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Moody's Downgrades Tata Motors To Ba3

Auto News - Published on Tue, 25 Jun 2019

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Moody's Investors Service has downgraded Tata Motors Limited's corporate family rating and the company's senior unsecured instruments rating to Ba3 from Ba2. The outlook remains negative. Mr Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer said that "The downgrade reflects the sustained deterioration in TML's credit profile, with weaker than anticipated credit metrics -- led by the weak performance of its 100% owned subsidiary Jaguar Land Rover -- and our expectation that it will take longer than we had previously expected for the company's free cash flows to return to positive territory.”

Mr Chaubal, who is also Moody's Lead Analyst for TML said that "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.”

He added that "In addition, India's auto sector also faces challenges from slowing sales due to overcapacity, tightening liquidity, and a shrinking dealer network.”

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.

Although JLR accounted for 48% of TML's group unit sales in fiscal 2019, it generated 75% and 24% respectively of consolidated revenue and EBITDA for TML's automotive business, and accounted for 63% of consolidated debt; based on Moody's adjustments. 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.

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Posted By : Mohan Sharma on Tue, 25 Jun 2019
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