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Moody's changes outlook for Tata Motors from stable to negative

On 13 November, Moody's had downgraded the luxury-car maker's ratings to Ba3 negative from Ba2 stable, attributing the downgrade to the "sustained deterioration" in the operating and credit profiles of the UK-headquartered premium car manufacturer.ETAuto | November 15, 2018, 09:25 IST
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By Nehal Chaliawala

Mumbai: Credit rating agency Moody’s changed its outlook on Tata Motors Limited to negative from stable due to weak performance from the company’s UK-based subsidiary Jaguar Land Rover.

Moody's changes outlook for Tata Motors from stable to negative
On 13 November, Moody’s had downgraded the luxury-car maker’s ratings to Ba3 negative from Ba2 stable, attributing the downgrade to the "sustained deterioration" in the operating and credit profiles of the UK-headquartered premium car manufacturer. The luxury-car maker had reported a loss for the first time in three years during the June-quarter.

"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," says Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer.
At the same time, Moody's has affirmed the corporate family rating and the company's senior unsecured instruments rating Ba2.

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On the home-front, the rating agency expects India's commercial vehicle sales volumes to continue growing substantially over the next 18 months. Given that Tata is the market leader in this segment with a 46% market share, the sentiment over its performance remains upbeat.

Tata Motor’s share in the passenger vehicles market also increased to an estimated 6.2% in 1H FY2019 from 4.6% in FY2016 with the business finally achieving breakeven after years of being a drag.

Meanwhile, JLR, which used to be the Indian automaker’s cash-horse and compensate for the losses at home, has been marred with poor sales for the past two quarters owing to several reasons.

Demand in China, which is JLR’s largest market, has been down because of the country’s plans of reducing import duties from 25% to 15%. Consumers have delayed purchase amidst confusion, bringing sales down by 46%.

In Europe, uncertainty over Brexit and diesel engines has hampered sales. JLR had shut its Solihull plant in England for two weeks starting 22 October to compensate for the decreased sales.

Moody’s said that an improvement in the rating is unlikely in the coming 12 to 18 months. However, they also said that it may improve if there is a substantial improvement in JLR’s business or if Tata Motors manages to consolidate further share in the CV and PV markets here. 

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