S&P lowers Tata Motors rating to stable from positive

MUMBAI: Rating agency Standard & Poor’s has lowered the rating for Tata Motors from positive to stable on the back of a slowdown in China and continuing capital expenditure at Jaguar Land Rover Plc.
The rating agency said that these two factors will result in negative free operating cash flows and weaker financial ratios for Tata Motors in fiscal 2016 than previously expected.
“The stable outlook reflects our expectation that despite weaker financials in fiscal 2016 due to the slowdown in China, new product launches by JLR and a recovery in demand will help revive the company's ratio of FFO to debt to above 20% in fiscal 2017 and onward,” S&P said in a statement.
At the same time, Standard & Poor's affirmed its 'BB' long-term corporate credit rating and 'BB' long-term issue ratings on the US-dollar denominated senior unsecured notes issued by the company.
Chinese demand is seen to be the key driver of growth for JLR and other luxury carmakers in the past few years. According to Standard & Poor's credit analyst Abhishek Dangra. "Although global new model launches can support growth in fiscal 2017, we now expect fiscal 2016 EBITDA to be weaker. Based on JLR's successful launches in the Land Rover range, we are optimistic that continuing growth in other international markets and planned new launches for Jaguar can offset some of the weakness in China demand from fiscal 2017."
JLR will continue to invest heavily with more than £3 billion annual investments for new product development and emission and safety controls. As a result, free operating cash flows will be significantly negative, leading to a ratio of funds from operataion to debt of closer to 20%. “This is despite the expected recovery in its Indian operations and an equity rights issue of $1.2 billion by Tata Motors in May 2015, because we expect JLR to continue to contribute more than 90% of Tata Motors' EBITDA,” he said.