Moody’s Investors Service on Friday changed the outlook on Tata Motors (TML) to steady from adverse. At the identical time, it affirmed TML’s B1 corporate family rating (CFR) and B1 senior unsecured ratings.
The steady outlook reflects Moody’s expectation of a continued recovery in auto sales in every of TML’s operating markets. The steady outlook also incorporates the ratings firm’s view that any effect from the resurgence in coronavirus infections in India would be restricted to the present quarter.
Kaustubh Chaubal, vice president and senior credit officer at Moody’s, mentioned, “We expect the recovery to sustain over the upcoming 12 to 18 months, strengthening TML’s credit metrics, with debt/ Ebitda leverage tracking below 4x and Ebitda margin of 3%-4%. Our adjusted free cash flows for TML will likely stay negative with its continuous product development and capital expenditure, although the improving profitability and leverage support our view that the imminent risk of a downgrade has now been averted.”
Moody’s views Jaguar Land Rover’s (JLR) new approach and monetary targets — announced in February — towards electrification, enhancing profitability and no cost money flow generation as positive. JLR’s restructuring efforts, strong development in China and recovery in crucial markets such as Europe and North America more than the coming quarters will boost its income and leverage, the ratings firm mentioned.
Meanwhile, TML’s operations other than JLR — TML India, which comprises industrial cars (CVs) and passenger cars (PVs) in India — will be challenged through the present quarter simply because of reduced unit sales due to the localised lockdowns amid the serious second wave of Covid-19. Moody’s forecasts for TML India assume that the enterprise achieves April 2021 unit sales for the initial half of fiscal 2022, just before climbing to March levels for the rest of fiscal 2022.
TML’s consolidated liquidity is sufficient, driven by JLR’s £4.5 billion ($6.3 billion) of money and quick-term investments as of December 31, 2020, and the company’s totally undrawn committed £1.9 billion ($2.7 billion) revolving credit facility, which comprises £1.31 billion ($1.84 billion) maturing March 2024 and the balance in July 2022.
In contrast, TML India’s balance sheet liquidity is weak. Its money sources include things like money of $850 million as of December 31, 2020, a $200 million undrawn multi-year revolver (maturing in 2022), and an equity injection of $350 million from Tata Sons with the warrant conversion in Q4 2021.
Moody’s expects these money sources to be insufficient to meet capital expenditure and debt repayments (which includes quick-term debt) aggregating $2.2 billion more than the next 21 months to September 2022.