Tata Motors corrects on profit booking

Tata Motors fell 0.35% to Rs 70.55 amid profit booking after reporting gains in the past two sessions.

The stock has added 3.20% in the past two sessions to end at Rs 70.80 yesterday, from a recent closing low of Rs 68.60 recorded on 24 March 2020.

Meanwhile, Moody's Investors Service on Thursday placed on review for downgrade Tata Motors' (TML) Ba3 corporate family rating and Ba3 senior unsecured debt rating. The outlook has been revised to ratings under review from negative.

Offering the ratings rationale, Moody's said that the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The automotive sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment.

More specifically, weaknesses in TML's credit profile, including its exposure to final consumer demand for automobiles, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions, and the company remains vulnerable to the outbreak continuing to spread.

Moody's review for downgrade of TML's ratings considers that demand for new vehicles will reduce meaningfully over the coming months, especially in the EMEA and North American markets. This is likely to extend through the early summer at least, with a reasonable recovery from the low points commencing at that time. Moody's current assumptions are that global demand will shrink by about 14% for all of 2020, and could be down in the range of 30% for the second quarter.

Accelerating incidence of the coronavirus across the US and EMEA could lead to even more extended production shutdowns and a much delayed recovery on unit sales for TML's wholly owned subsidiary, Jaguar Land Rover Automotive Plc (JLR, B1 ratings under review for downgrade, RUR). Production facilities in JLR's UK facilities are mostly closed, as are factories along the broader auto supply chain. This should enable field inventories of unsold vehicles to be somewhat restrained, but also leads to potential for meaningful disruption even once new vehicle production starts back up, unless the original equipment manufacturers (OEMs) and the extended supply chain cooperate carefully.

For now, Moody's assumes a reasonable pace of recovery of demand as the third quarter develops, however the risk to the downside is considerable and further downside scenarios around the severity and duration of the pandemic are uncertain.

For the Chinese and Indian markets, Moody's expects auto sales to steadily improve from the level in the first quarter. Nevertheless, these markets also faces downside risks in terms of the pace and magnitude of the demand recovery.

Moody's expects to conclude the review within 90 days. In addition to the disruption from the outbreak of the coronavirus, the auto industry also faces a number of longer-term challenges related to environmental, social and governance (ESG) factors and megatrends.

These include increasing environmental standards, stricter emissions regulation and electrification; autonomous driving and connectivity; increasing vehicle safety regulations as well as; new market entrants.

Moody's expects TML, alike other automakers, will need to make sizeable investments over the coming years to weather these challenges, in turn constraining its ability to turn around profit and cash flow generation.

Tata Motors (TML) is the largest manufacturer of commercial vehicles and passenger vehicles in India. The company's products include light, medium, and heavy vehicles, such as trucks, pick-ups and buses, utility vehicles and passenger cars.

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