Fitch Ratings revises outlook on Tata Motors to negative
Fitch Ratings has revised its outlook on Tata Motors to Negative from Stable but has maintained its Long-Term Issuer Default Rating at ‘BB+’.
The revision reflects the rating agency’s expectations of higher negative free cash flow (FCF) during FY19 and FY20, following upward capex revisions at automaker’s fully-owned subsidiary, Jaguar Land Rover (JLR).
The agency said it expects FCF to improve after FY20, but will downgrade the ratings if the flow does not improve in line with its expectations.
The outlook revision also takes into account evolving risks, including a disorderly Brexit, higher global tariffs and slower execution of JLR’s plan to move away from diesel-based powertrains in Europe, the agency said.
JLR accounts for than 65 percent of Tata Motors’ EBITDA generation. Fitch had revised its outlook on JLR to Negative from Stable on September 13.
The rating agency further said it expects gradual improvement in Tata Motors’ profitability that has weakened in the previous few years due to weaker profitability at JLR. This should help FCF turn positive in FY21 and curb deterioration in consolidated leverage, it added.
Among the key rating drivers for Tata Motors, Fitch also counted its association with Tata Sons, one of the major shareholders in the company, apart from improving business in India.
Fitch expects Tata Sons to continue supporting Tata Motors given its strategic importance to the group and the reputational risk arising from the shared Tata brand.
