The rating agency Standard & Poor's revised its outlook on Tata Motors to 'stable' from 'positive'. This move by the rating agency was made on grounds of expecting a higher leverage for the firm's Jaguar Land Rover brand. In a statement, the firm said “The outlook revision to stable reflects our expectation that Tata Motors' leverage will rise.”
This decision made by Standard & Poor's is particularly due to raising capital expenditures of Jaguar Land Rover in the current financial year for capacity addition and product development. During the fiscal year that ended in March 2013, the company had a capital expenditure of around 2 billion pounds that is further increased to about 2.8 billion pounds. The company also added, “This will result in higher-than-expected negative free operating cash flow.”
Standard & Poor's also reaffirmed the company's long term 'BB' corporate credit rating. This rating indicates that due to the ongoing uncertainties in business, economic and financial conditions, the issuer can face major issues but is less liable in the near term. With the uncertainty and slow growth of the Indian automobile market, Tata Motors India is facing major issues, along with a weak performance because of poor demand.
Things are not looking bright for auto makers in the country as the demand continues to fall consistently. Also, the fall in the value of rupee has worsened things for auto makers, who have been forced to raise prices in order to keep up the profit margins. Standard and Poor's expects Jaguar Land Rover to contribute to revenues of Tata Motors by two-thirds and furthermore of 80 per cent of EBITDA in the current fiscal year.
The organisation said, “Jaguar Land Rover's performance in fiscal year 2013 was strong with healthy sales and stable EBITDA margin; we had expected its margin to decline.” Mehul Sukkawala, a credit analyst for Standard & Poor's rating agency, said, “We forecast a healthy 10-15 per cent revenue growth for JLR in fiscal 2014, propelled by sales of the New Range Rover, Range Rover Sport, and XF.”
A credit analyst of the rating agency said, “We believe Tata Motors' sales in India's passenger car and utility vehicle segment will continue to be depressed because of intense competition and the company's weak position. However, its India business' EBITDA margin is likely to improve because of better product mix and cost reduction.” While the company expects sales for the light commercial vehicles to remain flat, it is pinning hopes on sales of medium and heavy commercial vehicles to recover by a bit.
