Citing a “strong consolidated performance” for the fiscal year ended 31 March, 2014, Moody’s has held its rating for Tata Motors (TML) stable at Ba3 but cautioned that the current 2014/15 financial year remains “critical for the group with both JLR and the Indian businesses facing challenges”.
Moody’s vice president Alan Greene said Tata’s consolidated results “marked a strong improvement on last year, due solely to a record performance from Jaguar Land Rover (Ba2 stable), whose revenues and EBITDA increased year on year by 23% to GBP19.4bn and by 45% to GBP3.4bn, respectively”.
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In contrast, Greene said, “the Indian business had a very weak year with revenues falling 23% to INR342.9bn and reported EBITDA swinging to a loss of INR4.8bn from a gain of INR21bn in [fiscal 2013].”
Moody’s said that, as it expected, Q4 results marked a slowdown for TML India and JLR with EBITDA margin falling quarter on quarter to -6.2% and 17.2%, from -4.3% and 19.1% respectively due to weaker than expected economic growth in India and adverse geographical mix and currency for JLR.
“The recovery in Tata’s Indian operations hinges on some recovery in the economy post the election which will support commercial vehicle sales, and the enthusiasm of car buyers for Tata’s new vehicles the Zest and Bolt, which will arrive in the showrooms in the second half of 2014.
“Moreover, until this benefits kicks in, TML woes in India are likely to worsen. In the first two months of FY2015, TML Indian sales have fallen by 31% and 27%, in the commercial vehicle and passenger vehicle segments, respectively, compared to the previous year.
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By GlobalData“Capacity Constraints will limit JLR’s revenue growth in FY15. Until the investment bears fruit, JLR is potentially capacity constrained even though the first vehicles from its joint venture in China with Chery Automobile, which has an annual capacity of 130,000 vehicles, could appear by the end of FY2015.
“Rolling three monthly retail sales growth for JLR slowed to 8% year on year in the last quarter of FY2014 but recovered to 12.7% in April 2014.
“We expect JLR to increase unit sales in FY2015 by a low single digit percentage, achievable from its available capacity,” Green said.
Moody’s noted that TML group liquidity had improved.
“As of March 2014, TML group had a cash balance of INR297bn with a further INR95.7bn in short-term investments and deposits.
“However, TML parent’s liquidity has worsened markedly with reported debt service coverage and interest service coverage ratios turning negative at -0.11x and -0.76x, respectively.
“In FY2015, TML’s group liquidity is likely to deteriorate. Both JLR and TML India are expected to ramp up investments. JLR is expecting to invest GBP3.5bn to GBP3.7bn in FY2015 from GBP2.7bon in FY14, while TML may need to build inventory ahead of its Zest and Bolt launches.
Furthermore, despite the loss at the parent, TML maintained its dividend of INR7.4bn, or less than 50% of JLR’s GBP150m annual dividend.
“We take comfort that JLR’s bond covenants would allow dividend payments or other funding flows much larger than the current GBP150m.”
