The credit rating of Avtozavod GAZ LLC (hereinafter, GAZ, or the Company) is based on its very strong market position, high corporate governance, and medium business profile and geographic diversification. The financial risk profile includes high profitability and strong indicators for cash flow and liquidity, as well as medium leverage, debt service, and the size of the Company.
GAZ is a modern high-tech enterprise with a high level of automation. It is one of the largest Russian automotive companies and specializes in the production of light commercial vehicles, medium trucks and minibuses.
KEY ASSESSMENT FACTORS
Very strong assessment of market position. The Company occupies leading positions in the light commercial and medium vehicle segments. Its model range covers several product families with different price positioning. GAZ also creates multi-purpose solutions (including jointly with end consumers) for public utilities and municipal services, social vehicles, and vehicles for small and medium-sized businesses.
The medium business profile assessment stems from the high cyclicality of the sales market, and a high assessment of the sub-factor Dependence on Subcontracting and Components. The Company’s Nizhny Novgorod facility includes the main assembly lines, foundry, forging and stamping plants, robotic welding shops and painting complexes. The share of Russian-made components, including those made by the Company, varies depending on model. In terms of imported components, the Company has carried out work to select and develop alternative components.
High assessment of the level of corporate governance. The Agency assesses the Company’s strategy as successful and consistent. In accordance with it, an efficient production system of continuous improvements and inventory optimization has been introduced, production assets have been modernized, and the model range is being expanded as per consumer needs. Work is currently being performed to increase the level of localization and enter new market segments. The Company has a complete risk management system, strategic planning, a single treasury, and centralized procurements. The structure of the group mainly consists of production companies, while operations with related parties are economically justified. The Company publishes annual and semi-annual IFRS reporting.
High profitability and medium size of the Company. The Company’s FFO before interest payments and taxes was 13.6% in 2022 vs. 6.6% in 2021. Growth was due to a number of factors, including an increase in the share in sales of new families of cars in a higher price category and the transition to alternative components supplied from friendly countries. In the forecast period of 2023–2025, ACRA expects the Company to maintain its high profitability, given the work to further increase the level of localization of production. Weighted average FFO before net interest payments and taxes was RUB 17,050 mln, which corresponds to a medium size of business as per the Agency’s methodology.
Medium assessments of leverage and debt service. The weighted average ratio of total debt to FFO before net interest payments for 2020 to 2025 is 3.3x and the ratio of FFO before net interest payments to interest payments is 2.7x. The loan portfolio is made up of ruble-denominated loans and is balanced in terms of lenders (with one dominant lender). The loan portfolio is long-term following the refinancing of short-term loans in 2023. ACRA expects leverage metrics to gradually improve over the forecast period due to the planned reduction in the size of total debt, as well as growth in FFO before net interest payments.
Strong liquidity and cash flow. Strong liquidity stems from the positive operating cash flow, comfortable debt repayment schedule, and wide access to external liquidity sources (large volume of unused open credit lines, as well as the possibility of entering public debt capital markets). The strong cash flow assessment takes into account the significant size of the Company’s capital expenditures under its investment program, as well as a decrease in the amount of working capital due to improved terms of settlements with counterparties.
KEY ASSUMPTIONS
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Sales in the domestic light commercial vehicle market at no less than 55,000 units in 2023;
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Implementation of the investment program as per the Company’s plans;
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No dividend payments.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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The weighted average FFO margin before interest payments and taxes exceeding 15% coupled with the weighted average FCF margin exceeding 10%;
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The weighted average ratio of total debt to FFO before net interest payments falling below 2.0x coupled with the weighted average ratio of FFO before net interest payments to interest payments exceeding 5.0x.
A negative rating action may be prompted by:
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The weighted average ratio of FFO before net interest payments to interest payments falling below 2.5x;
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The weighted average ratio of total debt to FFO before net interest payments exceeding 3.5x;
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The weighted average FCF margin turning negative.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): а.
Support: none.
ISSUE RATINGS
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating has been assigned to Avtozavod GAZ LLC 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.
A credit rating has been assigned to Avtozavod GAZ 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 Avtozavod GAZ LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Avtozavod GAZ 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 no additional services to Avtozavod GAZ LLC. No conflicts of interest were discovered in the course of credit rating assignment.
