The credit rating of Vita Line LLC (hereinafter, Vita Line, or the Company) has been upgraded in view of the continued trend to a lower leverage, and a better assessment of the Company’s industry risk. The credit rating reflects the strong business profile assessment, very low leverage, very high coverage, and high profitability. The rating is constrained by the medium size of the Company and its low corporate governance assessment.

Vita Line is the supplier in an informal group Vita (the Group), one of the leading pharmacy chains in Russia. The Group sells its goods through pharmacies under the Vita Express and Vita Tsentralnaya brands. As of the end of 2023, the Group’s chain consisted of 2,594 pharmacies. The chain is geographically diversified in the central European part of Russia, and the main share of pharmacies is located in the Volga Federal District.

KEY ASSESSMENT FACTORS

High industry risk. ACRA assesses the underlying risk of the wholesale sector as very high, given the significant cyclical and volatile nature of sales, as well as low entry barriers compared to other industries. At the same time, in 2023, a significant portion of the Group’s sales was carried out online (according to the Company’s estimates, the share of the Group online sales is higher than the market average), while the vast majority of the Company’s revenue comes from sales to pharmacies of the Group’s own retail chain. In 2024, the Group launched its own package manufacturing line, which is expected to significantly increase the private label’s share in the Group’s sales and drive the profitability up. Taking into account the lower industry risks of retail, online sales, and medical drug manufacturing, ACRA adjusts the Company’s industry risk to high.

The strong business profile assessment takes into account the low elasticity of demand in the Company’s key market — the retail market of medical drugs and related medical products. The Agency notes the high assessments of the quality of counterparties and settlement structure because most transactions are performed via the Group’s pharmacies.

Very low leverage and very high interest coverage. The Company’s debt consists of bond issues that were placed during the low interest rate period of 2020–2021. This enables the Company to maintain low debt service costs and has a positive impact on competitiveness. ACRA notes that in 2023, the ratio of long-term debt to FFO before fixed charges was 0.3x, while the ratio of FFO before net interest to interest exceeded 15.5x. The Agency expects the Company’s leverage to decline further and the coverage to increase.

Low corporate governance assessment. ACRA notes the absence of key management bodies (board of directors and the related committees) and policies and formalized procedures for making management decisions, which limits the rating. At the same time, the Agency takes into account the fact that at this stage of development, the level of the Company’s corporate governance is consistent with the goals and scope of the business. ACRA neutrally assesses the Company’s development strategy in connection with the consistent development of its activities, and notes the rapid and successful expansion of the chain of pharmacies and work with suppliers. ACRA assesses the Company’s financial transparency as low, mainly due to the lack of consolidated IFRS reporting (however, the Agency was provided with combined IFRS financial statements of the Group). Risk management is assessed as medium. The Company has certain procedures to reduce financial and reputational risks when working with counterparties.

KEY ASSUMPTIONS

  • Implementation of the Company’s plans for revenue and expansion of the chain in 2024–2026.

  • Conservative dividend policy that does not lead to higher leverage.

  • No changes in the market that complicate supplying and/or purchasing medical drugs.

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:

  • Significant improvement of corporate governance practices;

  • Improved position in the Russian pharmacy chain market;

  • Formalization and consolidation of the Group on the basis of the Company.

A negative rating action may be prompted by:

  • Weighted ratio of FFO before net interest to interest falling below 8x;

  • Significant deterioration of the Group’s FFO before fixed charges margin coupled with deterioration of the structure of the Group’s balance sheet under combined IFRS reporting.

RATING COMPONENTS

Standalone creditworthiness assessment (SCA): a-.

Support: ACRA assessed the combined reporting of the Group and decided to not apply any adjustments to the SCA.

ISSUE RATINGS

No outstanding issues have been rated.

REGULATORY DISCLOSURE

The credit rating has been assigned to Vita Line 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, Methodology for Analyzing Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating of Vita Line LLC was published by ACRA for the first time on July 27, 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 Vita Line LLC, information from publicly available sources, and ACRA’s own databases. The credit rating was assigned based on the RAS financial statements of Vita Line LLC. The credit rating is solicited and Vita Line 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 Vita Line LLC. No conflicts of interest were discovered in the course of credit rating assignment.

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