The credit rating of X Holding LLC (hereinafter, Holding, or the Company) reflects the Company's strong market positions and very strong profitability, as well as high credit quality indicators of the regions of presence, low volatility of demand for the key products, and high complexity of creating products similar to those of the Holding. The rating is also supported by the strong debt service metrics. These factors are offset by medium assessments of industry risk profile, corporate governance, leverage, revenue diversification, and weak liquidity indicators.
The Holding is a multi-profile IT group that includes companies ensuring a full cycle of data handling: transmission, analysis, security, storage, and use. The Holding includes the following five key divisions:
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Yadro – development, sales and maintenance of server platforms, data storage systems, infrastructure solutions, telecommunications equipment, and client systems. It is the key business generating about 70% of the Holding's consolidated revenue.
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Citadel — a leader of the Russian market of hardware and software solutions for law enforcement surveillance.
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Garda — information security software provider.
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Cryptonit — development of software and hardware, special-purpose telecommunications equipment, research and development in cryptography, data security, data processing, robotics, etc. Its main purpose is to support other companies of the Holding.
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Bureau 1400 — an investment project aimed at formation of a LEO broadband satellite system.
key assessment factors
The Company is a beneficiary of the withdrawal of foreign vendors from the Russian market, which contributes to its strong financial performance. Currently, the Company is a leading provider of data storage solutions, covering part of the market share of withdrawn foreign players. This allowed the Holding to increase its consolidated revenue in 2022 to RUB 94 bln (twice as high as in 2021). In 2023–2024, ACRA forecasts this figure at RUB 100–110 bln. In addition, due to the specifics of its business, the Company is the beneficiary of the so-called Yarovaya law package (374-FZ and 375-FZ of July 6, 2016), which obliges telecom operators to keep records of users’ phone calls, messages and Internet traffic for up to six months.
The strong assessment of the operational risk profile is based on the strong market position, as well as on medium scores for revenue diversification and corporate governance. On the other hand, the operational risk profile assessment takes into account the low volatility of demand for key products, as well as the uniqueness and complexity of creating products similar to those of the Company. Yadro is the leader of the storage segment — its market share is 41% in terms of storage volume and 17% in monetary terms. Citadel is a leading manufacturer of law enforcement surveillance systems.
In the two main generating segments (Yadro and Citadel), revenue is stable due to the low impact on demand of economic downturn, seasonality and production cycles. Information technologies are an actively growing segment of the global economy in general and the Russian economy in particular. Given the current situation, this sector is critically important for the development of the country, and ACRA expects that the demand for IT services and equipment from domestic providers will grow in the coming years.
The product line of the Holding is unique and unparalleled. The main market barrier for new players is the need for large-scale long-term investments for the construction of a production site comparable to the capacity of Yadro.
The geography of the Company's business covers all Russia’s regions and some CIS countries, which is positive for the geographic diversification assessment. In terms of cash flow generation, the Company’s operations are focused on Moscow (AAA(RU), outlook Stable) and the Moscow Region (AA+(RU), outlook Positive) that are regions with a high level of credit quality.
The medium assessment of financial risk profile is due to the high score for the Company's business size, very high profitability, and medium leverage. These indicators are balanced by weak liquidity and very low FCF margin.
In 2022, the FFO before fixed charges and taxes amounted to RUB 36 bln and, according to the Agency's expectations, it will remain in the range of RUB 30–40 bln in 2023–2024. The high score for the size of the Company's business is because this indicator is in the range of RUB 30–100 bln.
The FFO before fixed charges and taxes margin was 38% in 2022. The Agency expects that this indicator will remain in the range of 30–35% in 2023–2025.
The weighted average ratio of adjusted total debt to FFO before fixed charges for 2022–2024 is 3.0x. The debt portfolio includes loans from the largest Russian banks, and leasing obligations. The weighted average coverage for the above period (the ratio of FFO before fixed charges to fixed charges) is 6.3x. In 2022, the Holding's FCF amounted to RUB -45 bln, which is the reason for the very weak score for the FCF margin. In the forecast period, the Agency expects that the Company will generate a neutral or weakly positive FCF as the business continues to grow.
The weak assessment of the Company's liquidity is because the Holding relies on revolving financing, subject to annual refinancing. At the same time, the Agency takes into account that the Company has significant free limits on committed long-term credit lines, which supports the liquidity assessment.
key assumptions
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Maintaining the FFO before fixed charges and taxes within RUB 30–40 bln in 2023–2024.
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Maintaining the FFO before fixed charges and taxes margin within 30–35% in 2023–2025.
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Capital expenditures at RUB 13–14 bln in 2023 with a gradual decline to RUB 5–10 bln in 2024–2025.
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Annual dividend payments to minority shareholders at RUB 5 bln in the forecast period.
potential outlook or rating change factors
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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The ratio of FFO before fixed charges to fixed charges much higher than 10.0x;
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The short-term liquidity ratio sustainably higher than 1.25x and the ratio of weighted average adjusted total debt to FFO before fixed charges declining below 2.0x.
A negative rating action may be prompted by:
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Significant decline of liquidity where the short-term liquidity ratio is lower than 0.8x;
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Protracted implementation of the current forecast plans, which may push the ratio of FFO before fixed charges to fixed charges down below 6.0x without a possibility for fast recovery;
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The ratio of adjusted total debt to FFO before fixed charges exceeding 3.5х without a possibility for fast recovery.
rating components
Standalone creditworthiness assessment (SCA): a-.
Support: none.
issue ratings
No outstanding issues have been rated.
regulatory disclosure
The credit rating has been assigned 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 has been assigned to X Holding LLC for the first time. 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 X Holding LLC, information from publicly available sources, and ACRA’s own databases. The credit rating was assigned based on the IFRS financial statements of X Holding LLC. The credit rating is solicited, and X Holding LLC 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 X Holding LLC. No conflicts of interest were identified in the course of credit rating assignment.
