Moody's downgraded Tata Motors rating to B1; keeps outlook negative

Moody's Investor Service on Thursday downgraded Tata Motors Ltd's (TML) corporate family rating (CFR) and the company's senior unsecured instruments rating to B1 from Ba3. The rating agency said that it had downgraded Tata Motors' rating as the company is facing tough conditions amid the COVID-19 pandemic.

Moody's Investors Service said in a statement, "The outlook on all ratings has been changed to 'negative' from ratings under review." This rating action concludes the review for downgrade initiated on March 26, 2020.

The company's credit profile was already under pressure due to declining vehicle sales on the back of economic slowdown even prior to the coronavirus outbreak.

The credit agency has said that the Tata Motors' credit profile is more in line with a B2 rating but expectation of strong financial support from parent Tata Sons Ltd leads to a one-notch uplift of the CFR to B1. Tata Sons in October infused Rs 6,500 crore in Tata Motors taking parent's stake to 46.4%.

"The downgrade reflects the sustained deterioration in TML's credit profile," said Kaustubh Chaubal, Moody's vice president and senior credit officer. He added, "We expect that it will take longer than we had previously expected for the company's credit metrics to return to levels appropriate for Ba3 CFR."

However, it expects that market recovery on the back of new model launches and cost-saving programs would improve the luxury carmaker's financial performance in FY22.

He said that the pandemic has amplified the pressure on the company's cash flows that would result in a prolonged period of weak credit metrics. He added we expect the company's EBITA (earnings before interest, taxes, depreciation, and amortization) margin to remain negative in the fiscal year during March 2021, while its adjusted debt/EBITDA will stay above 10.0x.

India's largest commercial vehicle (CV) manufacturer and the owner of British luxury carmaker Jaguar Land Rover (JLR) reported net debt at Rs 48,000 crore as of March 31, 2020.

The vehicle maker had posted record losses of Rs 9,894 crore for the quarter that ended on March 31, 2020. It went into a loss because the company has absorbed asset write-offs from its loss-making businesses besides the impact of the COVID-19 pandemic.