S&P revises Tata Motors rating to stable

Rating agency also affirmed 'BB' long-term issue ratings on company's senior unsecured notes

Standard & Poor's Ratings Services today revised its outlook on Tata Motors to stable from positive and affirmed its 'BB' long-term corporate credit rating. The rating agency also affirmed the 'BB' long-term issue ratings on the company's senior unsecured notes.

"The outlook revision to stable reflects our expectation that Tata Motors' leverage will rise. In addition, Jaguar Land Rover Automotive PLC (JLR) is increasing its annual capital expenditures for product development and capacity addition to about £2.8 billion per year, from £2 billion in the fiscal year ended March 2013. This will result in higher-than-expected negative free operating cash flow", a release from the agency said.

"We expect JLR to contribute more than two-thirds of Tata Motors' revenues and about 80% of EBITDA in fiscal 2014. We forecast a healthy 10%-15% revenue growth for JLR in fiscal 2014, propelled by sales of the New Range Rover, Range Rover Sport, and XF," said Standard & Poor's credit analyst Mehul Sukkawala.

S&P expects Tata Motors' sales in medium and heavy commercial vehicles in India to recover slightly this year while the light commercial vehicles segment will stay flat. Tata Motors' sales in India's passenger car and utility vehicle segment will continue to be depressed because of intense competition and the company's weak position.

However, the stand-alone EBITDA margin is likely to improve because of better product mix and cost reduction, expects S&P.

"We may upgrade Tata Motors if its business risk profile improves (such as through a successful positioning of the Jaguar range). We may also raise our rating on Tata Motors if the company funds its increased capital expenditure largely through internal sources, such that its ratio of consolidated debt to EBITDA falls below 2.5x and ratio of FFO to debt increases above 30% on a sustainable basis", the report added.