Tata Motors shares fall 4% after Fitch downgrades long term issuer rating

Shares Tata Motors fell nearly 4 percent intraday on July 24 after global rating agency Fitch downgraded company’s long term issuer rating with negative outlook.

The stock was quoting at Rs 152.05, down Rs 4.15, or 2.66 percent on the BSE at 1402 hours IST.

Fitch Ratings downgraded the long-term issuer default rating (IDR) of Tata Motors to ‘BB-‘ from ‘BB’, saying the outlook is negative.

“The rating has been removed from ‘rating watch negative’ where it was placed on February 6,” it added.

Fitch rates Tata Motors on a consolidated basis including 100 percent of JLR, considering its ability to access cash at JLR despite weak legal and operational ties.

The downgrade reflects the reduction in Fitch’s expectations for Tata Motors’ profitability and free cash generation in the next two to three years.

Fitch said it revised estimates because business risks have increased in both its India operations and its fully owned UK-based subsidiary, Jaguar Land Rover Automotive plc.

This will result in a sustained deterioration in company’s financial profile, including its leverage, it added.

The global agency said the rating action follows a similar action on JLR’s rating on 16 July 2019. It rated JLR at ‘BB-‘ with negative outlook.

Uncertainty around an orderly outcome of Brexit negotiations and the evolving global tariffs situation pose risks, in particular to Tata Motors’ JLR business, which faces a significant level of production-sales mismatch due to concentration of its production base in the UK, it added.

The rating agency said JLR’s heavy reliance on the sales of diesel variants exposes it to unfavourable regulations in Europe.

JLR plans to offer electric variants for all of its models by 2020, but unexpected delays could dampen sales performance, according to Fitch.

It expects India’s auto sales volumes to stabilise gradually with the re-election of the government in May 2019, but prolonged weakness in sales would exert further pressure on leverage.

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