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Rupee and JLR impact Tata Motors ratings

China’s import duty weakens JLR


China’s import duty weakens JLR


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Tata Motors Ltd’s India operations of 39.5%, albeit on a lower base, and a 10%-12% depreciation in the Indian rupee seem to have tempered the impact of decline in Jaguar Land Rover Automotive PLC (JLR).

Stating this, S&P Global Ratings placed its ‘BB’ long-term issuer credit rating on Tata Motors Ltd on CreditWatch with negative implication.

At the same time, it has placed ‘BB’ issue rating on the India-based automotive company’s senior unsecured notes on CreditWatch with negative implications.

Tata Motors reported first-half revenue growth of 8.3% and reported EBITDA margin of 8.7%, against our fiscal 2019 expectations of about 9.0% and about 11%, respectively.

JLR retail volumes weakened by 4.1% compared with S&P’s growth estimates of 6%-8%.

The continued aversion to diesel, Europe’s new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) emission norms starting 1 September 2018 and import duty changes in China were the key reasons behind the weak sales.

Reported debt was higher at Rs1.0 trillion against S&P’s 31 March 2019, estimates of Rs.950 billion, mainly due to higher debt at JLR and translation of foreign currency debt at higher rupee exchange rates.

“We understand Tata Motors is working on a restructuring plan to reign in the continued heavy capital spending and sliding retail volumes at Jaguar Land Rover Automotive PLC (JLR), although the details are still emerging,” said the rating agency.

“We aim to resolve the CreditWatch status over the next 90 days, by drafting a revised base case, after we have better understanding of the company’s financial performance and revival plans.

“We would lower the rating by one notch if we assess that the chances of an immediate turnaround in JLR’s performance is unlikely, resulting in Tata Motors’ leverage (funds from operations [FFO]-to-debt ratio) to remain sustainably below 25% over the next 12-18 months,” said S&P.

“We could affirm the ratings if Tata Motors provides a credible plan to contain its negative free operating cash flows such that its FFO-to-debt ratio remains above 25% on a sustainable basis,” said the agency on 2 Nov 2018.

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