A shift towards electric and hybrid vehicles to support JLR’s overall model line-up will require continued significant investments, pressuring free cash flow generation, says Moody’s. (Photographer: Jason Alden/Bloomberg)

Moody’s Downgrades Tata Motors Rating Due To JLR Woes

Moody's Investor Services Inc. has downgraded Tata Motors Ltd.'s corporate family rating and senior unsecured instruments rating, citing sustained deterioration in the company's credit profile due to Jaguar Land Rover Plc 's weak performance.

Tata Motors' corporate family rating and senior unsecured instruments rating have been downgraded to Ba3 from Ba2, Moody’s said in a statement Thursday. Both Ba3 and Ba2 ratings are considered to have speculative elements and significant credit risk. The outlook on Tata Motors remains negative, the ratings agency added.

Tata Motors' downgrade reflected "the sustained deterioration in TML's credit profile, with weaker-than-anticipated credit metrics—led by the weak performance of its 100 percent-owned subsidiary Jaguar Land Rover", said Kaustubh Chaubal, vice president and senior credit officer at Moody's Investor Service. “It will take longer than we had previously expected for the company's free cash flows to return to positive territory.”

While JLR accounted for 48 percent of Tata Motors’ sales in 2018-19, it generated 75 percent of the company’s consolidated revenue and 24 percent of its Ebitda. It also accounted for 63 percent of Tata Motors’ consolidated debt, based on Moody's adjustments. Ebitda is short for Earnings before Interest, Taxes, Depreciation and Amortisation.

"Given these large contributions, the weakening credit metrics at JLR have a direct and immediate impact on the group's consolidated results and weigh on TML's credit profile," Moody's said.

JLR's credit profile has been under pressure for some time now, due to a slump in China sales, and persistent weakness in diesel car sales in Europe and the U.K.

A shift towards electric and hybrid vehicles to support the overall model line-up will require continued significant investments, pressuring JLR's free cash flow generation, Moody’s said.

"The negative outlook on TML's ratings principally reflects the execution risks related to the timely turnaround of JLR's operations amid a subdued operating environment, driven by rising competition, the potential for a 'no-deal' Brexit, and the possibility of U.S. tariffs,” said Chaubal.

Additionally, he said, "India's auto sector also faces challenges from slowing sales due to overcapacity, tightening liquidity, and a shrinking dealer network."

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