Covid-19 have an effect on: S&P downgrades Tata Motors outlook to negative from steady


Rating agency S&P Global Ratings has downgraded the outlook for Tata Motors to negative from steady because of a slower than expected recovery in company’s operational performance, it said in a commentary on Thursday.

The negative outlook, it said, reflects the risk that the continued have an effect on of the Covid-19 pandemic on the global automotive market could disrupt the recovery we expect in Tata Motors’ volumes and earnings over the next 12-24 months.

This is the second one outline by a global credit rating agency on the Tata Group flagship that raises concern approximately the company’s performance. On October 16, Moody’s Investor Services and products said an uncertain pace of recovery in the global auto market will continue to take a toll on Tata Motors and its wholly-owned subsidiary Jaguar Land Rover (JLR) Automotive for the next 12-18 months. But it added it is likely to keep its ratings on Tata Motors

Tata Motor’s losses in the September quarter widened year-on-year to Rs 307.3 crore compared with a net loss of Rs 187.70 crore a year ago. This was once much lower than the loss of Rs 1,970.3 crore forecast by a Bloomberg ballot of five brokerages. The complete revenue from operations all over the period crimped. It was once 18.19 per cent to Rs 53,530 crore, from Rs 65,431.95 crore a year ago.

The company is optimistic of the street ahead pointing out that the cash drift was once extremely encouraging and commerce outlook remains encouraging.. As the situation normalizes and festive season starts, the company expects gradual pickup in demand in the domestic market.

But S&P is less sanguine. “Tata Motors’ earnings are recovering slower than we expected, resulting in higher leverage than we anticipated. We have lowered our forecast for the automobile company’s sales volume and EBITDA for fiscals 2021 and 2022 owing to the slower recovery. The Covid-19 pandemic and a potential no-deal Brexit could weigh on our revised base case” S&P said in a release.

Tata Motors commercial vehicle (CV) sales in India in the first half of fiscal 2021 were approximately 60 per cent lower than a year earlier because of Covid-19-related lockdowns in addition to continuing weak industry demand. As a result, S&P expects fiscal 2021 and 2022 sales volumes to be 25 per cent to 30 per cent lower than its preceding forecasts, it said.

This is on the back of a weak fiscal 2020, when CV sales dropped approximately 35 per cent. The agency had expected the second one half of fiscal 2021 to be significantly stronger than the first half. Further, inside the CV segment, a lesser proportion of the more ecocnomic medium and heavy commercial vehicles may be a concern. It is likely to be 20 per cent to 30 per cent in fiscals 2021 and 2022, compared with around 40 per cent in fiscal 2019. This will drag down the overall profitability of the Indian operations, it said.

The rating agency then again pointed out that company’s passenger vehicle commerce outperformed their expectations in the first half of fiscal 2021 with volumes increasing 10 per cent year-on-year and commerce breaking even at the EBITDA level. “We expect the PV segment to continue to perform polite a minimum of in the next six to 12 months. On the other hand, this will be insufficient to mitigate weakness in the CV segment,” it said.

Meantime, a no-deal Brexit or further widespread Covid-19 lockdowns could hurt U.K.-based subsidiary Jaguar Land Rover Automotive PLC (JLR), weighing on Tata Motors’ credit quality. JLR (B/Negative/–) continues to get well post the first Covid-19 lockdown. On the other hand, pressure on the already soft global auto industry continues to intensify and a second wave of the pandemic is gathering pace in its key markets of Europe and the U.S. We anticipate a 20% decrease in global light vehicle sales in 2020, to approximately 70 million units, as opposed to 90.3 million units in 2019.

The agency said Tata Motors’ lower earnings will delay the deleveraging exercise underway. S&P expects company’s reported EBITDA margin for the automobile segment to be 6 per cent to 8 per cent over fiscals 2021 and 2022, compared with its forecast of 8 per cent to 10 per cent.

“The margin was once 5.4 per cent in fiscal 2020. In absolute terms, we have lowered our EBITDA estimate by approximately 20 per cent for fiscal 2021, and around 25 per cent for fiscal 2022, compared with our preceding expectations,” said the agency.

As a result, it forecasts the adjusted debt-to-EBITDA ratio for Tata Motors to rise to approximately 9x as of March 31, 2021, before declining to 7x by March 2022 (in comparison to its earlier expectations of approximately 7x and 5x, respectively).

“We could revise the outlook to steady whether Tata Motors’ earnings support as we expect and its leverage shows signs of decline toward 5.0x by fiscal 2023,” it said.

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