Land Rover Discovery Sport sport utility vehicles (SUV) sit on a transporter outside Jaguar Land Rover Plc’s assembly plant in Halewood, U.K. (Photographer: Matthew Lloyd/Bloomberg)

Moody’s Downgrades Tata Motors Rating On JLR Woes

Global rating agency Moody's today said it has downgraded the corporate family rating on Tata Motors due to the weakening credit metrics at Jaguar Land Rover. Moody’s 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 percent of Tata Motors Ltd group's unit sales in 2017-18, it generated 78 percent and 76 percent respectively of the company's reported consolidated revenues and earnings before interest, tax, depreciation and amortisation for the automotive business, Moody's said.

Given this large contribution, weakening credit metrics at JLR have a direct and immediate impact on Tata Motors consolidated results. Moody's said that Tata Motors’ 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 4.5 billion pounds 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 Tata Motors' EBITDA margins below 3 percent," the rating agency said.

Meanwhile, Tata Motors’ 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.