Global ratings agency Moody’s today upgraded the credit rating of Tata Motors Ltd (TML) in view of a quick turnaround in the performance of its Jaguar Land Rover (JLR) car company and a recovery in domestic businesses.

Upgrading TML to B2 corporate rating from B3, Moody’s said the move “reflects the quick turnaround in the operating performance of the JLR business and the solid recovery in the company’s Indian business, which translate into stronger than expected credit metrics and an improved financial profile“.

Though B2 is a notch above the B3 rating, it falls within the speculative grade.

The upgrade, according to Moody’s, also reflects the company’s progress in improving its liquidity and lengthening its debt maturities.

On JLR’s performance, Moody’s said that its performance bottomed out a year ago and has been recovering since then in areas like volumes, geographical mix and higher revenues linked to new product launches.

“Thus, JLR looks to be on track in its plans to re—establish a sustainable and competitive business model,” it added. Tatas bought the UK-based JLR in 2008 for USD 2.3 billion.

The ratings agency also said that driven by the strong fundamentals of India’s auto sector, TML’s business in the country is seeing a solid recovery.

It said TML’s volume growth has been driven by recent product launches like the ultra-low cost Nano and will support strong revenue growth, while its operating margins are expected to remain in the 12-14 per cent range.

Moody’s noted, however, that TML’s deleveraging is coming from its increased operating profits rather than an absolute reduction in debt. “We expect the company to continue to look for asset disposal opportunities and equity-related fund vehicles.”