings reduced the surplus cash of TML. Surplus cash is defined as cash & equivalents exceeding Rs 5,000 crore, which may be required for regular operations of JLR and domestic business.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong legacy in the global luxury auto segment: Jaguar and Land Rover are iconic brands with a rich heritage in the premium luxury segment. JLR’s product development capabilities enabled successful launches and expansion into new segments, thus enhancing its product portfolio. The Land Rover segment contributed over 93% to the overall sales of JLR in fiscal 2025, with Defender, Range Rover and Range Rover Sport continuing to gain momentum. While Jaguar has been a drag on profitability, the company has been looking to modernise the brand, scale down loss-making sedans and make it all-electric from 2026. With frequent refreshes and special editions in the Land Rover segment, TML is likely to maintain its niche position in the global auto market.

 

• Dominant market position in domestic CV segment, leadership position in passenger EV segment and improving market position in domestic PV: TML is the dominant player in the domestic CV segment, with a market share of around 37.1% in fiscal 2025 (39.2% in fiscal 2024). Although overall market share, particularly in light goods vehicles, has declined over the years, it is likely to stabilise with the management focus on improving product portfolio and further enhancing distribution reach. Its strong distribution presence along with service touchpoints provides it with a competitive edge. For fiscal 2025, CV wholesale volume declined 5.1% compared to last year. Operating profitability increased by 100 basis points (bps) to 11.8% in fiscal 2025 on-year owing to improved realisation, cost savings and PLI benefit of ~Rs 175 crore (Rs 40 crore received for fiscal 2024 and Rs 135 crore accrued for fiscal 2025).

 

On the PV front, the company has seen significant turnaround in operations, led by new product launches, product re-engineering and footprint expansion, leading to increased reliability and acceptance among customers. In fiscal 2025, market share was ~13.2% (13.9% in fiscal 2024). The operating margin for fiscal 2025 improved by 40 bps to 6.9% (Fiscal 2024: 6.5%) on account of reducing losses in the EV segment along with PLI benefit of Rs 352 crore (Rs 102 crore received for fiscal 2024; Rs 250 accrued for fiscal 2025). Excluding EV sales, PV internal combustion engine business margin saw some moderation on account of lower volumes. The overall PV business margins should remain largely stable in fiscal 2026 due to likely increase in sales of the margin-dilutive EV business. The sustenance of margins and market share through cost reduction efforts and new product launches with expectation of rising mix of margin-dilutive EVs will remain monitorable.

 

TML benefits from early-mover advantage in the EV business, wherein market share was ~55% in fiscal 2025 (~73.1% in fiscal 2024; 83.9% in fiscal 2023). While the market share is likely to moderate with increased competition, rising volumes and higher penetration of EVs will support the market position and drive improved profitability.

 

• Strong financial support from the Tata group: TML is one of the flagship companies of the Tata group. The group chairman, Mr N Chandrasekaran, also chairs its board. Given its strategic importance, the company derives strong financial support from the Tata group through its holding company, Tata Sons. This is reflected in several instances of support over the years, including the Rs 6,500 crore infusion in fiscals 2019 and 2020, which increased the promoter stake to 45.82% in January 2021 from 38.37% in March 2019. As part of the group, TML derives significant financial flexibility and access to low-cost funds from banks and capital markets.

 

Tata Sons is also investing in its wholly owned subsidiary, Agratas Energy Storage Solutions Pvt Ltd (Agratas), to develop battery cells with factories planned in the UK and India. While the domestic EV business and JLR will be the anchor customers, there will be no recourse to them for the debt obligation of Agratas.

 

Weaknesses:

• Competition in the global luxury car segment and capital-intensive nature of business: JLR is exposed to competition from bigger and established brands such as Mercedes, BMW, Daimler and Volkswagen. JLR, with its niche presence in premium sport utility vehicles (SUVs), has a small market share in the world luxury car segment. The auto business requires large capex, with steady product launches and investment in technology. The global auto industry is rapidly evolving, with higher regulatory focus on emission norms and transition to EVs. Moreover, consumer preference is shifting towards new technologies such as connected cars and autonomous driving, which will require substantial investment in new technologies, regulatory compliance and electrification drive. The ability to sustain successful product launches and meet regulatory norms, while keeping capex in check, will be crucial.

 

• Inherent cyclicality of the domestic CV and PV business: The domestic CV business is inherently cyclical, with strong linkage to economic activity. Multiple events, such as the increased axle load norms, pandemic, and transition to BS-VI, led to a sharp decline in industry volume in fiscals 2020 and 2021, reaching a decadal low. Increased infrastructure outlay will support demand for medium and heavy goods vehicles from key end-user sectors such as steel, cement and construction; while increased penetration of electronic commerce activities will create demand for light goods vehicles. TML is also looking to mitigate the cyclicality by increasing the share of exports, scaling up the used vehicle business and increasing the spare and services penetration.

 

The PV segment is also susceptible to economic activity. Although the company has gained healthy market share in the past two fiscals, it remains susceptible to competition from bigger players and the macro environment.

Liquidity: Strong

As per Crisil Ratings estimates, annual cash accrual of Rs 35000-40000 crore will be adequate to meet yearly debt repayment of Rs 13,000-18,000 crore, over the medium term. As of March 2025, consolidated cash and equivalent stood at ~ Rs. 686 billion, besides undrawn revolving credit facility of about Rs 175 billion JLR. Domestic fund-based bank limit utilisation remains moderate. Capex[[1]], including research and development expenses of Rs 45,000-50,000 crore annually in fiscals 2026 and 2027, is expected to be funded through internal accrual and cash balance. Additionally, liquidity remains supported by strong financial flexibility, being a part of the Tata group.

 

ESG Profile

The environment, social, and governance (ESG) profile of TML supports its strong credit risk profile.

 

The auto sector has a significant impact on the environment because of the high greenhouse gas (GHG) emissions of its core operations as well as products. The sector also has a substantial social impact because of its large workforce across own operations and value chain partners, and focus on innovation and product development. TML has continuously focused on mitigating its environmental and social risks.

 

TML’s key ESG highlights:

• For its Indian operations, TML plans to achieve net zero GHG emissions in its PV and CV businesses by 2040 and 2045, respectively. It also plans to use 100% renewable electricity for its Indian operations by 2030.
• JLR has set a target to achieve net zero GHG emissions across its supply chain, products and operations by 2039. In this light, it is looking to electrify product portfolio and is working with value chain partners to decarbonise the supply chain. Further, it has set targets based on the SBTi principles to achieve 60% reduction in downstream emissions per vehicle kilometer across the entire use phase of vehicles it produces.
• At a standalone level, lost time injury frequency rate for employees increased to 0.27 time in fiscal 2024 from 0.14 time in fiscal 2023.
• At a standalone level, women comprised ~11% of the total workforce, and attrition rate stood at ~7% in fiscal 2023.
• Governance structure is characterised by ~78% of its board being independent directors, ~33% woman board directors, split in chairperson and executive director positions, and extensive financial disclosures

 

There is growing importance of ESG among investors and lenders. The company’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets.

[1]Historically, around 25-30% of this has been expensed through the P&L account.

Outlook: Stable

TML should continue to benefit over the medium term from its high sales volume, improved profitability in JLR and mix and steady volume growth, improved mix and cost-control measures. Business and financial risk profiles are expected to remain robust, with healthy sales volume and better operating margin generating robust cash flows for deleveraging.

Rating sensitivity factors

Upward Factors:

• Ability to maintain operating performance for the JLR business on a sustained basis, resulting in steady operating margin and healthy free cash flow
• Improvement in financial risk profile with adjusted net debt-free status on a sustained basis.

 

Downward Factors:

• Weakening of operating profitability owing to decline in volume, leading to fall in operating margin
• Higher-than-expected debt-funded capex or any significant debt-funded acquisition moderating the financial risk profile
• Net adjusted debt to Ebitda ratio exceeding one time

About the Company

TML, part of Tata Motors group, is a wholly integrated auto company, engaged in manufacturing of PVs, SUVs, and CVs. In June 2008, the company acquired JLR, which specialises in manufacturing premium cars, and Land Rover, specialising in premium SUVs. The PV unit was hived off into a separate subsidiary effective January 2022 and passenger electric mobility business is housed in a separate subsidiary, Tata Passenger Electric Mobility Ltd (TPEML).

Key Financial Indicators

Particulars	Unit	2025	2024
Revenue	Rs crore	439695	434016
Profit after tax (PAT)	Rs crore	23278	32453
PAT margin	%	5.3	7.47
Interest coverage	Times	11.53	7.99
Net debt/tangible networth*	Times	N.M.	0.47

*The company is net debt free as on March 31, 2025

Any other information: Not applicable