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Nikkei Markets

Tata Motors faces ratings downgrade by Moody's

Coronavirus could delay Jaguar Land Rover recovery

Before the onset of the coronavirus outbreak, Mumbai-based Tata Motors had barely recovered from a prolonged slowdown in China.   © Reuters

MUMBAI (NewsRise) -- Moody's Investors Service placed Tata Motors' rating under review for a downgrade, as the raging coronavirus pandemic threatens to further weaken the Indian automaker's already fragile credit profile.

The rapid spread of the pandemic, alongside deteriorating global economic outlook and falling oil prices, are creating a "severe and extensive credit shock across many sectors, regions and markets," the ratings agency said in a statement on Thursday.

"The combined credit effects of these developments are unprecedented," it said. "The company remains vulnerable to the outbreak continuing to spread."

The virus outbreak, which first emerged in China late last year, has created a global public health emergency, killing more than 21,300 people and infecting up to 474,200.

It has stirred an economic crisis, spooking financial markets across the world, as businesses shut operations and people confined themselves to their homes. Several automakers have closed factories after global supply chains were disrupted.

Last week, Tata Motors' luxury unit Jaguar Land Rover said it will shut its plant in the U.K. through this week amid the spread of the virus. Earlier, JLR also shut its plant in Slovakia.

The virus outbreak has already clouded the British subsidiary's profit outlook for this fiscal year ending March 31.

Tata Motors had earlier this month warned that JLR's operating margin will be cut by 1% due to the disruption in operations in the world's largest auto market.

Mumbai-based Tata Motors, which derives bulk of its revenue from the British brands, is barely recovering from the throes of a prolonged slowdown in China, where a slowing economy and a trade dispute with the U.S. had damped vehicle demand.

Earlier this week, Tata Motors said it is scaling down operations in India after the contagion started spreading across the south Asian country.

Prime Minister Narendra Modi on Tuesday announced a countrywide lockdown for 21 days to arrest the spread of virus. India has so far reported 681 cases of infection, and deaths of 13 people.

Tata Motors is already contending with a severe downturn in India amid weakening consumer sentiment.

Asia's third-largest economy grew at the slowest pace in six years in October-December as demand shrank and private investments fell.

Moody's cautioned that the demand for new vehicles will reduce "meaningfully" over the coming months, especially in Europe, Middle East, and Asia, as well as North America.

"This is likely to extend through the early summer at least, with a reasonable recovery from the low points commencing at that time."

The shutdown could curb the inventory of unsold vehicles and lead to potential for "meaningful" disruption even once new vehicle production resumes, unless the original equipment manufacturers and the extended supply chain cooperate carefully.

According to the rating agency, the surging pace of spread of the virus across the U.S. and Europe could lead to even more extended production shutdowns and a much-delayed recovery for JLR.

For now, Moody's said it is assuming a reasonable pace of recovery by the third quarter for JLR.

"However, the risk to the downside is considerable and further downside scenarios around the severity and duration of the pandemic are uncertain," it said.

Shares of Tata Motors rose 0.9% in Mumbai trading, while the benchmark S&P BSE Sensex gained 4.9%.

--Dhanya Ann Thoppil

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