Jaguar Land Rover on credit rating watch

Mae Love
February 8, 2019

The Tata Motors share closed marginally higher today after credit ratings agency Fitch Ratings said it has placed the credit rating of the Tata Group firm on negative watch, stating increasing risks for its British luxury auto unit - Jaguar Land Rover (JLR) - over a potentially chaotic Brexit. -China trade tensions, low demand for diesel cars in Europe and Brexit worries.

Much of the firm's model range is now diesel-powered, while diesel sales in Europe have been falling. Tata Motors' loss came at Rs 26,993 crore ($3.78 billion) for the three months ended December 31, compared with a profit of Rs 1,199 crore in the year-ago period.

Dr Ralf Speth, JLR chief executive, said: "Jaguar Land Rover reported strong third quarter sales in the United Kingdom and North America, but our overall performance continued to be impacted by challenging market conditions in China".

"We are encouraged by continued demand for the refreshed Range Rover and Range Rover Sport", JLR Chief Commercial Officer Felix Brautigam said in a statement. Revenues fell by £100m to £6.2bn as vehicle sales fell to 144,602 for the quarter, nearly 10,000 less than the previous year.

The company continues to invest in new vehicles, electrification, and technology.

The stock was down about 20 percent by 0720 GMT near 150 rupees, on track for its sharpest drop since 2003.

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Analysts at Jefferies pegged the stock at 250 rupees, versus an earlier target of 300 rupees, citing weak performance at JLR.

The write-down during the quarter ending in December was a 3.1 billion pound ($4 billion) one-time non-cash charge, the company said.

The impairment charges have been arrived at after taking into consideration the current assets on JLR's books, future investment, and "stress testing" it for low growth environment, coming particularly out of China, rising interest rates, and technological disruptions, he added.

Fitch Ratings has revealed that the Indian-owned company's credit ratings are under review, and could be downgraded. They had already slumped more than 50 per cent in the past 12 months through Thursday on concerns about Jaguar Land Rovers waning sales, profitability, high capital-expenditure need and the impact of Brexit.

British Prime Minister Theresa May's Brexit deal was rejected in parliament last month and the government is trying to make changes to win the support of lawmakers even as the divorce date for Britain's departure from the European Union looms less than two months away.

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