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Tata Sons had infused about Rs6,500 crore in Tata Motors in October 2019 taking the parent’s stake to 46.4%. (Ramesh Pathania/Mint)
Tata Sons had infused about Rs6,500 crore in Tata Motors in October 2019 taking the parent’s stake to 46.4%. (Ramesh Pathania/Mint)

Moody’s downgrades Tata Motors to B1, outlook negative

  • Moody’s says its outlook on all ratings on Tata Motors has been changed to negative from ratings under review
  • Capex reduction and cost saving programs announced by the company would help in reducing cash burn, says the rating agency

MUMBAI : Moody’s Investor Service has downgraded Tata Motors Ltd’s (TML) corporate family rating (CFR) and the company’s senior unsecured instruments rating to B1 from Ba3.

Moody’s said that its outlook on all ratings on TML has been changed to negative from ratings under review.

The credit rating agency said that TML’s credit profile is more in line with a B2 rating but expectation of strong financial support from parent Tata Sons Ltd leads to a one-notch uplift of the CFR to B1. Tata Sons had infused about 6,500 crore in Tata Motors in October 2019 taking the parent’s stake to 46.4%.

The company’s credit profile was already under pressure due to declining vehicle sales on the back of economic slowdown even prior to the coronavirus outbreak.

"The downgrade reflects the sustained deterioration in TML's credit profile and our expectation that it will take longer than we had previously expected for the company's credit metrics to return to levels appropriate for a Ba3 CFR," says Kaustubh Chaubal, Moody's vice president and senior credit officer.

He said that the pandemic has amplified the pressure on the company’s cash flows that would result in a prolonged period of weak credit metrics.

“We expect the company's adjusted EBITA margin to remain negative in the fiscal year ending in March 2021, while its adjusted debt/EBITDA will stay above 10.0x," he said.

India’s largest commercial vehicle (CV) manufacturer and the owner of British luxury carmaker Jaguar Land Rover (JLR) reported net debt at 48,000 crore as of 31 March.

Tata Motors posted record losses at 9,894 crore for the March quarter as against net consolidated profit of 1,117 crore during the year-ago period as it absorbed asset write-offs from its loss making businesses besides the impact of the pandemic.

JLR, which had returned to profit in Q2 and Q3 during the last fiscal on recovery in sales across key markets including USA, Europe and China, suffered a loss of GBP501 million in Q4 and GBP422 million for the full year.

Moody’s said in a note that JLR is weakly positioned at a B1 negative rating as the pandemic will significantly weigh on its FY21 performance, which is expected to result in negative free cash flow.

However, it expects that market recovery on the back of new model launches and cost saving programs would improve the luxury carmaker’s financial performance in FY22.

Moody’s said in its note that capex reduction and cost saving programs announced by the company would help in reducing cash burn.

The company’s cost cutting plans would see capex roll back to GBP 2.5 billion this year as against the original plan to invest GBP 4 billion at JLR and 1,500 crore for FY21 as against 4,500 crore planned earlier at TML.

While at JLR, the cost saving target is increased from GBP 4 billion to GBP 5 billion by March 21, at TML the management is looking to save 6,000 crore as part of its deleveraging plan.

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