Tata Motors passenger vehicles outlook revised to negative on slow recovery at Jaguar Land Rover: S&P Global

The outlook of Tata Motors Passenger Vehicles Ltd. (Tata Motors PVs) has been revised to negative from stable, citing a slower-than-expected recovery at its wholly owned subsidiary, Jaguar Land Rover Automotive PLC (JLR), according to the S&P Global Ratings.

However, the agency affirmed its long-term issuer credit rating at 'BBB'.

According to the report, cash flow at Tata Motors PVs is expected to be significantly lower due to a prolonged operational disruption at JLR following a cyber-incident. While JLR has resumed production, the ramp-up to full capacity is likely to be gradual.

It stated "The negative outlook reflects our view that a recovery from the operational disruption following a cyber incident at JLR could be prolonged and lead to Tata Motors PVs' credit metrics staying weaker for longer".

The report also mentioned that following the demerger of Tata Motors' commercial vehicle operations, JLR now contributes to more than 80 per cent of Tata Motors PVs' earnings.

S&P Global said it revised the outlook on Tata Motors PVs and TML Holdings Pte. Ltd. to negative and affirmed the 'BBB' long-term issuer credit rating.

The agency also lowered the long-term issue rating on senior unsecured notes issued by TML Holdings to 'BBB-' from 'BBB'.

The agency had earlier expected the demerger of the commercial vehicle business to be neutral for the company's rating, estimating its net debt-to-EBITDA ratio at about 1.0x at that time.

However, after the cyberattack and subsequent loss of revenue, S&P Global now projects Tata Motors PVs' adjusted net debt-to-EBITDA ratio will trend closer to 2.5x-3.0x in fiscals 2026 and 2027.

The agency said JLR's earnings recovery remains uncertain due to both market conditions and the lingering impact of the cyber incident.

Despite the challenges, S&P Global said Tata Motors PVs is well positioned to benefit from increasing demand in the domestic market.

The company's diverse product portfolio, including internal combustion, compressed natural gas, and electric vehicles, along with its strong market presence, supports this view.

S&P Global said it could lower the rating further if JLR's earnings recovery is slower than expected due to weak sales rebound, brand reputation issues, or delays in new model launches.

Such a scenario could prevent Tata Motors PVs' funds-from-operations (FFO)-to-debt ratio from recovering toward 40 per cent by fiscal 2028.

On the other hand, the report also mentioned that the outlook could be revised to stable if JLR's recovery is faster, leading to improved credit metrics and stable operating cash flows.