Rating agency Fitch revises Tata Motors outlook to negative

Fitch expects a gradual improvement in TML’s profitability that has weakened in the previous few years due to weaker profitability at JLR.
Tata Motors (File | Reuters)
Tata Motors (File | Reuters)

NEW DELHI: Global rating agency Fitch Ratings on Thursday revised the outlook on Tata Motors (TML) to ‘Negative’ from ‘Stable’ on expectations that higher capital spending at Jaguar Land Rover (JLR) will result in negative free cash flow (FCF) in the current and next financial year. However, it has affirmed its Long-Term Issuer Default Rating at ‘BB+’ for the homegrown auto giant.

“We expect FCF to improve post FY20, but the ratings may be downgraded if we believe TML’s FCF is not likely to improve in line with our expectations,” the agency said. 

The outlook revision also takes into account evolving risks, including a disorderly Brexit, higher global tariffs and slower execution of JLR’s plan to move away from diesel-based powertrains in Europe. Fitch had earlier revised its outlook on JLR to ‘Negative’ (BB+/negative) from ‘Stable’ on September 13, 2018.

On the affirmation of TML’s rating, Fitch said that it reflects the robust positioning of JLR, which accounts for more than 65 per cent of TML’s EBITDA generation, in the premium segment and a financial profile that will remain solid even after considering substantial investment in capacity expansion and new technologies over the next few years.

Fitch expects a gradual improvement in TML’s profitability that has weakened in the previous few years due to weaker profitability at JLR.

“This should help FCF turn positive in FY21 and curb deterioration in consolidated leverage — as measured by net-adjusted debt/EBITDAR, excluding TML’s auto-financing subsidiary TMF Holdings Limited — above 1.5x, the level where Fitch may consider negative rating action,” the agency said.

Nano sale drops 90%

Tata Motors, which is expected to wrap up the production of India’s smallest car Nano, managed to sell 10 units of the vehicle in August, down from 180 units sold a year ago.

The carmaker had produced just one unit of Nano in June and since then, there have been strong rumours that the car is inching closer towards the end of its journey.

In the first five months of the current fiscal (April-August), Nano’s cumulative sales came down from 1,312 units sold last year to a mere 125 units.

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