The credit rating of PJSC "M.Video" (hereinafter, M.Video-Eldorado Group, the Company, or the Group) is based on the high assessment of the operational risk profile, large business size, high profitability, as well as strong liquidity and cash flow assessments. The credit rating is constrained by the medium leverage, and low coverage. The outlook has been changed from Stable to Positive in view of the Agency’s expectations of further recovery in the Company’s sales and profitability in 2024–2026, which may be reflected in improved assessments of leverage and coverage.
M.Video-Eldorado Group was founded after its subsidiary company PJSC "M.Video" acquired the retail chains of LLC "ELDORADO" and LLC "Media-Saturn-Russland" (the Russian business unit of MediaMarktSaturn) in 2018. The Group is a leading player in the Russian household appliances and consumer electronics retail market. As of December 31, 2023, the Group’s retail chain included 1,242 stores.
key assessment factors
The Company’s performance in 2023. In 2022, the Company had to start restructuring its procurement and supply chains, which required additional funds to increase working capital and led to an increase in the leverage and a decrease in the coverage. At the same time, the demand in the consumer electronics and household appliances segment declined, which impaired the Group’s revenue in 2022. A shrink in the share of high-margin brands in the Company’s product range had an additional negative impact on the revenue and profitability.
In 2023, the Company completed the restructure of its business model, and now one can expect that working capital will follow the dynamics of revenue.
Moreover, in 2023, especially in the second half of the year, the demand in the consumer electronics and household appliances market recovered, which was reflected in a 43% y-o-y increase in the Company's GMV (gross merchandise value) in Q4 2023.
Medium leverage and low coverage. According to the Agency’s estimations, the weighted average ratio of total debt to FFO before net interest for 2021–2026 will be 2.7x, and the weighted average ratio of adjusted total debt to FFO before fixed charges for the same period is estimated at 4.5x. The weighted average ratio of FFO before fixed charges to fixed charges for 2021–2026 is estimated by ACRA at 1.4x, and the weighted average ratio of FFO before net interest to interest for the same period is estimated at 1.8x. The Agency expects that the leverage and coverage metrics will improve in the forecast period.
Strong liquidity and cash flow. The Company’s debt currently consists mainly of short-term loans mostly provided for a period of two to three years under long-term credit lines. The Group has a sufficient amount of committed and undrawn credit limits to maintain a comfortable liquidity position. In 2022 and 2023, the Company significantly reduced capital expenses, which supported its free cash flow (FCF). In the period from 2024 to 2026, ACRA expects a gradual recovery in the Group’s investment activity, but its FCF margin, in the Agency’s opinion, will remain positive.
The high level of corporate governance is based on a successful implementation of the development strategy, as well as well-established management practices. ACRA also notes the Company’s prompt response to industry shocks. The board of directors includes committees for audit, remuneration and nominations, strategy, and digital transformation. Risk management is regulated at the Group level and minimizes all key types of risk. Financial transparency is very high and the structure of the business is quite simple: almost all transactions are carried out via one subsidiary, which is also the balance sheet holder of the Group’s property.
KEY ASSUMPTIONS
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Gross margin above 21% and FFO before fixed charge and tax margin within the range of 10–12%.
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The Company implementing its capital investment program as planned.
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Uninterrupted access to external liquidity sources.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will highly likely be upgraded unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Weighted average ratio of FFO before fixed charges to fixed charges exceeding 1.5x;
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Weighted average ratio of total debt to FFO before net interest declining below 3.5x, coupled with weighted average ratio of FFO before net interest to interest exceeding 2.5x.
A negative rating action may be prompted by:
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Weighted average ratio of adjusted total debt to FFO before fixed charges exceeding 6.0x;
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Weighted average ratio of total debt to FFO before net interest exceeding 5.0x;
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Worse access to external sources of liquidity.
RATING COMPONENTS
SCA: a.
Support: no.
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 PJSC “M.Video” was published by ACRA for the first time on March 10, 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 the data provided by PJSC “M.Video”, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and PJSC “M.Video” 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 ancillary services to PJSC "M.Video". No conflicts of interest were identified in the course of credit rating assignment.
