Under surveillance: S&P puts Tata Motors’ long-term rating on ‘CreditWatch’

S&P has placed homegrown auto major Tata Motors’ long-term credit rating on ‘CreditWatch’ with negative implications, reflecting the risk that credit metrics could deteriorate.

The move to place ‘BB’ long-term issuer credit rating on Tata Motors on CreditWatch with negative implication follows interim results which were weaker than expected, dragged down by Jaguar Land Rover, S&P said in a statement.

“We believe the company is likely to miss our expectation for fiscal 2019 unless it takes swift corrective steps,” it added.

Last month, Tata Motors reported a consolidated net loss of Rs 1,009 crore for the second quarter ended September 30, 2018, mainly due to a weak performance by its British arm Jaguar Land Rover (JLR).

Its total revenue from operations rose 3.3% to Rs 72,112.08 crore compared with Rs 69,838.68 crore in the year-ago period.

The company’s British arm, JLR, had reported an 11% decline in revenue to £5.6 billion.

On a standalone basis, the company reported a net profit of `109.14 crore. It had reported a net loss of `283.37 crore in the second quarter of 2017-18.

S&P further said, “The CreditWatch with negative implication is driven by our view that Tata Motors’ adjusted credit metrics may have weakened and the company’s credit profile may no longer support its rating if it fails to post a sharp recovery in the remainder of the year.”

Under CreditWatch, S&P focuses on identifiable events and short-term trends that cause ratings to be placed under special surveillance with negative implications indicating a rating may be lowered.

It further said, “In our view, faster volume growth at Tata Motors’ India operations of 39.5%, albeit on a lower base, and a 10-12% depreciation in the rupee seem to have tempered the impact of decline in JLR volumes.”

The agency said it would “lower the rating by one notch if we assess that the chances of an immediate turnaround in JLR’s performance is unlikely, resulting in Tata Motors’ leverage (funds from operations [FFO]-to-debt ratio) to remain sustainably below 25% over the next 12-18 months.”

S&P said it aimed to resolve the CreditWatch status over the next 90 days, by drafting a revised base case, after having better understanding of Tata Motors’ financial performance and revival plans.