Ratings agency Fitch today upgraded Tata Motors-owned Jaguar Land Rover's (JLR) long-term foreign-currency issuer default rating and senior unsecured ratings to 'BB+' from 'BB-' with stable outlook.
"The two-notch upgrade to BB+ reflects JLR's delivery on its commitment to widen and strengthen its product portfolio, increase geographic diversification, and expand capacity outside England," Isabelle Katsumata, a director with the agency said.
The success of its entry-models into new segments -- specifically Jaguar Xe and initial indications for F-Pace -- while maintaining robust profitability, positive free cash flow and a strong financial profile, are considered instrumental as it transitions to become a higher-volume premium manufacturer, the report added.
"We expect JLR's launch of more new and refreshed models to continue to support its sales volumes and profitability, even as the company faces challenges on several fronts, including rising competition and margin pressure in China, and continuing uncertainty from the Brexit," Katsumata said.
The agency expects JLR to maintain EBIT margins of 7-8 per cent in the financial years to March 2017 and the next.
"We expect profitability to be supported by Land Rover products, continued robust sales of compact sedan Jaguar Xe, the global rollout of new and refreshed products, including the Evoque Convertible, Jaguar F-Pace (crossover), and the China launch of the Jaguar XF L (sedan)," Katsumata said.
In 2015-16, the company' pre-tax margins narrowed to 8.5 per cent from 12.4 per cent a year ago on weaker product mix and declining volumes in China. The Q1 saw it further dropping to 5.2 per cent mainly due to negative forex effects from the Brexit vote, which more than offset the positive effects of a stronger product and volume mix.
The agency also expects Land Rover products, mainly luxury SUVs, to continue to benefit from robust demand.
The successful launch of all-new Jaguar Xe and F-Pace are filling important segments where JLR has previously not had a product presence.
"Under our base case scenario, we expect JLR's retail volumes to increase by around 10 per cent this year on the back of a 16 per cent volume growth in the June quarter against 13 per cent YoY," the report said.
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