MUMBAI: Moody?s Investors Service on Friday downgraded the corporate family rating of Tata Motors (TML) to B1 from Ba2.
?The rating change reflects the slowdown in demand seen in both TML?s domestic and overseas markets. This translates into pressure on profitability and happens at a time when the company has increased its leverage. TML?s financial flexibility is, therefore, significantly weakened,? said Elizabeth Allen, Moody?s vice- president and senior credit officer.
The key European and US markets of Jaguar Land Rover (JLR), a TML subsidiary, have deteriorated materially in recent months, and conditions are expected to remain weak for at least the next 12 months. With this, JLR?s performance has become uncertain and could have a significant impact on TML?s consolidated performance,? said Ms Allen.
At the same time, TML?s Indian business has been affected, particularly in the last two months, as the availability of financing for vehicle purchases declined rapidly. ?We expect ongoing pressure in this segment,? said Ms Allen.
TML?s reported standalone EBIT margin has fallen from an average of around 10% in previous years to about 5% now. The worsening state of the global car markets is likely to persist through 2009, and pressure on the company?s earnings and cash flow will continue till 2010.
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