Moody's downgrades Tata Motors' corporate family rating

NEW DELHI: Global rating agency Moody's has downgraded Tata Motors' corporate family rating to non- investment grade with little assurance of long term payments following a slowdown in demand in domestic and overseas markets.

Moody's Investor Service has downgraded Tata Motors' rating by two notches to 'B1' from earlier rating of 'Ba2'.

Both the ratings come under broad category of non- investment grade, while B1 signifies less attractive investment bonds having little assurance of long term payment. 'Ba2' had signified bonds with speculative fundamentals in which security of future payments were moderate.

"The rating change reflects the slowdown in demand seen in both TML's domestic and overseas markets. This translates into pressure on profitability and happens at a time when the company has increased its leverage," Moody's Vice-President and Senior Credit Officer Elizabeth Allen said in a statement.

TML's financial flexibility has, therefore, significantly weakened, she added.

"The key European and US markets of Jaguar Land Rover(JLR) - a TML subsidiary - have both deteriorated materially in recent months and conditions are expected to remain weak for at least the next 12 months," Allen said.

With this, JLR's performance has become uncertain and could have a significant impact on TML's consolidated performance, she said, adding "as a result of these negative developments and high input costs, TML's reported standalone EBIT margin has fallen from an average of around 10 per cent in previous years to about 5 per cent now".

The agency said the worsening situation in the global car markets was likely to persist through 2009 and pressure on the company's earnings and cash flow was likely to continue to till next financial year.