Reuters logo
Fitch Upgrades Tata Motors to 'BB+'; Outlook Stable
April 28, 2017 / 7:03 AM / 7 months ago

Fitch Upgrades Tata Motors to 'BB+'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/MUMBAI, April 28 (Fitch) Fitch Ratings has upgraded India-based Tata Motors Limited's (TML) Long-Term Issuer Default Rating (IDR) to 'BB+' from 'BB'. The Outlook is Stable. The upgrade reflects the sustained improvement in TML's Indian automotive business over the last two years, supported by growing commercial vehicle volumes, successful new product launches in the passenger vehicle segment, as well as the management's renewed focus on meeting medium-term capital needs in its Indian operations via internally generated funds. We expect TML will continue to grow its India business and capture more market share over the medium-term. TML's rating also reflects its 100% subsidiary Jaguar Land Rover Automotive plc's (JLR, BB+/Stable) strong credit profile. JLR's EBITDA accounted for close to 85% of TML's consolidated EBITDA in the fiscal year ended on 31 March 2016 (FY16). KEY RATING DRIVERS Recovering Indian Operation: TML's renewed focus on passenger vehicles in the last two years has translated into successful launches in the segment. For example, the launch of the Tata Tiago in April 2016 drove double-digit volume growth in TML's passenger-vehicle segment for 9MFY17. TML's commercial-vehicle division's reported more muted volume growth of about 1% over the same period (FY16: 3%) as the Indian government's demonetisation of large notes at the end of 2016 took a toll on demand. We expect demand for commercial vehicles to improve in the next 12-18 months supported by improving economic activity. TML's Medium & Heavy Commercial Vehicle business has historically been a strong performer, and boasts a domestic market share of more than 50%. Strong Growth in JLR: JLR reported strong volume growth of 17% yoy in 9MFY17, underpinned by strong contribution from the new Jaguar F-PACE, which offset the decline in the Land Rover Discovery and discontinuation of the Land Rover Defender over the same period. We expect JLR's Land Rover products - mainly luxury SUVs - to continue to benefit from robust demand in both developed and developing markets. JLR's launch of the new Jaguar XE and F-PACE fill in important gaps in JLR's product portfolio. JLR's strategy to target high-end customers with premium products resulted in higher EBITDA margin than its rating peers, who have a higher mix of mass-market offerings. High Capex, Strong Financials: We expect TML to invest around GBP3.2 billion in JLR in FY17 to fund capacity expansion, engine manufacturing, vehicle architecture and new technologies to meet carbon emission requirements. The investments include a new manufacturing facility for JLR in Slovakia with an initial capacity of 150,000 units that is targeted for completion by 2018. These are likely to contribute to negative FCF in FY17, despite improving cash flows from operations. TML will also have about INR40 billion of annual capex for its Indian business, mainly for new launches of passenger vehicles. We expect TML's financial profile to remain strong over the medium term in spite of the high capex, supported by improving operating cash flows and the INR74.3 billion rights issue in FY16. We expect TML's leverage (net adjusted debt/EBITDAR) to remain around 1.0x over the medium term (FY16: 0.5x; FY15: 0.8x). Strategic Importance to TSOL: TML's rating continues to benefit from a one notch uplift on account of the moderate linkages with its stronger shareholder Tata Sons Limited (TSOL), as defined in Fitch's Parent and Subsidiary Rating Linkage criteria. Fitch believes TSOL is likely to continue to extend support TML, if required, given the latter's strategic importance to the Tata group, and the reputational risk arising from the shared Tata brand. For example, TSOL subscribed in full to its share of TML's INR74.3 billion rights issue in FY16, and has provided financial support to TML in the past. Any weakening of linkages between the group and TML, or deterioration in the group's ability to provide support is likely to affect the ratings negatively. DERIVATION SUMMARY TML's standalone rating of 'BB' is well-positioned relative to peers in each major metric. TML's standalone rating is one-notch lower than that of Peugeot S.A. (BB+/Stable). TML has a more premium product offering, through JLR, for which demand has generally been less cyclical compared with those of competitors offering mass-market products, such as Peugeot. This is counterbalanced by Peugeot's considerably larger operating scale and its stronger financial profile. TML's premium product offering versus that of Fiat Chrysler Automobiles N.V. (BB-/Positive) counterbalances its smaller operating scale, resulting in a higher standalone rating for TML. We assess TML's linkages with its stronger shareholder TSOL to be moderate as defined in our criteria, driven by TML's strategic importance to TSOL, which is evident in the tangible support that TSOL has extended through equity injections. Consequently, we apply a one notch uplift to TML's standalone profile. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - JLR continues to report volume growth of about 7%-8% over FY17-FY20 and EBITDA margin stabilises at around 14% due to increasing economies of scale as volumes grow, and a focus on in-house R&D and key components procurement. -India operations to see sustained volume growth, but EBITDA margin to remain at around 3%-4% because of intense competition in passenger vehicles, and rising raw material and marketing costs. - Capex / revenue of 12%-14% in FY17 and FY18 - Maximum annual dividend payment estimated at INR7.0 billion for FY17-FY20 RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - We do not expect any positive rating action in the medium term as it takes time for the group to increase scale to a level that is similar with its global peers. Positive rating action may result if the TML group materially increases the volume and breadth of its products, while maintaining profitability and a strong financial profile. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action -A weakening of linkages between the Tata Group and TML -Consolidated net adjusted debt /EBITDAR (excluding TML's auto financing subsidiary Tata Motors Finance Limited) exceeding 1.5x on a long-term basis due to weaker sales or profitability (either at TML or JLR ), or due to higher than expected debt-funded investments LIQUIDITY Healthy Liquidity: TML's readily available cash balance of INR505.2 billion at 31 March 2016 and undrawn committed banking facilities of INR339.4 billion were adequate to meet INR171.9 billion of debt maturing in FY17 and FY18. We expect available liquidity to comfortably cover projected negative FCF of around INR74 billion in FY17. JLR had cash and financial deposits of GBP3.8 billion and undrawn committed bank lines of GBP1.9 billion at end-2016. Contact: Primary Analyst Hasira De Silva, CFA Director +65 6796 7240 Fitch Ratings Singapore Pte Ltd One Raffles Quay South Tower #22-11 Singapore 048583 Secondary Analyst Snehdeep Bohra Associate Director +91 22 4000 1732 Committee Chairperson Vicky Melbourne Senior Director +61 2 8256 0321 Summary of Financial Statement Adjustments - TML's consolidated financial statements include the financial operations. Fitch has based its rating case on the combined credit profile of TML's non-financial operations and those of JLR. Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below