The credit rating of PJSC “M.Video” (hereinafter, M.Video-Eldorado Group, the Company, or the Group) is based on the strong operational risk profile characterized by the high assessments of business profile and corporate governance, and very wide geographical diversification, as well as on the moderate financial profile supported by the large business size, high profitability, and strong liquidity. The credit rating is constrained by the coverage metrics.
The credit rating outlook has been changed to Stable because ACRA has revised the expected growth rates of the Group’s business since consumer demand has cooled due to deteriorating macroeconomic business conditions in H2 2024.
M.Video-Eldorado Group was founded in 2018 when a subsidiary of PJSC “M.Video” acquired the retail chains of LLC “ELDORADO” and LLC “Media-Saturn-Russland” (the Russian business of MediaMarktSaturn). The Group is one of the key players in the Russian household appliances and consumer electronics retail market. As of December 31, 2024, the Group’s chain included over 1,200 stores.
key assessment factors
Macroeconomic effects. The recovery in consumer demand contributed to the growth of the Group’s GMV (gross merchandise value) at a double-digit pace in H1 2024. In turn, the tightening of monetary policy in the second half of last year changed the consumer behavior, as savings became more preferable due to high deposit rates, and squeezed credit sales due to higher borrowing costs.
Against the background of consumer demand cooling, the Group’s financial performance for 2024 will be weaker than expected by the Agency. ACRA also believes that further recovery will be slower than previously projected, however, it expects the consumer demand in the segment of household appliances and electronics, which has been deferred due to macroeconomic factors, to release.
According to the Agency’s estimates, the weighted average FFO before fixed charges and taxes for the period from 2022 to 2027 will amount to RUB 49 bln, and the weighted average FFO before fixed charges and taxes margin for the same period will remain at 10%, despite inflationary pressures in 2024.
The key rate hikes drove up interest payments on debt, which put pressure on coverage metrics. Nevertheless, they have remained within the boundaries of the previous assessments.
Medium leverage; low coverage. According to the Agency’s estimations, the weighted average ratio of total debt to FFO before net interest for 2022–2027 will be 4.0x, and the weighted average ratio of rent-adjusted total debt to FFO before fixed charges for the same period is estimated at 5.5x. The qualitative assessment of the leverage is high, therefore, the final factor assessment is moderate.
The weighted average ratio of FFO before fixed charges to fixed charges for 2022–2027 is estimated by ACRA at 1.2x, and the weighted average ratio of FFO before net interest to interest for the same period is estimated at 1.4x. The Agency expects that the leverage and coverage metrics will improve in the forecast period.
Strong liquidity; moderate cash flow. The Group’s liquidity level is still assessed as high due to the availability of committed credit lines with banks, as well as significant cash balances in accounts that represent a comfortable liquidity cushion.
ACRA expects that the weighted average FCF margin for the period from 2022 to 2027 will be near zero, and in the forecast period it will reach the area of positive values.
The Company’s cash flow is supported by the absence of dividend payments and a low level of capital expenses because the Group has significantly reduced its investment activity since 2022. The Agency does not forecast significant changes in the level of capital expenses and expects that the ratio of capex to revenue will remain low in the forecast period.
KEY ASSUMPTIONS
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Gross margin remaining at 21–22% and FFO before fixed charges and taxes margin of no lower than 10%.
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Uninterrupted access to external liquidity sources.
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 average ratio of FFO before fixed charges to fixed charges exceeding 1.5x along with the weighted FFO before net interest to interest exceeding 2.5x;
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Weighted average ratio of rent-adjusted total debt to FFO before fixed charges declining below 4.0x coupled with the weighted average ratio of FFO before fixed charges to fixed charges exceeding 2.5x.
A negative rating action may be prompted by:
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Weighted average ratio of FFO before fixed charges to fixed charges falling below 1.0x;
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Weighted average ratio of FFO before net interest to interest falling below 1.0x;
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Weighted average ratio of rent-adjusted total debt to FFO before fixed charges exceeding 6.0x;
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Weighted average ratio of total debt to FFO before net interest exceeding 5.0x;
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Weighted average FFO before fixed charges and taxes margin falling below 10x;
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Weighted average FCF margin declining below -2%;
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Worse access to external sources of liquidity.
RATING COMPONENTS
SCA: a.
Support: no.
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 PJSC “M.Video” was published by ACRA for the first time on March 10, 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 the data provided by PJSC “M.Video”, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and PJSC “M.Video” 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 ancillary services to PJSC “M.Video”. No conflicts of interest were identified in the course of credit rating assignment.
