The credit rating of LLC “AUTOMOBILE PLANT “NAZ” (hereinafter, NAZ, or the Company) is based on its very strong market position, high corporate governance, and medium business profile and geographic diversification. The financial risk profile includes very high profitability and strong indicators for cash flow and liquidity, as well as low leverage, medium coverage, and the large size of the Company.
The Company’s credit rating has been upgraded as its financial performance improved over 2023 and H1 2024. Growing sales and profitability drove the FFO up, which resulted in better scores for the Company’s size and leverage.
NAZ is a high-tech motor vehicle manufacturer focused on light commercial vehicles, medium trucks, and minibuses. It is one of the largest Russian automotive companies.
KEY ASSESSMENT FACTORS
Very strong assessment of market position. The Company occupies leading positions in the light commercial and medium vehicle segments. According to Avtostat Info LLC, over the past eight months of 2024, the Company’s market share amounted to about 57%. Its model range covers several product families with different price niches. NAZ also creates multi-purpose solutions (including jointly with end consumers) for public utilities and municipal services, social vehicles, and vehicles for small and medium-sized businesses.
The medium business profile assessment stems from the high cyclicality of the sales market, and a high assessment of the sub-factor Dependence on Subcontracting and Components. The Company’s Nizhny Novgorod manufacturing facility includes the main assembly lines, foundry, forging and stamping plants, robotic welding shops and painting complexes. The share of Russian-made components, including those made by the Company, varies depending on model. In terms of imported components, the Company has carried out work to select and develop alternative components.
High assessment of the level of corporate governance. The Agency assesses the Company’s strategy as successful and consistent. In accordance with it, an efficient production system of continuous improvements and inventory optimization has been introduced, production assets have been upgraded, and the model range is being expanded as per consumer needs. Work is currently being performed to increase the level of localization and enter new market segments. The Company has a full-fledged system for risk management, strategic planning, single treasury and centralized procurements. The structure of the group mainly consists of production companies, while operations with related parties are economically justified. The Company publishes annual and semi-annual IFRS reporting.
Very high profitability and large size of the Company. The Company’s FFO before interest payments and taxes margin was 16.3% in 2023 vs. 13.6% in 2022. Growth was driven by the Company’s consistent efforts aimed at managing costs and control over prime costs. ACRA also notes an increase in the share of sales of new families of cars in a higher price category and the transition to alternative components supplied from friendly countries. Over the past three years, the Company demonstrated the stable growth of FFO before net interest and taxes. According to ACRA’s estimates, weighted average FFO before net interest and taxes is RUB 32.1 bln, which corresponds to a large size of business as per the Agency’s methodology.
Low leverage and medium coverage. In 2023, the ratio of total debt to FFO before net interest amounted to 2.7x vs. 4.0x a year earlier and the ratio of FFO before net interest to interest was 2.8x vs. 2.4x in 2022. The total debt equaled RUB 59.4 bln in2023. The debt is expected to decline in 2024–2026, which, jointly with a growth of FFO before net interest, should push the coverage down below 2.0x. The Company’s loan portfolio is made up of ruble-denominated loans and is balanced in terms of lenders (with one dominant lender). The repayment schedule is smooth and regular (without peak periods), and the portfolio mostly includes long-term loans, while short-term loans is less than 20%.
Strong liquidity and cash flow. Strong liquidity stems from the stably positive operating cash flow, comfortable debt repayment schedule, and wide access to external liquidity sources (large volume of unused open credit lines, as well as the possibility of entering public debt capital markets). The strong cash flow assessment takes into account, among other things, the positive FCF margin (4.7% in 2023).
KEY ASSUMPTIONS
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Sales in the domestic light commercial vehicle market at no less than 60,000 units in 2024.
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Implementation of the investment program as per the Company’s plans.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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The weighted average FCF margin exceeding 10%;
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The weighted average ratio of FFO before net interest to interest exceeding 5.0x.
A negative rating action may be prompted by:
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The weighted average ratio of FFO before net interest to interest falling below 2.5x;
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The weighted average ratio of total debt to FFO before net interest exceeding 3.5x coupled with the weighted average FFO before interest and taxes margin falling below 15%;
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The weighted average FCF margin turning negative.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): а+.
Support: none.
ISSUE RATINGS
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating has been assigned to LLC “AUTOMOBILE PLANT “NAZ” 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 LLC “AUTOMOBILE PLANT “NAZ” was published by ACRA for the first time on October 17, 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 LLC “AUTOMOBILE PLANT “NAZ”, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and LLC “AUTOMOBILE PLANT “NAZ” 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 LLC “AUTOMOBILE PLANT “NAZ”. No conflicts of interest were discovered in the course of credit rating assignment.
