ICICI Direct: Tata Motors Deleveraging Intent Fuels Optimism  

ICICI Direct Report

Media reports suggest that the top management of Tata Motors Ltd. at its recent Annual General Meeting expressed an intent to reduce automotive debt (approximately Rs 48,000 crore as of FY20) to near zero levels in the next three years.

This follows the recent guidance of turning Jaguar Land Rover, Indian operations sustainably free cash flow positive (from FY22E, FY21E respectively).

While the intent is encouraging, we remain slightly circumspect about the deleveraging timeline, given that positive FCF from FY22E will continue to be accompanied by critical capex for new product development and new age technologies i.e. autonomous, connectivity, electric and shared mobility (ACES).

As per our estimates, complete automobile segment deleveraging could happen sometime in FY24E-25E, provided -

1.Indian and JLR operations do not disappoint on the volume or operating matrix front and 2. the global business remains buoyant during this time.

We await greater detail about the proposed deleveraging plan. However, the intent of creating shareholder through meaningful debt reduction as well as the strong response to new model launches at Tata Motors makes us turn positive on the stock.

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