Global ratings agency Standard & Poor’s Ratings Services (S&P) has downgraded the rating for Tata Motors from ‘positive’ to ‘stable’ on account of slowdown in China and continuing capital expenditure at Jaguar Land Rover.
The two factors will result in “negative free operating cash flows and weaker financial ratios for Tata Motors in fiscal 2016 than we previously expected,” the rating agency said.
However, S&P also expected that new model launches and recovery in demand would support Tata Motors’ financials in 2017 and onward.
“The stable outlook reflects our expectation that despite weaker financials in fiscal 2016 due to the slowdown in China, new product launches by JLR and a recovery in demand will help revive the company’s ratio of FFO (funds from operations) to debt to above 20 per cent in fiscal 2017 and onward,” S&P said in its report.
China is an important market for Tata Motors’ luxury arm Jaguar Land Rover.
According to S&P credit analyst Abhishek Dangra: “We believe the slowdown in Chinese demand — the key driver for growth for JLR and other luxury carmakers in the past few years — will result in weaker operating performance and lower margins for Tata Motors than we had previously anticipated.”
JLR will continue to invest heavily with more than three billion pounds annual investments for new product development and emission and safety controls, it added.
“As a result, free operating cash flows will be significantly negative, leading to a ratio of FFO to debt of closer to 20 per cent,” it said.