The credit rating of «SEAP NAMED AFTER SERGO ORDZHONIKIDZE», PJSC (hereinafter, the Company, or the Plant) is based on the strong business profile, which takes into account its deep involvement in the state defense order (SDO), medium level of corporate governance, and weak geographic diversification of sales markets. The financial risk profile assessment reflects very high profitability, strong liquidity, medium indicators of leverage, coverage and cash flow, as well as the Company’s small size (FFO before net interest and taxes is less than RUB 500 mln).
The Company operates in the field of aviation instrumentation and special armored ground equipment. The Factory is a supplier of avionics for the majority of aircraft models manufactured in the former USSR, the CIS, and the Russian Federation. In order to diversify its business, the Company is implementing projects for the production of critical communication systems and fine chemicals.
key assessment factors
Medium operating risk profile. The Company is a competitive player in the aviation instrumentation market and the special armored ground equipment market. The Plant is a monopolist in certain areas, and is entering new markets — critical communications and fine chemicals. The Company’s stable financial indicators stem from a substantial contract base formed as part of the Plant’s participation in the implementation of the SDO (around 61% of revenues), as well as a wide technology base and low dependence on subcontracting. The Company largely controls the entire production chain, which results in a high business profitability. The production cycle includes development (including research and design), manufacture, and warranty and post-warranty service. The Company’s sales markets have moderate cyclicality and saturation. The current conditions of geopolitical uncertainty and the need to form a domestic civil aviation fleet create increased demand for the Plant’s products, while the launch of production of critical communication systems and fine chemicals strengthens the Company’s role in the implementation of priority national import substitution programs. The Company is consistently carrying out its strategy, which involves creating a science-intensive and high-tech instrument-engineering enterprise. The Company’s risk management system is formalized. There are standards in place that regulate the procedure for planning and assessing the effectiveness. The board of directors has an audit committee, an audit commission, and an internal control and internal audit service.
Very high profitability. In 2023, the Company’s revenue remained at RUB 1.8 bln, while FFO before net interest and taxes declined to RUB 285 mln. This decline is caused by a fall in the FFO before interest and taxes margin to 15.7% due to growing prime costs on the backdrop of increasing prices for components and higher wages. In the forecast period of 2024–2026, the Agency expects that the Company’s scope of operations will expand amid the growing portfolio of orders and contracts.
Medium leverage and coverage. The weighted average ratio of total debt to FFO before net interest for 2021–2026 is 2.6x vs. 2.3x a year earlier. The volume of the Company’s debt obligations is expected at RUB 1 bln in 2023–2024 and to decline gradually in 2025 and 2026 after the peak of capex is gone. The interest coverage (the ratio of FFO before net interest to interest) amounted to 2.4x in 2023. ACRA expects this ratio to grow in the forecast period due to an increase in FFO before net interest.
Strong liquidity and medium cash flow. The Company has diversified sources of liquidity due to the stable and positive operating cash flow, comfortable settlement terms (with a high share of advance payments from customers), and access to bank credit lines. At the same time, by the end of 2023, the Company had significant cash balances in its accounts, which were several times higher than the volume of repayments falling due in 2024. The FCF margin amounted to 13.4% by the end of 2023, and the weighted FCF margin for 2021–2026 is expected to be 4.3%. The Company is continuing to implement its investment program aimed at technical re-equipment and upgrade of its process equipment, with the capex peak in 2024.
key assumptions
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Implementation of the Company’s revenue and operating cash flow plan for 2024−2026.
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The total volume of investment program in 2024−2026 not exceeding RUB 700 mln.
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Annual dividend payments in 2024−2026 not exceeding RUB 100 mln.
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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Weighted FFO before net interest and taxes for 2021–2026 exceeding RUB 500 bln;
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The ratio of total debt to FFO before net interest declining below 2.0x;
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The ratio of FFO before net interest to interest exceeding 5.0x.
A negative rating action may be prompted by:
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The FFO before interest and taxes margin weighted for 2021–2026 declining below 15% and the ratio of FFO before net interest to interest declining below 2.5x;
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The ratio of total debt to FFO before net interest exceeding 3.5x coupled with FCF margin falling to negative values.
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 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 «SEAP named after Sergo Ordzhonikidze», PJSC was published by ACRA for the first time on August 20, 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 «SEAP named after Sergo Ordzhonikidze», PJSC, information from publicly available sources, and ACRA’s own databases. The credit rating was assigned based on the RAS financial statements of «SEAP named after Sergo Ordzhonikidze», PJSC. The credit rating is solicited, and «SEAP named after Sergo Ordzhonikidze», PJSC 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 «SEAP named after Sergo Ordzhonikidze», PJSC. No conflicts of interest were discovered in the course of credit rating assignment.
