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Fitch Ratings downgrades Tata Motors with negative outlook

Fitch Ratings downgrades Tata Motors with negative outlook

Fitch Ratings downgrades Tata Motors with negative outlook
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By CNBC-TV18 Jul 24, 2019 3:32:47 PM IST (Published)

The rating agency has downgraded the company citing its profitability and free cash generation in the next two years, adding that the negative outlook reflects limited rating headroom.

Fitch Ratings has downgraded the long-term Issuer Default Rating (IDR) of Tata Motors to ‘BB-‘ from 'BB' with a negative outlook and has been removed from the Rating Watch Negative.

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The rating agency has downgraded the company citing its profitability and free cash generation in the next two years, adding that the negative outlook reflects limited rating headroom.
Shares of Tata Motors declined 4.5 percent to trade at Rs 71.80 per share intraday. At 01.56 PM, the stock was down 3.92 percent at Rs 72.25 per share on the National Stock Exchange, while the Nifty 50 was down 50.25 points, or 0.44 percent, at 11,280.80.
The company’s UK-based subsidiary Jaguar Land Rover has taken a hit following the uncertainties around the outcome of Brexit negotiations and the evolving global tariffs situation. The JLR business faces a significant level of production-sales mismatch owing to the concentration of its production base in the UK.
Fitch expects Tata Motors' domestic sales volume to fall 20 percent since the auto sector has been taking a beating amid NBFC crisis and excess capacity caused by relaxation of axle load standards for commercial vehicles and slow GDP growth.
While new product launches will help the company sustain its leading market position in commercial vehicles and gradual gains in the passenger segment too, they also pose an additional risk from the implementation of tighter emission standards under BS6 starting from April 2020.
“Fitch expects TML's consolidated net leverage, measured by adjusted net debt/EBITDAR and excluding the auto-financing subsidiary TMF Holdings Limited, to increase to 2.6x in FY20 and 2.9x in FY21, from 2.1x in FY19. We expect net leverage to normalise to around 2.5x in FY22, but it will remain markedly higher than 2.0x - the level at which Fitch had previously guided to consider negative rating action and leaves limited headroom in FY21 compared to the revised net leverage sensitivity at 3.0x. TML cut its capex, notably in its JLR business in FY19. Nonetheless, we expect higher capex in India and the JLR business as TML continues to invest in new models and a new modular chassis and electrification, including investment in a new battery facility,” the rating agency said.
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