Our Bureau The shares of Tata Motors dived further after Fitch Ratings on Wednesday put the company on negative watch over JLR’s Brexit woes. They, however, recovered sharply to close higher at ₹178.5 on the NSE over the previous day’s close of ₹175.8.
The international ratings agency has placed Tata Motors’ long-term issuer default rating of ‘BB’ on Rating Watch Negative (RWN) to reflect the increasing risks of a disorderly Brexit for its fully-owned subsidiary Jaguar Land Rover Automotive plc.
Tata Motors’ stock hit a low of ₹171.9 intraday; the stock’s 52-week high and low prices are ₹398 (February 5, 2018) and ₹154.65 (December 11, 2018), respectively.
JLR, which accounts for the majority of Tata Motors’ earnings before interest, tax, depreciation and amortisation (EBITDA) generation, has a “significant production bias to the UK, despite a reasonable degree of geographic diversification in its sales mix,” Fitch said, and added trade barriers and logistic issues arising on account of disorderly Brexit could have an impact on JLR’s competitive positioning, and lead to significantly lower sales and profitability and higher working capital needs.
“This is likely to outweigh improving operating performance in the firm’s India business, and lead to significantly lower cash generation and higher leverage than our rating case,” it added. The rating action follows a similar action on JLR’s rating on Monday, Fitch further said.
‘Awaiting clarity’
“We aim to resolve the RWN in the next few months, when we will have more clarity over the outcome of Brexit negotiations and its impact on Tata Motors. This could lead to a downgrade by at least one notch,” said a Fitch statement.
It may be recalled that in November 2018, Moody’s Global Services had changed Tata Motors’ rating outlook to ‘negative’ from ‘stable’, citing expectations of weak operating performance of JLR.
While S&P Global Ratings had maintained its “negative watch” stance in December, domestic raters ICRA and Crisil downgraded it to ‘stable’ from ‘positive’ in October and September 2018, respectively.