Singapore: Moody's Investors Service has downgraded Tata Motors Ltd's (TML's) corporate family rating (CFR) and the company's senior unsecured instruments rating to B1 from Ba3.
The outlook on all ratings has been changed to negative from ratings under review. This rating action concludes the review for downgrade initiated on March 26.
"The downgrade reflects the sustained deterioration in TML's credit profile and our expectation that it will take longer than we had previously expected for the company's credit metrics to return to levels appropriate for a Ba3 CFR," said Moody's Vice President and Senior Credit Officer Kaustubh Chaubal.
TML's credit profile was already under pressure due to lower auto sales and falling demand in key markets even prior to the coronavirus outbreak.
"The pandemic has amplified the pressure on TML's cash flows and will likely result in a prolonged period of weak credit metrics. We expect the company's adjusted EBITA margin to remain negative in the fiscal year ending in March 2021 (fiscal 2021), while its adjusted debt/EBITDA will stay above 10.0x," said Chaubal.
TML's credit profile is more in line with a B2 rating. However, Moody's expectation of extraordinary support from its parent Tata Sons Ltd in times of need results in a one-notch uplift of the CFR to B1.
Tata Sons and other Tata Group companies have been a supportive shareholder over the years as reflected in various equity injections including the most recent 927 million dollar equity infusion in October 2019, taking the Tata Group shareholding in TML (upon conversion of warrants) to about 46.4 per cent.
TML's operations include its 100 per cent owned premium car manufacturer Jaguar Land Rover Automotive Plc as well as its commercial vehicles (CV) and passenger vehicles (PV) businesses in India, TML India.
Moody's said the rating action reflects the acute challenges faced by TML India from the Indian auto sector's slowing sales stemming from sluggish economic activity, weak liquidity, tight financing norms and poor consumer sentiment.
Although TML commands 43 per cent market share in India's CV segment, Moody's expects around 25 per cent decline in its wholesale unit sales in fiscal 2021 on the back of 34 per cent decline in fiscal 2020. Such weak demand prospects put additional pressure on its credit profile as this segment has subsidised the loss-making PV operations for several years.