The corporate credit rating of automaker Tata Motors has been lowered by Standard & Poor’s (S&P’s), from ‘BB’ to ‘BB-’. S&P’s credit analyst Mehul Sukkawala said, “We've downgraded Tata Motors and placed the rating on credit watch due to the faster-than-expected deterioration in the automobile market conditions.”  

Tata's sales in India decreased 30 percent last month from November 2007, a much higher decline than expected. The decline followed a 20 percent October decrease from 2007. Also, Jaguar and Land Rover, the marquee British brands that Tata Motors bought out early this year, have seen shrinking demand in the key markets of the US and Europe. This is likely to have an adverse impact on Tata Motors’ financial profile.

S&P will seek information on Tata Motors’ business plan for the next three months to help it assess the impact on the company’s financial position in a challenging capital market for at least for the next year. The Credit Watch designation means, S&P may further lower the ratings within three months. Recently, Moody’s Investors Service downgraded the corporate family rating of Tata Motors to B1 from Ba2. The rating reflects the slowdown in demand seen in Tata Motors’ domestic and overseas markets. S&P further said The Company’s reported stand-alone operating margin has fallen from an average of 10% in previous years to about 5% now.  

The worsening state of car markets globally is likely to persist through 2009, and pressure on earnings and cash flow will continue till 2010.