S&P downgrades Tata Motors on weakening JLR; outlook stable

S&P Global Ratings today lowered Tata Motors' long-term credit rating to 'BB' from 'BB+' citing weakening volumes and other operational issues plaguing its cash-cow JLR, but retained its outlook at 'stable'.

The agency also lowered its long-term issuer rating on the dollar-denominated senior unsecured notes to 'BB' from 'BB+' of the country's largest auto company by revenue.

"We downgrade Tata Motors to BB from BB+ to reflect our view of the weakening operating conditions for its subsidiary Jaguar Land Rover (JLR) over the next two-three years. A recovery in its domestic commercial and passenger vehicle businesses will only partially offset the weakness, in our view," S&P said in a note.

The ratings agency expects JLR volume to grow at 6-8 per cent over the next two-three years, after a growth of just 1.7 per cent in FY18, against the expectation of 14-17 per cent rise during the year.

"We believe the resilience of JLR has come down due to shifting consumer preferences, increasingly complex operating conditions, and its higher exposure to event risks such as Brexit and emerging trade wars," it said.

The underperforming British auto market, Europe's aversion to diesel cars, and JLR's high capes for electric vehicles (EVs) are likely trim its bottomline and larger negative free operating cash flows over the next two-three years, S&P added.

On the stable outlook, the report said, it "reflects the expectation that its faster growth over the industry with steady but lower profitability will push up cash flow-to-debt ratio to 30-40 per cent over the next 12-18 months."