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Moody’s changes outlook on Tata Motors to stable

The Financial Express logo The Financial Express 5/14/2021 FE Bureau
a sign on the side of the street: The stable outlook also incorporates the ratings firm’s view that any impact from the resurgence in coronavirus infections in India would be limited to the current quarter. © Provided by The Financial Express The stable outlook also incorporates the ratings firm’s view that any impact from the resurgence in coronavirus infections in India would be limited to the current quarter.

Moody's Investors Service on Friday changed the outlook on Tata Motors (TML) to stable from negative. At the same time, it affirmed TML's B1 corporate family rating (CFR) and B1 senior unsecured ratings.

The stable outlook reflects Moody's expectation of a continued recovery in auto sales in each of TML's operating markets. The stable outlook also incorporates the ratings firm's view that any impact from the resurgence in coronavirus infections in India would be limited to the current quarter.

Kaustubh Chaubal, vice president and senior credit officer at Moody's, said, "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 strategy and financial targets - announced in February - towards electrification, improving profitability and free cash flow generation as positive. JLR's restructuring efforts, solid growth in China and recovery in key markets such as Europe and North America over the coming quarters will improve its profits and leverage, the ratings firm said.

Meanwhile, TML's operations other than JLR - TML India, which comprises commercial vehicles (CVs) and passenger vehicles (PVs) in India - will be challenged during the current quarter because of lower unit sales due to the localised lockdowns amid the severe second wave of Covid-19. Moody's forecasts for TML India assume that the company achieves April 2021 unit sales for the first half of fiscal 2022, before climbing to March levels for the rest of fiscal 2022.

TML's consolidated liquidity is adequate, driven by JLR's £4.5 billion ($6.3 billion) of cash and short-term investments as of December 31, 2020, and the company's fully 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 cash sources include cash 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 cash sources to be insufficient to meet capital expenditure and debt repayments (including short-term debt) aggregating $2.2 billion over the next 21 months to September 2022.

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