More bad news for Tata Motors as S&P outlook cut to stable

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26 Aug, 2025 12:21

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Tata Motors shares have more than halved from a peak of Rs 605 seen in February this year, on concerns of slowing Jaguar Land Rover (JLR) sales in China. Also, weighing on sentiment are the hefty discounts on JLR being offered in the US, which will soon start reflecting in Tata Motors' earnings.Despite the steep fall in stock price, investors are not ready to bite yet.Adding to the bad news for the company, rating agency Standard & Poor's (S&P) has cut its outlook for Tata Motors to 'stable' from positive."The demand slowdown in China and continuing capital expenditure at Jaguar Land Rover Automotive (JLR) will result in negative free operating cash flows and weaker financial ratios for Tata Motors in fiscal 2016 than we previously expected," says S&P.The rating agency however has retained its 'BB' long-term ratings on Tata Motors and the company's US-dollar denominated senior unsecured notes, saying new model launches and a recovery in demand will support Tata Motors' financials in fiscal 2017 and onward.Sanjeev Prasad of Kotak Institutional Equities says the movement in the stock is mainly a reflection of its business in China and he would want more clarity on its business there before taking a call. He in fact sees more earnings downgrades for the company.Last week, brokerage house Deutsche Bank downgraded its rating on the stock on 'hold' and cut price target by 21 percent to Rs 375.Brokerage house Credit Suisse, however, has retained its 'outperform' rating on the stock, citing an impending volume recovery, even as it sees some near term pain for the company.From the Credit Suisse report:"JLR is still not able to sell proper volumes of Discovery Sport and XE in the US and China because of the unavailability of Ingenium petrol engines. Their availability starts only in November. Hence, healthy year-on-year growth in volumes will start only from November, with the F-Pace launch in the March quarter. JLR should be able to further build on it."And there could some fall out of the Volkswagen emission scandal as well, cautions the brokerage."…..there is a high probability that compliance costs for the entire industry goes up and JLR being a niche manufacturer can clearly get impacted.”Expect some lousy numbers for the September quarter"……September quarter margins are likely to be the worst in the past four years as a combination of lower volumes, poor mix and higher costs in anticipation of the new launches hit the P&L.”