CARE Ratings downgrades Tata Motors with negative outlook on JLR worries



CARE Ratings on Monday downgraded Tata Motors’ long-term credit rating amid weak financial performance reported by its British subsidiary Jaguar Land Rover Automotive PLC (JLR).

CARE Ratings in a press release said it has downgraded the rating on the long-term bank facilities of Tata Motors (TML) to ‘AA-/Negative’ from ‘AA/Stable’, but reaffirmed rating on short term bank facility and commercial paper at ‘A1+’.

“The revision in the rating of TML factors in the subdued operating performance reported by its key subsidiary Jaguar Land Rover Automotive PLC (JLR) for FY19 and Q1FY20,” the rating agency said.

JLR’s retail sales volume remained weak and reported year-on-year (YoY) decline of 5.8% in the entire financial year 2018-19 and 11.6% in June quarter of FY20 on the back of headwinds faced in China and weak consumer demand amid uncertainties around diesel vehicles in Europe.

According to CARE, the uncertainties revolving around Brexit, geopolitical risks like the possibility of tariffs imposition by US government on import of vehicles, slowdown witnessed in China and uncertainties related to diesel powertrain are expected to keep JLR’s sales volume under pressure in the medium term.

The negative outlook reflects CARE’s belief that Tata Motor’s consolidated operating profit margin would remain subdued in medium-term on back of headwinds faced by JLR and subdued demand for CV in the domestic market. CARE also believes that the debt coverage indicators are expected to remain weak on the back of necessitated planned capital expenditure for both global and domestic business sustainability.

Tata Motors reported weak Q1FY20 performance wherein, net loss doubles to Rs 3,679 crore and the revenue declined by 19.9% (on YoY basis) consequent to sharp decline witnessed in sales volume (for both passenger vehicle and commercial vehicle segment) during the quarter.

The rating was also tempered by large scale capital expenditure commitments in near future for product development in JLR and Bharat Stage VI (BS6) implementation (in the domestic market), which would continue to negatively affect its free cash flow in the medium term.

Last week, CRISIL lowered the rating of Tata Motors by a notch to ‘AA-‘ on weakening of outlook on the business risk profile of JLR.

Earlier in June, global rating agencies Moody’s Investors Service downgraded Tata Motors’ credit rating and kept the outlook negative due to high cash burn at its British arm Jaguar Land Rover and geopolitical risks.

Ahead of the announcement, shares of Tata Motors closed trade at Rs 120.75 apiece, down 0.37 per cent, on the Bombay Stock Exchange on Monday.