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S&P sets negative outlook on Tata Motors on high cash burn at Jaguar Land Rover

S&P Global Ratings on Aug. 9 removed Tata Motors Ltd. and Jaguar Land Rover Automotive PLC from CreditWatch with negative implications, but assigned a negative outlook to the group, citing continued cash burn at the British luxury-car maker.

The rating agency affirmed the B+ ratings on both companies' long-term issuer and issue credit ratings, but assigned a negative outlook to reflect Tata Motors' vulnerability to Jaguar Land Rover's continued cash burn, further risks from uncertainties on Brexit and trade tensions and India's automotive market slowdown.

The negative outlook on Jaguar Land Rover, meanwhile, reflects the impact on profitability of risks such as weaker-than-expected market volume growth, a potential no-deal Brexit, or new U.S. tariffs, according to Ratings.

The agency added that Jaguar Land Rover's credit profile will likely remain under pressure until the demand for vehicles recovers.

Ratings expects Tata Motors' cash flow to stay negative at least for the next 12 to 24 months until global automotive demand recovers, or if its Chinese operations stabilize and if the group restores its financial health as a result of reducing costs.

The rating agency said it could lower Tata Motors' ratings by one notch if it sees diminishing prospects of a turnaround at Jaguar Land Rover due to failures in reviving volumes or achieving its expected cost savings.

Further disruptions from Brexit and other geopolitical risks may also result in a rating downgrade for Tata Motors, Ratings said.

Conversely, the agency said it could revise Tata Motors' outlook to stable if the group's free operating cash flow turns positive and in the event of reduced risks from a disorderly Brexit or U.S. tariffs. An overall improvement in Jaguar Land Rover's global operations and Tata Motors India operations over the next six to 12 months could also lift the group's ratings.

Ratings downgraded both Tata Motors and Jaguar Land Rover to B+ from BB- in March, citing the latter's depressed profitability. Meanwhile, Fitch Ratings in July lowered the ratings of Tata Motors on increased business risks in India and at Jaguar Land Rover.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.