CARE cuts Tata Motors’ rating over JLR performance

Poor performance at JLR impacts Tata Motors’ credit rating

CARE Ratings has cut the rating on Rs 11,400 cr of bank and debenture financing availed by Tata Motors due to poor financial performance and high product development costs at the company’s UK subsidiary.

It cut the rating on Tata Motors’ long-term bank facilities and non-convertible debentures to AA from AA+.

CARE said the cut in rating “factors deterioration in Jaguar Land Rover Automotive PLC (JLR) performance and increase in leverage due to ongoing capital expenditure planned for research and product development at JLR.”

“Ratings are also tempered by intensive competition especially in the domestic passenger vehicle (PV) and the light commercial vehicle (LCV) segments and the inherent cyclical nature of the automobile industry,” it added.

CARE said that JLR delivered a poor operating performance in FY18.

Wholesale volume, including China joint venture, grew by just 5% and retail sales volume by only 2%. This was due to lower sales in the Jaguar XE, XJ and F-Type and lower volumes in most of the Land Rover models. Some of the poor sales performance was offset by the introduction of LR Velar, it added.

JLR’s performance was also impacted due to uncertainties around new emission standards for diesel vehicles in the UK and EU.

They are also impacted by uncertainty around Britain’s exit from the European Union, the terms of which are yet to be clear with only days remaining.

On a positive note, CARE said ratings are supported by the long and established track record of Tata Motors Limited, its well-diversified product portfolio, widespread geographical presence aided by large sales and distribution network and its dominant market position in the domestic Commercial Vehicle (CV) segment.