| Tata Motors Limited | ||||||
| Rating outlook revised to 'Negative'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has revised its rating outlook on the long-term bank facilities of Tata Motors Limited (TML) to 'Negative' from 'Stable', and reaffirmed the rating at 'CRISIL AA'. The rating on the commercial paper and short-term debt has been reaffirmed at 'CRISIL A1+'. |
| Analytical Approach |
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CRISIL has combined the business risk profiles of TML and its subsidiaries (included in Annexure - List of Entities Consolidated), including JLR and its joint venture Chery Jaguar Land rover Automotive Company Ltd (CJLR) in proportion to its shareholding. |
| Key Rating Drivers & Detailed Description |
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Strengths * Improving product portfolio and strong brand in the global luxury automotive segment Jaguar and Land Rover are iconic brands with a rich heritage in the premium luxury segment. JLR's strong product development capabilities have enabled successful product launches and expansion into new segments, thus enhancing its product portfolio. This supports diversification of potential growth drivers thereby enhancing company's business profile. CRISIL believes that with frequent refreshes, new product launches in Jaguar and Land Rover, and further integration of technology in its vehicles, JLR will continue to improve its product portfolio. * Strong market position in CVs; weak but improving performance in PVs TML's domestic business comprising both commercial (CV) and passenger (PV) vehicles have demonstrated significant improvement in market share and profitability, despite market challenges. In the CV segment, the company is consolidating its position as the largest player with a market share of 45.7% in the first 9 months of fiscal 2019. In PV segment, the company has increased its market share to 6.2% in the same period. TML's standalone profitability also improved to 8.7% in the same period from 6.2% in fiscal 2018 and 3.7% in fiscal 2017. The company is focused on achieving healthy volume growth, reduction in costs, better dealer management, improving product portfolio and working capital efficiency. These measures should continue to drive improvement in the company's domestic business over the medium term. * Healthy financial flexibilities Despite a non-cash impairment provision of Rs 27,838 crore in Q3 of fiscal 2019, which will impact the company's networth, the financial risk profile remains healthy. Debt protection indicators are expected to remain adequate going ahead. Liquidity profile remains healthy, reflected in adequate cash surplus, significant unutilized fund based facilities, coupled with back-ended debt repayment. Working capital cycle has also remained negative over the years primarily because of high trade payables. While CRISIL expects this to continue over the medium term, any large variation will be a key monitorable. Weaknesses * Weak operating performance at JLR owing to challenging market conditions and increased business risks JLR's operating profile is expected to remain constrained by challenging market conditions in its key markets especially China and Europe. Moreover, high competitive intensity, especially in North America and China has impacted pricing. This may result in JLR's operating margin reducing to about 8% in fiscal 2019, from over 11% in the previous fiscal. JLR faces business risks related to terms on which Brexit is finalized' with risk of restrictions on movement of goods and manpower coupled with tariff barriers between UK and EU. Moreover, JLR's business profile remains exposed to the threat of imposition of stringent tariffs on auto imports in the US, which may impact volumes and profitability in this key market. CRISIL will continue to monitor the developments on these fronts. * Large capex at JLR to result in negative free operating cash flows over the medium term The luxury car segment entails large capex, with successive product launches and investment in technology. The global auto industry is rapidly evolving with higher regulatory focus on emission norms and electric vehicles. Moreover, consumer's preference is shifting towards new technologies such as connected cars and autonomous driving. JLR has limited flexibility to defer its capex of about GBP 4 billion per annum, without impacting its planned launches or investments in technology, which is critical for its market position. JLR's large capex, along with constrained profitability is expected to result in negative free operating cash flows (FOCF) in the range of GBP 500 million to GBP 1 billion for fiscal 2020. This is likely to result in sustained high consolidated leverage, with net debt/EBITDA expected at about 2 times by end-March 2020, from 1.2 times as of March 2018. In this context, success of the new launches and improvement in company's operating leverage will be a key monitorable. |
| Liquidity |
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TML, at a consolidated level, has adequate liquidity driven by expected cash accruals of about Rs 28,000 crore in fiscal 2020. As on December 31, 2018, the company had total liquidity of about Rs 43,000 crore which includes cash and cash equivalents of about Rs 24,000 crore and unutilized RCF facilities of about Rs 19,000 crore. Against this company has long term repayment obligations of around Rs 8,200 crore in fiscal 2020. CRISIL expects internal accruals, cash & cash equivalents and unutilized credit lines to be sufficient to meet its repayment obligations. |
| Outlook: Negative |
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CRISIL believes TML's consolidated profitability will remain constrained in the medium term by the challenging market conditions faced by JLR. Therefore, improvement in volumes, stepped up cost control measures and efficient capital budgeting will be critical for maintaining credit risk profile. |
| About the Company |
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TML is India's largest wholly integrated automotive company, manufacturing passenger cars, multi-utility vehicles, and CVs. In June 2008, it acquired JLR which specializes in manufacturing of premium cars and Land Rover specializes in premium sports utility vehicles (SUVs). |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
*Limits are fully interchangeable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - List of Entities Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
*Limits are fully interchangeable | ||||||||||||||||||||||||||||||||||||
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