Moody's Investors Service has downgraded Tata Motors corporate family rating (CFR) and the company's senior unsecured instruments rating to B1 from Ba3.The outlook on all ratings has been changed to negative from ratings under review, it said in a statement on Thursday. It cited a sustained deterioration in company’s credit profile as the reason for the downgrade.

The rating action comes days after the Tata group flagship reported a quarterly pre-tax loss of Rs 9,313 crore compared to a profit before tax of Rs 1,265 crore in the year ago period. While JLR reported a pre-tax loss of £501 million for the quarter, the India business reported pre-tax loss of Rs 4,786 crore.

"The downgrade reflects the sustained deterioration in TML's credit profile and our expectation that it will take longer than we had previously expected for the company's credit metrics to return to levels appropriate for a Ba3 CFR," says Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer, said in the statement.

The pandemic has amplified the pressure on company’s cash flows and will likely result in a prolonged period of weak credit metrics, he added. We expect the company's adjusted EBITA margin to remain negative in the fiscal year ending in March 2021 (fiscal 2021), while its adjusted debt/EBITDA will stay above 10x," adds Chaubal, who is also Moody's Lead Analyst for the company.

To be sure, Tata Motors’ credit profile was already under pressure due to lower auto sales and falling demand in its key markets even prior to the coronavirus outbreak. The rating action reflects the acute challenges faced by company’s domestic operations from the Indian auto sector's slowing sales stemming from sluggish economic activity, weak liquidity, tight financing norms, and poor consumer sentiment.

The rating agency expects Tata Motors’ commercial vehicles sales to drop by a fourth in fiscal 2021 on the back of a 34 per cent decline in fiscal 2020. Weak demand prospects put additional pressure on its credit profile as this segment has subsidized the loss-making PV operations for several years, it said.

It added that the challenges posed by the pandemic will significantly weigh on company’s UK subsidiary, Jaguar Land Rover Automotive. JLR's performance for fiscal 2021, resulting in negative free cash flow and an adjusted debt/EBITDA higher JLR's performance for fiscal 2021, resulting in negative free cash flow and an adjusted debt/EBITDA higher than 10x.

Tata Motors shares closed at Rs 96.40 a piece on the BSE on Thursday, up one per cent. The Sensex closed at 34,208.05 points, up 2.09 per cent.