New Delhi: Moody’s Investors Service has downgraded the outlook and ratings of Tata Motors Ltd after the fortunes of British luxury car maker Jaguar and Land Rover (JLR) nosedived over the last two quarters due to a slowdown in the Chinese market, declining sales of diesel vehicles in Europe and uncertainties over Brexit. The rating agency downgraded its outlook on JLR’s parent company to negative from stable and the ratings to Ba3 negative from Ba2 stable on Tuesday.

“The negative outlook reflects our expectation that the weak operating performance of TML’s wholly owned subsidiary, Jaguar Land Rover Automotive Plc (JLR), will likely continue over at least the next 12-18 months, in turn weighing on TML’s earnings and consequently also the rating trajectory," Kaustubh Chaubal, vice president and senior credit officer, Moody’s, said on Wednesday.

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Buyers of luxury cars in China appear to have postponed their purchases, as the government is expected to reduce the import duty on vehicles to 15% from the existing 25%. JLR, which manufactures its products in China though a joint venture with state-owned Chery Automobiles, has had to offer more incentives and discounts to customers, impacting realizations per unit from China. JLR sales have also slowed in its home market Britain and other key markets. Production in the company’s British factories was shut for a week in Solihull and three days at Castle Bromwich to match production with retail demand in September.

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A decline in diesel car sales in Europe and the huge investments JLR has had to make to develop alternative technologies, such as electric cars, are also taking a toll on its finances.

“During the first half of FY 19, JLR reported a decline in retail volumes of 4.1%—while wholesale volumes were down 10.1%—compared with corresponding period of FY18. This fall resulted in a decline in revenues of 8.9% or £1.1 billion to £10.9 billion and Ebitda of £836 million (7.7% reported Ebitda margin), down from £1,188 million in the first six months of FY18," said Moody’s in a statement.

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Credit officers at Moody’s had been encouraged by the turnaround of JLR’s India business in the past few quarters on the back of recent product launches, and the company’s focus on cost reduction.

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“Looking ahead, Moody’s expects the strongly performing ex-JLR businesses to continue providing cushion to consolidated metrics, with adjusted debt/Ebitda comfortably maintained at levels of 3.4x-3.8x over the next 12-18 months," the rating agency noted in a statement.

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