Expert RA confirmed the credit rating of JSC AVTODOM at the level of ruBBB+

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Anna Utkina
117909, Zorge 17, Moscow, Russian Federation
Moscow
Moscow 117909 
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Anna.Utkina@avtodom.ru

JSC AVTODOM is a car dealer. It occupies a leading position in the automotive market in Moscow and St. Petersburg. The company, directly and through 100% ownership of subsidiaries, specializes in the sale and maintenance of premium and luxury cars. This dealer network includes 27 centers and showrooms. The brand portfolio includes nine brands: BMW, BMW Motorrad, MINI, Lamborghini, Mercedes-Benz, Porsche, Audi, Aurus and KTM. The company’s revenue is generated from the sale of new cars, used cars, after-sales service, trade-in, sales of spare parts and accessories, insurance and financial products. In April 2022, AVTODOM JSC entered the list of backbone enterprises in Russia that can count on soft loans to replenish working capital.

The risk profile of the automotive retail industry is assessed by the agency as moderately negative due to weak resistance to external shocks and low barriers to entry of new players or strengthening of existing ones. The demand for new cars is significantly reduced and, as a rule, has a negative effect on the activities of car dealers. The company’s specialization in high-price cars and strengthening its position in the used car segment in regions with more solvent population partially minimizes the risk of a strong decrease in sales due to less dependence on the general state of the economy. Opening a dealership does not require very high capital costs, which is why competition in the automotive retail market is quite high. At the same time, restrictions on the part of car manufacturers on the permissible number of car dealerships for each city restrain the market from the emergence of new players.

The favorable market conditions for car dealers that began in 2020 and associated with a shortage of new cars continued into 2021. New car prices have risen significantly due to supply chain delays related to the coronavirus pandemic and temporary production shutdowns at automakers’ factories. The marginality of each transaction increased for car dealers. Unlike in previous years, when inventory warehouses were full and car dealers were forced to maintain turnover by providing discounts, the shortage of new cars, on the contrary, contributed to higher prices and higher sales margins in 2020-2021. Moreover, the devaluation of the ruble and global uncertainty about the recovery of the economy kept demand at a level that exceeded supply.

The decrease in the presence of key foreign automakers in the Russian market with the suspension of deliveries of new cars that occurred in 2022 has a strong impact on the market volume in absolute terms and on the financial results of dealers. The mechanics of parallel import of new cars were not sufficiently developed at the time of updating the rating. At the same time, there are no significant problems in the supply of spare parts and parts on acceptable terms. The company showed a decrease in revenue by 36% compared to the same period in 2021, to 27.3 billion rubles. According to the results of the first half of 2022. However, EBITDA rose by 18%. This was due to the positive price dynamics.

The affirmation of the rating is due mainly to the company’s continued good financial metrics. The company showed a moderate level of advantage at the level of 1.8 in terms of the ratio of debt as of 06/30/2022 to EBITDA for the year ended 06/30/2022. The percentage load was also moderate. The ratio of EBITDA to interest expense was 3.9. The agency did not take into account in the volume of the debt burden the loan that the company attracted to make prepayments to the prospective supplier in the amount of 6.5 billion rubles, as part of the assessment of the debt burden as of 06/30/2022. The prevailing part of the prepayment was returned after the reporting date and the loan will be repaid. The agency assumes that the company will adhere to a balanced financial policy and will not increase its loan portfolio amid the problematic state of the automotive market. The company pursued a policy of non-organic business development through the acquisition of other dealers previously.

The company was able to maintain the achieved levels of profitability, despite the changes in the market. EBITDA margin for the year ended 06.30.2022 was 13%, according to agency calculations. The agency assumes that the company is unlikely to experience a significant decrease in profitability in the future due to the different structure of profits and revenues in the context of directions. After-sales service remains a key source of margin. The company also relies on the development of sales of used cars and well-predicted margins in this direction. Sufficient liquidity against the background of generating sufficient operating cash flow and the absence of the need for significant capital expenditures, both for maintaining and expanding the business, will provide additional support to the rating. The qualitative assessment of liquidity is at an average level due to the medium-term loan portfolio without upcoming large repayments. The company improved the diversification of funding sources by placing a debut bond issue for 5 billion rubles for a period of three years at the end of 2021. The agency evaluates it positively.

The agency also revised the assessments of the corporate risk block. The company began to disclose accounting and financial statements as part of the placement of bonds. The agency evaluates it positively. The existence of a board of directors, the quality of strategic support and a formalized dividend policy support the rating. The continued significant volume of transactions with related parties has a dampening effect.

The company’s assets amounted to 36.4 billion rubles; capital amounted to 9 billion rubles. As of June 30, 2022 According to IFRS consolidated financial statements. Revenue amounted to 74.1 billion rubles of the period 06/30/2021 – 06/30/2022.