Global rating agency Moody's has downgraded the corporate family rating on Tata Motors due to the weakening credit metrics at Jaguar Land Rover (JLR). Moody's Investor Services has downgraded Tata Motors rating to Ba2 with a stable outlook. Earlier, the agency had a Ba1 rating on the company.
"The downgrade to Ba2 reflects our expectation of continued weakness in Tata Motors consolidated credit metrics over the next two years, led by its wholly-owned subsidiary JLR Automotive Plc," Moody's Vice President and Senior Credit Officer Kaustubh Chaubal said in a statement.
Although JLR accounted for 48 per cent of Tata Motors Ltd (TML) group’s unit sales in 2017-18, it generated 78 per cent and 76 per cent respectively of the company's reported consolidated revenues and earnings before interest, tax, depreciation and amortisation (EBITDA) for the automotive business, Moody's said.
"Given this large contribution, weakening credit metrics at JLR have a direct and immediate impact on TML's consolidated results," it added. Moody's said that TML's consolidated adjusted debt/EBITDA is likely to remain elevated over the 12-18 months.
At the same time, large capital and product development expenditure at JLR of GBP4.5 billion annually will keep free cash flows negative, it added.
"Moreover, Moody's also expects that rising commodity prices and a challenging operating environment for JLR will keep TML's EBITDA margins below 3 per cent," the rating agency said.
Meanwhile TML's ex-JLR operations, in particular the India business, will continue to improve on the back of favourable industry dynamics, the company's upcoming product launches and focus on cost rationalisation measures, it added.