The credit rating of LLC “MVM” (hereinafter, MVM, or the Company) is based on the strong operational risk profile, including the high business profile and corporate governance assessments, and a very wide geographical diversification, as well as the moderate assessment of the financial risk profile, supported by the large size of the business, and high profitability and liquidity. The pressure on the rating is exerted by coverage metrics.
Due to weaker consumer demand caused by macroeconomic headwinds in H2 2024, ACRA revised the expected growth rates of the Company’s business, which is reflected in the change in the credit rating outlook to Stable.
MVM is the main operating company of PJSC “M.Video” (ACRA rating — A(RU), outlook Stable; hereinafter, the Group), whose share in the authorized capital of the Company is 68.94%. The Group also indirectly owns the remaining 31.06% of the votes due to the following cross-ownership of shares: the Company owns 100% of the authorized capital of BT HOLDING LLC, which in turn owns 31.06% of the authorized capital of MVM. MVM is the balance sheet holder of the Group’s assets, and it accounts for almost 100% of the Group’s revenue (according to the Company’s RAS financial statements and the Group’s IFRS financial statements for H1 2024), and therefore ACRA used the Group’s financial statements to calculate the Company’s quantitative indicators.
key assessment factors
Macroeconomic factors. The recovery in consumer activity contributed to the growth of the Group’s GMV (gross merchandise value) index at a double-digit pace in the first half of 2024. In turn, the tightening of monetary policy in the second half of last year changed consumer behavior (savings became more preferable due to high deposit rates) and put pressure on credit sales due to higher borrowing costs.
Against the background of cooling consumer demand, the Group’s financial results for 2024 will be lower than the Agency’s expectations. ACRA also believes that the further recovery of indicators will be slower than previously expected, but expects the release of the consumer demand in the segment of household appliances and electronics pent-up due to macroeconomic factors.
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.
Key interest rate hikes also drove interest payments up, which put pressure on coverage indicators. Nevertheless, their values remain within the boundaries of the previously assigned estimates.
Medium leverage and low coverage. ACRA estimates that the weighted average ratio of total debt to FFO before net interest for the period from 2022 to 2027 will be 4.0x, while the weighted average ratio of rent-adjusted total debt to FFO before fixed charges over the specified period will be 5.5x. At the same time, the qualitative assessment of the leverage is high, and therefore the final assessment of the factor is moderate.
The weighted average ratio of FFO before fixed charges to fixed charges for the period from 2022 to 2027 is estimated by ACRA at 1.2x, the weighted average ratio of FFO before net interest to interest for the same period is 1.4x. The Agency expects the leverage and coverage metrics to improve in the forecast period.
Strong liquidity and moderate cash flow. The Company’s liquidity is assessed as high due to the availability of undrawn credit lines with banks, as well as significant cash balances held in accounts that form a comfortable liquidity cushion.
ACRA expects that the weighted average FCF margin for the period from 2022 to 2027 will be near zero, and it will reach the positive area in the forecast period.
The Company’s cash flow is supported by the absence of dividend payments and the low capex: since 2022, the Group has significantly reduced its investment activity. The Agency does not forecast significant changes in the capex and expects that the ratio of capex to revenue will remain low in the forecast period.
KEY ASSUMPTIONS
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Gross margin to remain at 21–22%, and the FFO before fixed charges and taxes margin to remain no lower than 10%.
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Continued 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 average FFO before to interest to interest exceeding 2.5x;
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Weighted average ratio of rent-adjusted total debt to FFO before fixed charges falling below 4.0x and 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 FFO before to 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 falling below 10%;
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Weighted average FCF margin falling below -2%;
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Worse access to external liquidity sources.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a.
Support: no.
ISSUE RATINGS
Bonds of LLC “MV FINANCE”, series 001P-03 (RU000A104ZK2); maturity date: July 22, 2025, issue volume: RUB 5 bln — А(RU).
Bonds of LLC “MV FINANCE”, series 001P-04 (RU000A106540); maturity date: April 17, 2026, issue volume: RUB 7 bln — А(RU).
Bonds of LLC “MV FINANCE”, series 001P-05 (RU000A109908); maturity date: August 6, 2026, issue volume: RUB 3.75 bln — А(RU).
Credit rating rationale. MVM acts as a guarantor for the bond issues of LLC “MV FINANCE”. The bonds are senior unsecured debt instruments of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA ranks them equal to other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s calculations, the recovery rate for the senior unsecured debt belongs to category II; therefore, the bond issues are rated А(RU), i.e. on par with the Company.
REGULATORY DISCLOSURE
The credit ratings of LLC “MVM” and the bond issues (RU000A104ZK2, RU000A106540, RU000A109908) of LLC “MV FINANCE” have been assigned under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings 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 Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit rating of LLC “MVM” was published by ACRA for the first time on March 26, 2021 and the credit ratings of the bond issues (RU000A104ZK2, RU000A106540, RU000A109908) of LLC “MV FINANCE” were published by ACRA for the first time on July 26, 2022, April 21, 2023, and August 16, 2024, respectively. The credit rating of LLC “MVM” and its outlook and the credit ratings of the bond issues (RU000A104ZK2, RU000A106540, RU000A109908) of LLC “MV FINANCE” are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by LLC “MVM” and PJSC “M.Video”, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and LLC “MVM” and PJSC “M.Video” participated in their assignment.
In assigning the credit ratings, 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 and PJSC “M.Video”, LLC “MVM” and LLC “MV FINANCE”. No conflicts of interest were discovered in the course of credit rating assignment.
