March 22 - Fitch Ratings has assigned Jaguar Land Rover PLC's (JLR) proposed senior
unsecured notes issue a 'BB-(exp)' expected rating. The final rating is
contingent upon the receipt of final documents conforming to information already
received. The notes are expected to rank equally with JLR's outstanding USD820m
and GBP500m senior unsecured notes, which have also been affirmed at 'BB-'
Fitch has also affirmed JLR's and its India-based parent's - Tata Motors Ltd
(TML) - Foreign Currency Issuer Default Ratings (IDRs) at 'BB-' and 'BB',
respectively, both with a Stable Outlook.
Using the top-down approach under its "Parent and Subsidiary Rating Linkage
Criteria", Fitch continues to rate JLR at a notch below TML's rating to reflect
strong linkages between the two entities and JLR's strategic importance to TML,
as reflected by its large contribution to TML's consolidated revenues and EBITDA
(around 70% and 80%, respectively, in 9MFY12), and the direct/indirect support
provided by TML since the acquisition in FY09.
JLR's ratings factor in strong revenue growth of 31% yoy to GBP9,386.9m and high
operating profitability of 16.8% (9MFY11: 16.5%) in the nine months ended 31
December 2011 (9MFY12), driven by the high volumes of Land Rover vehicles and
increased contribution from emerging markets. TML (standalone) registered 15.7%
yoy revenue growth to INR379,158m in this period, although EBITDA margins
declined to 7.5% from 10.8% due to higher input costs and pricing pressures.
On a consolidated basis, despite a significant increase in debt in FY12 (partly
attributed to JLR's notes issuances), Fitch expects TML's leverage (net adjusted
debt/operating EBITDA) to remain below 1.6x at FYE12. This is due to JLR's large
cash balances from internal accruals and the unused portion of its notes
issuances. Despite higher interest costs in the year, Fitch expects TML's FY12
coverage metrics to remain comfortable at over 7.5x in line with its 9MFY12
TML's rating factors in a one-notch uplift for potential support from the Tata
Group. Any weakening of linkages between the group and TML would be negative for
the rating. Similarly, any weakening of linkage between TML and JLR would be
negative for JLR's ratings.
Also, consolidated financial leverage (excluding TML's financial subsidiary -
Tata Motor Finance Limited) exceeding 2.0x on a sustained basis due to reduced
sales or profitability, or higher-than-expected debt levels would be negative
for TML's unsupported rating.
Positive rating action could result from a substantial improvement in JLR's
geographic and product diversification, together with successful product
development plans. A significant improvement in market share in the smaller
luxury cars and SUVs segment and higher-than-expected growth in traditional
markets on a sustained basis while maintaining low leverage would also be
positive rating guidelines.
For FY11, on a consolidated basis, TML reported revenues of INR1,231.3bn (FY10:
INR925.2bn), an EBITDA of INR177.8bn (INR86.1bn), EBITDA gross interest coverage
of 8.69x (3.85x) and a net adjusted debt/EBITDA of 1.39x (3.37x). During the
same period, JLR reported revenues of GBP9,870.7m (GBP6,527.2m), an EBITDA of
GBP1,465.3m (GBP321.5m), EBITDA gross interest coverage of 44.27x (6.07x) and a
net adjusted debt/EBITDA of 0.35x (2.13x).