Fitch Ratings Wednesday placed Tata Motors’ rating on ‘Rating Watch Negative’ on increasing risks of a disorderly Brexit impacting its profits mainstay Jaguar Land Rover Automotive.
JLR, which accounts for the majority of the company’s profit generation, has a significant production bias to the UK despite a reasonable degree of geographic diversification in its sales mix, the global rating agency said in a note.
Trade barriers and logistic issues arising on a disorderly Brexit may impact on JLR’s competitive positioning, and lead to significantly lower sales and profitability and higher working-capital needs, it added.
Fitch has a long-term issuer default rating of ‘BB’ on Tata Motors. The rating action Wednesday follows similar view on JLR taken a day earlier.
Risks to JLR’s business emanating from a disorderly Brexit will outweigh improving operating performance Tata Motors’ domestic business, and lead to significantly lower cash generation and higher leverage than the rating case, it explained.
It will take a “few months” to resolve the Rating Watch Negative (RWN) as clarity emerges on outcome of Brexit negotiations and impact on Tata Motors, the agency said, warning that the rating can lead to a downgrade by at least one notch.
The Tata Motors scrip gained 1.51 per cent to close at Rs 178.20 a piece on the BSE, as against a 0.98 per cent surge in the benchmark.