S&P reaffirms B+ rating for Tata Motors, keeps outlook 'negative'

Ratings agency S&P has reaffirmed Tata Motors' long-term issuer and issue credit ratings to be 'vulnerable to nonpayment' while keeping the outlook negative.

S&P Global Ratings said it has reaffirmed 'B+' on Tata Motors' long-term issuer and issue credit ratings while keeping negative outlook due to high cash burn at its British arm Jaguar Land Rover, geopolitical risks such as Brexit and the US tariffs, and India's automotive market slowdown.

The ratings agency has also removed the company from CreditWatch stating geopolitical risks could take longer than expected to play out.

"We expect Tata Motors' cash flow to stay negative at least for the next 12-24 months until global automotive demand recovers, the company's Chinese operations stabilise, and the expected cost cutting restores its financial health," S&P said in a statement.

Tata Motors' first-quarter fiscal 2020 performance remained weak, despite expectations of a recovery over the next 12-24 months, it added.

"In our view, Tata Motors' continued cash burn largely at its UK-based subsidiary Jaguar Land Rover Automotive PLC (JLR) is denting the company's financial position," it said.

S&P further said,"in addition, we are unsure of the timing and outcome of significant events such as Brexit and US trade tariffs. Therefore, we resolve our CreditWatch and affirm the rating with a negative outlook."

Tata Motors' finances are expected to improve over the next two years, largely driven by volume recovery from JLR's new product launches, stabilising Chinese markets, and 800 million pounds of budgeted cost cuts under project charge, it said.

"An expectation of volume growth in its Indian market, which hinges on late recovery of monsoon and overall shift to new emission norms, should also aid the recovery," S&P said.

The ratings agency, however, cautioned that it may lower the ratings by one notch if it sees diminishing prospects of turnaround at JLR.

This may happen if JLR's new launches fail to resurrect the volumes or the company fails to achieve its expected costs savings, resulting in Tata Motors' negative free operating cash flow (FOCF) surpassing Rs 20,000 crore over the next 12 months, it added.

"We may also downgrade Tata Motors if we expect Brexit or other geopolitical risks to cause further disruptions to its operations, increasing the pressure on business and financial position," S&P said.