The credit rating of Elektroresheniya LLC (hereinafter, the Company, or EKF) is based on the Company’s very high profitability, medium leverage coupled with medium coverage, strong liquidity, medium assessments of the market position, business profile, corporate governance and geographic diversification, as well as the weak cash flow and a smaller-than-medium size of the Company.
EKF is engaged in the design, production and sale of electrical equipment and associated solutions, and software of its own brand. Its product range includes over 19,000 items in 36 product lines, including smart home systems, professional lighting equipment, electricity meters, low-voltage electrical products and medium-voltage equipment, heating systems, etc. EKF’s manufacturing assets include two production sites in the Vladimir Region, a state-of-the-art test laboratory, a design bureau, and seven logistics centers in Russia, Kazakhstan, Uzbekistan, and China. The Company has 1,800 employees. The Company was included in the list of systemically important enterprises of the Ministry of Industry and Trade of Russia in 2022.
KEY ASSESSMENT FACTORS
Improved market position assessment. Over the past few years, the Company has demonstrated significant growth in operating performance and a wider product range, becoming a competitive player in the fragmented electrical engineering market in several product categories, including modular automation systems, power equipment, electrical enclosures, cable support systems and busbars, etc. The Company is present in the main price segments of the market. The withdrawal of foreign brands from the Russian market also contributed to the strengthening of EKF’s competitive position.
Medium business profile assessment. The electrical products market is characterized by steady demand for electrical equipment from various sectors of the Russian economy (manufacturing, power, commercial and civil construction, housing and utilities). EKF sales volumes are stable and show steady growth in the historical period regardless the absence of significant contracted volumes. Sales are carried out through distributors (90% of orders are automated) and federal network companies (Leroy Merlin, OBI, STD Petrovich, etc.). The Company’s finished products are made at EKF’s own factories, as well as by foreign subcontractors. The Company’s investment program is aimed at further development of manufacturing assets and increasing the share of localized products. Export destinations are diversified. Products are supplied to the CIS and non-CIS countries, but the share of exports in the revenue structure is low (up to 20%).
Very high profitability and below-medium size. By the end of 2023, the Company's revenue reached RUB 16 bln (a 34% increase compared to the previous year), and FFO before net interest and taxes amounted to RUB 2.5 bln. Affected by exchange rate fluctuations, the FFO before interest and taxes margin in 2023 was lower than the Agency’s expectations and amounted to 15.4%. At the same time, the weighted value of the margin for the period from 2021 to 2026 is 16%.
Medium leverage and coverage. As of the end of 2023, the ratio of total debt to FFO before net interest had grown to 3.3x compared to 1.8x a year earlier, while the weighted average value of this indicator for 2021 to 2026 grew to 2.2x. The ratio of FFO before net interest to interest declined to 2.9x in 2023. These changes were caused by the growth of the Company’s total debt on the backdrop of a less impressive growth of FFO before net interest. The loan portfolio is sufficiently diversified by maturity and lender. Part of the funds are preferential long-term loans obtained from state development institutions to finance the Company’s investment program. The Company uses credit lines from several large Russian banks to fund its current operations. The Company entered the public debt market in 2023 by making its debut bond issue.
Strong liquidity assessment. The Company has diversified sources of internal and external financing — cash balances held in accounts and committed credit lines, as well as borrowings at the debt market. The Company’s repayment schedule for investment loans is smooth, and the main annual repayment volumes are formed by short-term credit lines used to finance current activities.
The FCF margin is negative. The Company is at the stage of its active growth that implies a dynamic expansion of the operating activities, an outflow of funds to finance the working capital, and high expenses for the investment program, which amounted to around RUB 1.3 bln in 2023 (planned capital investments for 2024–2026 amount to RUB 7 bln). In view of the above, the weighted average FCF margin is still in the negative area.
KEY ASSUMPTIONS
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Average annual revenue growth of at least 20% in 2024–2026.
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Implementation of the investment program as planned.
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No dividend payments in 2024–2025.
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 total debt to FFO before net interest declining below 2.0x and the ratio of FFO before net interest to interest exceeding 5.0x;
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The weighted average FCF margin exceeding 2%.
A negative rating action may be prompted by:
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The ratio of FFO before net interest to interest declining below 2.5x;
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The weighted average FFO before interest and taxes margin declining below 15%.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bbb.
Support: none.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to Elektroresheniya 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.
The credit rating of Elektroresheniya LLC was published by ACRA for the first time on October 20, 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 Elektroresheniya LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Elektroresheniya 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 Elektroresheniya LLC. No conflicts of interest were discovered in the course of credit rating assignment.
