The credit rating of PJSC “Pharmacy Chain 36,6” (hereinafter, the Company) is still based on the strong assessment of the Company’s operational risk profile, which in turn reflects a low cyclical demand for pharmaceuticals, strong portfolio of brands, and high diversification of retail formats. ACRA continues to assess the Company’s market position as high.
Although the overall assessment of the financial risk profile remains medium, the Agency expects it to gradually improve due to lower leverage and better interest payment coverage. This is the reason why the outlook for the Company’s credit rating has been changed from Stable to Positive. The Company is characterized by medium business size, very high profitability, and high scores for liquidity and cash flow.
The Company is a large Russian pharmacy chain operating under such brands as 36,6, Gorzdrav, Kalina Pharm, and LekOptTorg. The chain’s pharmacies are largely concentrated in Moscow (ACRA rating AAA(RU), outlook Stable) and the Moscow Region (ACRA rating AAA(RU), outlook Stable). The chain had 2,146 pharmacies at the end of 2023.
KEY ASSESSMENT FACTORS
Strong operational risk profile assessment. The Company continues to occupy leading positions in its key regions, Moscow and the Moscow Region, which has a positive impact on the assessments of market position and geography of operations. The high awareness of the Company’s key brands (36,6 and Gorzdrav) coupled with low cyclicality of demand for pharmaceuticals and high diversification of retail formats (online sales account for an 18% share) have allowed the Agency to maintain the high business profile assessment.
ACRA gives the Company’s corporate governance a quite high score. The level of elaboration of corporate and risk management procedures remains high. The Company has a board of directors; all the key procedures are regulated. The group structure is rather complicated because the group was shaped through mergers and acquisitions. Financial transparency is assessed as moderately high: the Company prepares and publishes its IFRS statements audited by BST JSC, but its operational indicators are not disclosed to the public.
Medium business size assessment and very high profitability. In 2023, the Company’s revenues increased by 14% year-on-year to RUB 67 bln, which is generally in line with ACRA’s forecast. The Agency expects similar revenue growth rates in 2024–2026 on the condition that mergers and acquisitions do not take place. FFO before fixed payments and taxes grew by 6% in 2023 (to RUB 10.7 bln). ACRA expects this indicator to grow on par with revenues in 2024–2026. The current values of revenues and FFO before fixed payments and taxes correspond to the medium score for business size as per ACRA’s methodology.
The Agency maintains its very high assessment of the profitability of the Company. The FFO margin before fixed payments and taxes was 16% at the end of 2023. ACRA assumes that profitability will remain at its current level in 2024–2026.
High leverage and low interest payment coverage. As of December 31, 2023, the Company’s total debt was RUB 21 bln, while its main share (63%) was outstanding corporate bonds. The Company’s debt has been raised mainly at floating rates and is denominated in rubles. ACRA continues to assess the Company’s leverage as high. In 2023, the ratio of total debt to FFO before net interest was 4.3x, and the ratio of lease-adjusted total debt to FFO before fixed payments was 5.7x. According to ACRA’s forecast, these indicators may decline to 2.7x and 5.1x, respectively in 2024–2026.
Coverage metrics remained low in 2023: the ratio of FFO to net interest was 2.3x and FFO before fixed charges to fixed charges amounted to 1.4x. The Agency expects these metrics may amount to 4.0x and 1.5x, respectively in 2024–2026. The Company’s credit rating outlook has been changed to Positive due to the anticipated improvement of leverage and interest payment coverage.
High liquidity and strong cash flow. The Company’s free cash flow (FCF) remained positive in 2023, while the FCF margin stood at 3%. The Agency expects the Company’s FCF margin to stay within the 1–4% range in 2024–2026. The positive FCF supports the Company’s liquidity. In addition, the liquidity assessment is supported by a comfortable debt repayment schedule and the availability of undrawn credit lines.
KEY ASSUMPTIONS
-
Revenue growth of 10–15% in 2024–2026;
-
FFO margin before fixed payments and taxes at 16–18%;
-
No annual dividend payments;
-
Absence of major M&A transactions;
-
Access to external liquidity sources.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
-
Weighted average ratio of total debt to FFO before net interest payments falling below 3.5x;
-
Weighted average ratio of FFO before fixed payments to fixed payments exceeding 1.5x.
A negative rating action may be prompted by:
-
Weighted average ratio of total debt to FFO before net interest payments exceeding 5.0x or adjusted total debt to FFO before fixed payments exceeding 6.0x;
-
Weighted average ratio of FFO before fixed payments to fixed payments falling below 1.0x or weighted average ratio of FFO before net interest payments to interest payments falling below 1.0x;
-
FFO margin before fixed payments and taxes declining below 15%;
-
Deterioration of access to external liquidity sources.
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 PJSC “Pharmacy Chain 36,6” 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 “Pharmacy Chain 36,6” was published by ACRA for the first time on June 2, 2023. 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 PJSC “Pharmacy Chain 36,6”, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and PJSC “Pharmacy Chain 36,6” 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 PJSC “Pharmacy Chain 36,6”. No conflicts of interest were discovered in the course of credit rating assignment.
