Moody’s Investors Service on Wednesday altered Tata Motors’ rating outlook to negative from stable, citing expectations of the weak operating performance of the company’s British arm Jaguar Land Rover (JLR).
The rating agency has also confirmed that the ‘corporate family rating’ and the company’s senior unsecured instruments ratings at Ba2, which is considered to be speculative grade and subject to substantial credit risk.
“The negative outlook reflects JLR’s weakening credit profile and the significant challenges in accomplishing a rapid turnaround amid heightened market risks and headwinds from increasing input costs and fuel prices, as well as adverse impacts from the outcome of the Brexit negotiations,” Moody’s said in a statement.
Moody’s Vice President and Senior Credit Officer Kaustubh Chaubal said the agency anticipated that the weak operating performance of JLR, will likely continue over at least the next 12-18 months. It would, in turn, weigh on Tata Motors’ earnings and as a result that also the rating trajectory, Chaubal added.
Moody’s alleged on Tuesday that it had downgraded JLR’s ratings to Ba3 negative from Ba2 stable, reflecting the sustained deterioration in its operating and credit profiles. Moody’s said over the first half of the fiscal year ending March 2019 (1H FY2019), JLR’s operating performance further weakened and has remained well below its expectations.
“This has been mainly caused by more tough market conditions in China and the continued weakness in diesel car sales in Europe and the UK,” it added. In the first half of the fiscal, JLR reported a 4.1 percent decline in retail volumes, while its wholesales were down 10.1 percent as seen with the year-ago period.
The rating agency commented, “While JLR has announced cost savings and an efficiency plan yielding GBP 2.5 billion in cost savings over the next 18 months, Moody’s cautions against the prospects of a rapid turnaround within 2H (second half) FY2019.”
The negative outlook also shows the execution risks associated with JLR’s ability to achieve its announced cost and efficiency improvements, against its need to maintain high levels of investments towards reducing emissions and for its electrification strategy, it added.
It, however, said Tata Motors’ other business without JLR — commercial vehicles (CVs) and passenger vehicles (PVs) businesses in India, continued to improve, mirroring favorable industry dynamics, the company’s recent product launches, and the focus on cost rationalization measures.