Ratings agency Moody's on Wednesday said Jaguar Land Rover (JLR) would continue to face challenges for the remainder of the current financial year and in the next financial year as well due to weak market outlook.
While acknowledging the company's comparatively better financial performance in the second quarter, Moody's Investors Service said the company will nevertheless face challenges for the remainder of FY20 and FY21 period due to a weak market outlook and continued investments to support the transition to greater emission efficiency and electrification.
"Uncertainty from potential Brexit and US tariff developments also remain with the company opting for a one week production shutdown in November across its UK sites. Nevertheless, the strong quarter could be an indicator that leverage has reached its peak," the rating agency said in a statement.
Moody's, which assigned a B1 instrument rating to JLR's new expected 500 million euro (Rs 3,970 crore) senior unsecured notes due in 2024, said the company's strong performance in the second quarter was supported by a rebound in retail volumes in China.
"While this could be a sign of a stabilisation of retail sales, Moody's notes that performance across regions remains uneven and volatile," the rating agency noted.
It added that in the current challenging market environment, visible aggregate volume growth will be difficult to achieve for the company.
The growth in volumes, at least in the second quarter, has been largely reliant on three models -- Range Rover Evoque, Range Rover Sport and the Jaguar I-PACE -- and the success of coming launches will be critical to the company's growth, Moody's said.
Elaborating on positive factors, the rating agency said the company has taken steps to improve its profitability with the company-reported Ebitda (earnings before interest, tax, depreciation and amortisation) margin improving to 13.8 per cent from 9 per cent in the last year's second quarter.
Apart from better volume performance, additional factors included a favourable model mix and progress under the company's restructuring programme, which contributed GBP 162 million (Rs 1,500 crore) to profits, it added.
The restructuring efforts should continue to further help sustain profit improvements going forward, Moody's said.
Tata Motors-owned JLR operates six sites in the UK, one in Slovakia and has a joint venture (JV) in China.
The company reported a total revenue of GBP 24.2 billion (Rs 2,24,100 crore) for fiscal 2019.