S&P Global Ratings has downgraded the credit rating of Tata Motors and its wholly-owned subsidiary Jaguar Land Rover Automative to BB from BB+, citing weakening operating conditions plaguing its arm. Earlier this month, Moody’s Investors Service also downgraded the company’s senior unsecured instrument ratings to Ba2 from Ba1 with the rationale of expected continued weakness in Tata Motors’ consolidated credit metrics over the next two years led by JLR.
JLR accounted for 48% of the company’s total sales in FY18; it generated 78% of the Tata Motors’ consolidated revenues and 76% earnings before interest tax depreciation and amortisation (Ebitda) for the automotive business.
Due to JLR’s high contribution in the group’s business, the credit rating agency is of the view that improvements in Tata Motors’ Indian automotive business are not sufficient to compensate for JLR’s weak sales.
In FY18, maximum volumes were sold in China, followed by North America with 21.5% and Europe and the UK with 19.9% and 18%, respectively. However, the volumes are expected to decline to 17.2% and 13.8%, respectively, in FY19 and FY20, according to Kotak Institutional Equities.
JLR’s earnings before interest, tax, depreciation and amortisation (Ebitda) margin stood at 12.1% in 2017, falling from 14.1% in 2016, and is expected to decline further over the next two years. Meanwhile, the company has declined to comment on the development.