Moody's cuts rating on Tata Motors, changes outlook to negative

Rating action comes days after the Tata group flagship reported a quarterly pre-tax loss of Rs 9,313 cr compared to a profit before tax of Rs 1,265 cr a year ago

Moody’s Investors Service has downgraded Tata Motors corporate family rating (CFR) and the company's senior unsecured instruments rating to B1 from Ba3. The outlook on all ratings has been changed to negative from ratings under review, it said in a statement on Thursday. 

The rating agency cited a sustained deterioration in company’s credit profile as the reason for the downgrade.

The action comes days after the Tata Group flagship reported a quarterly pre-tax loss of Rs 9,313 crore compared to a profit before tax of Rs 1,265 crore in the year-ago period. While its UK subsidiary, Jaguar Land Rover Automotive, reported a pre-tax loss of £501 million for the quarter, the India business reported pre-tax loss of Rs 4,786 crore.

"The downgrade reflects the sustained deterioration in the firm’s credit profile and our expectation that it will take longer than we had expected for the company's credit metrics to return to levels appropriate for a Ba3 CFR," said Kaustubh Chaubal, vice-president and senior credit officer, Moody’s.

The Covid-19 pandemic has amplified the pressure on the company’s cash flows and will likely result in a prolonged period of weak credit metrics, he said. “We expect the company's adjusted EBITA margin to remain negative in the fiscal year ending in March 2021 (fiscal 2021), while its adjusted debt/Ebitda will stay above 10.0x," said Chaubal, who is also Moody's lead analyst for the company.

Tata Motors’ credit profile was already under pressure due to lower auto sales and falling demand in its key markets even prior to the coronavirus outbreak. The rating action reflects the acute challenges faced by the company’s domestic operations from the Indian auto sector's slowing sales stemming from sluggish economic activity, weak liquidity, tight financing norms, and poor consumer sentiment.

The rating agency expects Tata Motors’ commercial vehicles sales to drop by a fourth in FY21 on the back of a 34 per cent decline in FY20. 

It added that the challenges posed by the pandemic will significantly weigh on the company’s UK subsidiary. Tata Motors shares closed at Rs 96.40 a piece on BSE on Thursday, up 1 per cent.