Mumbai: Moody’s Investors Service said it has downgraded Tata Motors’ corporate family rating (CFR) and the company’s senior unsecured instruments rating to B1 from Ba3, and changed the outlook on all ratings to negative from ratings under review.
This rating action concludes the review for downgrade initiated on 26 March 2020.
“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,” says Kaustubh Chaubal, a Moody’s vice president and senior credit officer.
Tata Motors’ credit profile was already under pressure due to lower auto sales and falling demand in TML’s 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,” he added.
Moody’s said that while Tata Motors’ credit profile is more in line with a B2 rating, the ratings agency’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 equity infusion in October 2019, taking the Tata Group shareholding in TML (upon conversion of warrants) to around 46.4 per cent.
“Today’s 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,” the ratings agency said.
Although TML commands a 43 per cent market share in India’s CV segment, the ratings agency expects around 25 per cent decline in its wholesale unit sales in fiscal 2021 on the back of a 34 per cent decline in fiscal 2020.
Such weak demand prospects put additional pressure on its credit profile as this segment has subsidized the loss-making PV operations for several years, it said.