The credit rating of SINARA TRANSPORTATION (hereinafter, the Company, or ST) is based, on the one hand, on the strong assessments of market position and business profile, as well as high profitability. On the other hand, the medium assessments of business size, geographical diversification, leverage and coverage, as well as FCF margin have a neutral impact on the rating.

The credit rating outlook has been changed because the leverage has remained above 3.5x in 2021 and 2022 (and it is highly likely to stay there in 2023), and the coverage has remained below 2.5x in 2021–2023.

ST is a machine-building holding specializing in the production and servicing of a wide range of railway equipment: electric trains, freight electric locomotives, diesel locomotives of various modifications, industrial diesel engines and diesel generators, track equipment, as well as units and components of railway equipment. The Company is part of Sinara Group, which unifies companies specializing in the construction of housing, provision of financial and banking services, agribusiness, power industry, and the tourism and leisure industry, as well as machinery and equipment production.

KEY ASSESSMENT FACTORS

The strong business profile reflects the Company’s strong positions for a number of sub-factors: Stability of Revenues/Contract Base (more than three years’ worth of annual revenues), Characteristics of Sales Markets, and Dependence on Subcontracting and Components. The Market Position sub-factor is also assessed as high because the Company is a key (and for some types of equipment — the only) supplier of railway equipment on the Russian market. At the same time, the Sales Market Diversification sub-factor received a medium score, given the dominating share of the Company’s sales in the domestic market (more than 90% of revenues). Corporate governance is assessed at a high level due to improved scores for the Risk Management and the Financial Transparency sub-factors.

The medium assessment of the financial risk profile is based on the medium size of the Company's business in the context of the corporate sector (the absolute value of FFO before interest and taxes is within RUB 5–30 bln), as well as medium assessments of leverage and coverage (including the positive adjustment for the threshold value). The calculated leverage indicator (the ratio of total debt to FFO before net interest) is assessed as low since it amounted to 7.8x in 2021 and, according to ACRA's estimations, it will decline to 6.3x by the end of 2022. Moreover, it is highly likely that this indicator will remain above 3.5x in 2023. The calculated coverage indicator (the ratio of FFO before net interest to interest) is low: 1.7x in 2021, 1.9x in 2022, and it is likely to remain below 2.5x in 2023. At the same time, the Company’s profitability is assessed as high — the weighted FFO before interest and taxes margin for 2020–2025 is 10.5%.

Liquidity is high due to the cash position and substantial undrawn limit under available credit lines, which when combined are more than sufficient to cover payments scheduled for 2023. ACRA notes that the Company carried out successful work in 2021 and 2022 to improve its credit portfolio in terms of diversification (issuing public debt), and making the repayment schedule more comfortable.

The high assessment of cash flow is based, on the one hand, on the medium (less than 5% of revenues) free cash flow (FCF), and on the other hand, on the very high assessment of the ratio of capital expenses to revenues (less than 5%).

KEY ASSUMPTIONS

  • Achieving the revenue and operating cash flow targets for 2023–2025.

  • Total volume of capital investments in 2023–2025 in line with the approved business plan.

  • Average FFO before interest and taxes margin at no lower than 12% in the forecast period.

  • Balanced dividend policy.

POTENTIAL OUTLOOK OR RATING CHANGE FACTORS

The Negative outlook assumes that the rating will highly likely be downgraded within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • The ratio of total debt to FFO before net interest declining below 3.5x, coupled with the ratio of FFO before net interest to interest increasing above 5.0x, and a positive value of FCF.

A negative rating action may be prompted by:

  • The ratio of total debt to FFO before net interest remaining above 3.5x in 2023 and the ratio of FFO before net interest to interest remaining below 2.5x in 2023.

RATING COMPONENTS

Standalone creditworthiness assessment (SCA): a.

Adjustments: none.

Support: no.

ISSUE RATINGS

No outstanding issues have been rated.

REGULATORY DISCLOSURE

The credit rating has been assigned to SINARA TRANSPORTATION under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating of SINARA TRANSPORTATION was published by ACRA for the first time on March 17, 2021. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The credit rating was assigned based on data provided by SINARA TRANSPORTATION, its IFRS consolidated financial statements, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and SINARA TRANSPORTATION participated in its assignment.

In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.

ACRA provided additional services to SINARA TRANSPORTATION. No conflicts of interest were discovered in the course of credit rating assignment.

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