Fitch Ratings has revised the Outlook on Tata Motors (TML) to Negative from Stable and has affirmed its Long-Term Issuer Default Rating at 'BB+'.

The revision of the Outlook reflects Fitch's expectations of rising negative free cash flow (FCF) over the fiscal years ending March 2019 (FY19) and FY20, following upward capex revisions at TML's fully owned subsidiary, Jaguar Land Rover Automotive plc (JLR, BB+/Negative). We expect FCF to improve post FY20, but the ratings may be downgraded if we believe TML's FCF is not likely to improve in line with our expectations. The Outlook revision also takes into account evolving risks, including a disorderly Brexit, higher global tariffs and slower execution of JLR's plan to move away from diesel-based powertrains in Europe. Fitch revised its Outlook on JLR to Negative from Stable on 13 September 2018.

The affirmation of TML's rating reflects the robust positioning of JLR - which accounts for more than 65% of TML's EBITDA generation - in the premium segment and a financial profile that will remain solid even after considering substantial investment in capacity expansion and new technologies over the next few years. The rating, which includes a one-notch uplift from TML's 'BB' standalone rating on its linkage with its parent, Tata Sons Limited (TSOL), also reflects its leading position in India's commercial-vehicle market and the recovering passenger vehicle business, after successful new-product launches in the previous few years.

Fitch expects a gradual improvement in TML's profitability that has weakened in the previous few years due to weaker profitability at JLR. This should help FCF turn positive in FY21 and curb deterioration in consolidated leverage - as measured by net adjusted debt/EBITDAR, excluding TML's auto-financing subsidiary, TMF Holdings Limited - above 1.5x, the level where Fitch may consider negative rating action.

Shares of the company gained Rs 3.6, or 1.42%, to trade at Rs 256.30. The total volume of shares traded was 207,064 at the BSE (10.46 a.m., Friday).