Ratings agency Moody's Thursday downgraded Tata Motors' corporate family rating (CFR) and senior unsecured instruments rating, citing sustained deterioration in the company's credit profile mainly on account of its British arm Jaguar Land Rover's weak performances.
Moody's Investors Service also said the outlook on Tata Motors remains negative.
Tata Motors Ltd's (TML) corporate family rating (CFR) and the company's senior unsecured instruments rating have been downgraded to Ba3 from Ba2, the ratings agency said in a statement.
Both Ba3 and Ba2 ratings are considered to have speculative elements and significant credit risk.
Commenting on the rationale behind the downgrade, Moody's Vice-President and Senior Credit Officer Kaustubh Chaubal said it reflected "the sustained deterioration in TML's credit profile, with weaker-than-anticipated credit metrics -- led by the weak performance of its 100 per cent-owned subsidiary Jaguar Land Rover".
Besides, Chaubal said it was also due to Moody's "expectation that it will take longer than we had previously expected for the company's free cash flows to return to positive territory".
Although JLR accounted for 48 per cent of TML's group unit sales in financial year 2018-19, it generated 75 per cent and 24 per cent, respectively, of consolidated revenue and Ebitda for TML's automotive business, and accounted for 63 per cent of consolidated debt, based on Moody's adjustments, the statement said.
"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.
The ratings agency further said JLR's credit profile has been under pressure for some time now.
Challenging Chinese markets, persistent weakness in diesel car sales in Europe and the UK, and the business shift towards electrification, hybrid and full electric vehicle options to support the overall model line-up will require continued significant investments, pressuring JLR's free cash flow generation, it said.
Chaubal also 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 US tariffs."
In addition, 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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