New Delhi: S&P Global Ratings has downgraded Tata Motors to more vulnerable to non-payment grade 'B' citing weaker-than-expected credit metrics owing to the disruptions and economic impact from the coronavirus pandemic.
The ratings agency which had earlier rated Tata Motors B+ has, however, kept the outlook on the company stable.
"The impact of COVID-19 on the global automotive market will make a large dent in the recent good progress that JLR's management has made in steering the business back to profitability and improving credit metrics.
In turn, this would delay the improvement we had expected in Tata Motors' credit profile," S&P said in a statement.
It further said the previous 'B+' rating on Tata Motors was predicated on expectation that revenues and profit margins at both Jaguar Land Rover (JLR) and Tata Motors' Indian operations would improve steadily in fiscals 2020-2022.
"Even before the COVID-19 outbreak, JLR's sales volumes for fiscal 2020 were likely to decline, while the Indian operations were affected significantly by structural changes in the commercial vehicle segment and a slowing economy," it stated.
S&P said it has now "altered our assumptions given uncertainty in production volumes and demand following the pandemic. We now forecast Tata Motors' consolidated revenues to decline about 5 per cent in fiscal 2021 following a sharp revenue drop in fiscal 2020."
The ratings agency further said it views positively the management's focus on conserving cash amid the changes in operating conditions.
Tata Motors' recent announcement to subsidiarize its domestic passenger car business and to explore mutually beneficial partnerships could be positive.
However, the plans are at an early stage and are not expected to have a significant impact in fiscal 2021, S&P said.
S&P further said while negative FOCF is a risk over the period, "we believe Tata Motors has financial flexibility as part of the Tata Group, though the benefits are more pronounced at the Indian operations than at JLR"....