Jan 23 - Fitch Ratings has assigned Jaguar Land Rover PLC's (JLR, 'BB-'/Stable) proposed
senior unsecured notes a 'BB-(EXP)' expected rating.
The final rating is contingent upon the receipt of final documents conforming to
information already received. The notes are rated at the same level as JLR's
Issuer Default Rating of 'BB-' as they will constitute direct, unconditional,
unsecured and unsubordinated obligations of the company.
Using the top-down approach under its "Parent and Subsidiary Rating Linkage
Criteria", Fitch rates JLR a notch below the rating of its parent Tata Motors
Limited (TML, 'BB'/Stable). This reflects the two entities' strong linkages,
JLR's strategic importance to TML and the direct/indirect support provided by
TML since it acquired JLR in the financial year ended March 2009. JLR accounted
for around 69% of TML's consolidated revenues and about 72% of its EBITDA in
H1FY13, up from 63% and 69%, respectively, in FY12. TML's rating factors in a
single notch uplift for potential support from the ultimate owner, Tata Group.
JLR reported strong revenue growth of 23% yoy to GBP6,927m during H1FY13 and
high operating profitability of 13.8% (H1FY12: 13.4%). This was driven by high
sales volumes of Land Rover vehicles and more sales from China. JLR's sales in
China increased to 21.4% of total sales volumes during Q3FY13 from 16.4% a year
JLR's strong revenue and margins have helped to largely offset TML's poor
performance. TML's unconsolidated revenue fell 7% yoy during H1FY13 to
INR229.1bn with EBITDA margins of 5.9% (H1FY12: 7.4%).
On a consolidated basis, TML's net leverage improved to 0.98x in FY12 from 1.21x
in FY11 largely due to JLR's substantially higher cash balances. As of end-FY12,
JLR had a cash balance of GBP2.4bn (FY11:GBP1bn). Fitch expects a similar trend
to persist in FY13.
The ratings are constrained by JLR's limited product portfolio, its shorter
operating history and lower volumes compared with more established and highly
rated premium car manufacturers. In Fitch's opinion, the prevailing weak global
economy may also pose a challenge for maintaining volume growth over the next
one to two years.
WHAT COULD TRIGGER A RATING ACTION?
Negative: Future developments that may, individually or collectively, lead to
negative rating action on JLR include:
-A weakening of linkages between the Tata Group and TML
-A weakening of linkages between TML and JLR
-TML's consolidated financial leverage (excluding that of TML's financial
subsidiary - Tata Motors Finance Limited ) exceeding 2x on a sustained basis due
to reduced sales or profitability (at TML or JLR), or due to
Positive: Future developments that may, individually or collectively, lead to
positive rating action on JLR include:
-Higher volume growth for TML (standalone) and JLR through increased geographic
and product diversification, without significant margin erosion from FY12