The credit rating of LLC “Gruppa “Prodovolstvie” (hereinafter, the Company) has been affirmed because the Company’s credit metrics have been maintained within the ranges corresponding to the rating level.
The Company’s rating is based on the low assessment of the industry risk profile, which stems from the high volatility and cyclicality of wholesale trade, the sector to which the Company belongs. The very small size of the Company’s business, low profitability, and low coverage and free cash flow (FCF) are the main factors that limit the rating.
The Company is a small trading enterprise by the standards of the Russian corporate sector, which specializes in the wholesale trade of sugar, grain and flour, and seeds and feed for livestock. The Company sold about 240,000 tons of products in 2022 and has an average headcount of 62 employees.
Key assessment factors
The weak business profile assessment takes into account the high cyclicality of the Company’s primary area of business, agricultural products, of which sugar accounted for more 46% of total revenues in nine months of 2023. The business profile assessment also takes into account the low entry barriers for this area of business, which increase the risks of growing competition and declining profitability. In addition, the Company also purchases products (including via small wholesale) from various farms whose credit quality is not always satisfactory.
Exports contributed around 35% of revenues in nine months of 2022, and therefore the Geographic Diversification sub-factor assessment has been upgraded to high.
The medium assessment of corporate governance is based, on the one hand, on the very high assessment of the Group Structure sub-factor assigned due to the simplicity and organizational structure of the Company. On the other hand, the low assessment of the Management Structure sub-factor reflects the absence of key management bodies such as board of directors and its associated committees, as well as corporate governance policies and procedures. The medium assessment of the Management Strategy sub-factor is associated with the short history of the Company’s activities in its current format. The Company has a consistent strategy and in ACRA’s opinion, is generally successful in implementing it. The Agency assesses risk management as medium. The Company has procedures for lowering financial and reputational risks when building relationships with counterparties. The low assessment of financial transparency takes into account the absence of financial reporting complied according to international standards with explanations and details of the key financials.
Moderate leverage and low coverage. In nine months of 2023 the Company’s long-term debt overtook its short-term debt and, by the end of this year, this trend will remain taking into account the third issue of corporate bonds. The weighted average indicators of short-term (ratio of short-term debt to revenues) and long-term (ratio of long-term debt to FFO before fixed charges) leverage are very low and medium, respectively. The debt coverage is low. The ratio of FFO before net interest to interest amounted to 3.8x in 2022. According to ACRA’s estimates, amid growth of interest payments, the aforementioned indicator may decline to 1.5x this year.
Medium short-term liquidity. Taking into account the Company’s existing and upcoming bond issues, its loan portfolio has become more balanced, in terms of both sources and the repayment schedule. In addition, the Company had undrawn limits under overdrafts and factoring transactions amounting to around RUB 160 mln as of October 1, 2023.
key assumptions
-
Meeting revenue and sales targets during the forecast horizon (2031–2025);
-
Average FFO margin before interest payments and taxes at 3.6% over the forecast horizon;
-
No major annual dividend payments over the forecast horizon.
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:
-
FFO before interest and taxes margin exceeding 5%;
-
Ratio of FFO before net interest to interest exceeding 2.5x.
A negative rating action may be prompted by:
- Ratio of FFO before net interest to interest falling below 1.0x.
Rating components
Standalone creditworthiness assessment (SCA): b+.
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 of LLC “Gruppa “Prodovolstvie” was published by ACRA for the first time on December 9, 2020. 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 LLC “Gruppa “Prodovolstvie”, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS financial statements of LLC “Gruppa “Prodovolstvie”. The credit rating is solicited and LLC “Gruppa “Prodovolstvie” 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 LLC “Gruppa “Prodovolstvie”. No conflicts of interest were discovered in the course of credit rating assignment.
