S&P reaffirms B+ rating for Tata Motors, keeps outlook 'negative' on high cash burn at JLR

Global rating agency S&P has reaffirmed Tata Motors' long-term issuer and issue credit ratings to "B+" and kept the outlook negative due to high cash burn at its British arm Jaguar Land Rover and geopolitical risks.

"The negative outlook reflects Tata Motors' vulnerability to continued cash burn at Jaguar Land Rover Automotive (JLR), further risks from uncertainties on Brexit and trade tensions, as well as India's automotive market slowdown," S&P said in a report.

The rating agency has removed the ratings from "CreditWatch", saying that geopolitical risks such as Brexit and US tariffs could take longer than expected to play out.

According to S&P, Tata Motors' continued cash burn largely at its UK-based subsidiary JLR is denting the company's financial position. In addition, the agency is unsure of the timing and outcome of significant events such as Brexit and US trade tariffs, it said.

Tata Motors' first-quarter fiscal 2020 performance remained weak, with JLR volumes down 11.6% across markets and India commercial vehicle (CV) volumes 14.8% lower, it added.

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The agency expects Tata Motors' cash flow to stay negative at least over the next two years, largely driven by volume recovery from JLR's new product launches, stabilizing Chinese markets, and 800 million pounds of budgeted cost cuts under project charge.

"An expectation of volume growth in its Indian market, which hinges on late recovery of monsoon and overall shift to new emission norms, should also aid the recovery," S&P said.

S&P, however, warned that it may lower Tata Motor's ratings if it see diminishing prospects of turnaround at JLR. It may also downgrade Tata Motors if we expect Brexit or other geopolitical risks to cause further disruptions to its operations, increasing the pressure on business and financial position, it added.

"In an unlikely situation, we may also downgrade Tata Motors if the significant cash burn results in weak liquidity or if we see rising refinancing risks due to waning bank support," S&P said in the report.

Earlier in March, S&P Global Ratings has downgraded the credit rating of Tata Motors and its wholly-owned subsidiary JLR, citing weak profitability.

Edited by Chitranjan Kumar

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