S&P reaffirms B plus rating on Tata Motors with negative outlook; JLR sales increase 5% in July at 37,945 units

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

FP Staff August 12, 2019 15:16:47 IST
S&P reaffirms B plus rating on Tata Motors with negative outlook; JLR sales increase 5% in July at 37,945 units
  • 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

  • Meanwhile, Jaguar Land Rover (JLR), a part of Tata Motors, has reported a 5 percent increase in total sales at 37,945 units in July as compared with the year-ago period

New Delhi: 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.

SP reaffirms B plus rating on Tata Motors with negative outlook JLR sales increase 5 in July at 37945 units

Representational image. Reuters.

"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 an 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 a 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.

Meanwhile, Jaguar Land Rover (JLR), a part of Tata Motors, has reported a 5 percent increase in total sales at 37,945 units in July as compared with the year-ago period.

Sales of Jaguar brand were at 11,386 units during the month, up 3.6 percent from the same month last year, Tata Motors said in a regulatory filing.

Land Rover sales were at 26,559 units, up 5.6 percent from the same month last year, it added.

"July saw good retail sales growth in the UK, where we continued to outperform the overall industry trend, and the US, with the highest July sales on record for Jaguar Land Rover," JLR Chief Commercial Officer Felix Brautigam said.

Results in China were significantly better than the previous year, thanks to the company's proactive work with the retailer network, he added.

"Whilst the market is still unstable, we look forward to building long-term sales momentum in this important region," Brautigam said.

(With PTI inputs)

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