The upgrade of the credit rating of Sanymon Corporation Limited (CYP) (hereinafter, the Company or Azbuka Vkusa) to A-(RU) and the change of the credit rating outlook to Stable are based on the Company’s positive operating results recorded in 2020 and the first half of 2021 that exceeded ACRA’s expectations. The Agency also notes a significant growth of the “Product Delivery” segment in the Company’s revenues, which together led to a positive revision of the Company’s development strategy assessment.
Azbuka Vkusa is a multi-channel grocery chain in the medium+ segment that operates in Moscow, the Moscow Region, and St. Petersburg. As of November 30, 2020, the chain had 173 stores, including 110 supermarket format stores, 60 small format stores (“AB Daily”), and three Enotecas. The Company’s revenues for the financial year 2020 (March 2020 to March 2021) amounted to RUB 73.3 bln excluding VAT (+14.2% versus 2019), while FFO before fixed payments and taxes was RUB 10.5 bln excluding VAT (+7.6% versus the same period in 2019), according to ACRA’s calculations. Its founders Maxim Koscheenko and Oleg Lytkin are major shareholders. A blocking stake is held by Alphabet Foundation and Sunpeak Investment Group Ltd (BVI), other shareholders, including management, possess minority stakes.
The Company’s credit rating is based on its strong operating risk profile and high business profitability, but is constrained by the low coverage.
Key rating assessment factors
Sustainable positive operating results. Azbuka Vkusa’s efforts to adapt to the conditions of the COVID-19 pandemic (primarily in Moscow) contributed to positive dynamics of revenue and growth of the Company’s profitability in 2020. ACRA expects further growth in 2021 given, among other things, a rebound in demand in the “Daily” format, which is the most profitable segment of the Company’s business. The Agency notes that the “Product Delivery” segment and the Company’s own production are a significant competitive advantage, which will continue to have a positive impact on its financial metrics. ACRA does not expect considerable pressure on the Company’s operating ratios in the event of another lockdown in Moscow and St. Petersburg.
High profitability. The Company’s FFO profitability before fixed payments and taxes stood at 14.1% in 2020, which was due to a decrease of the segment of small format stores (“AB Daily”) in revenues because of COVID-19 restrictions. In 2021, this segment shows positive dynamics compared to 2019 and 2020, which may have a positive impact on the Company’s profitability in the future, taking into account further optimization and development of the “Product Delivery” segment. ACRA notes Azbuka Vkusa’s work on the range of products offered by the chain and the closure of non-efficient stores. Hence, in 2020 the Company closed three supermarket format stores out of town, which reduces the potential risk of a decline in the Company’s overall profitability in the future.
The operating lease multiplier for retail trade companies is 7. The calculation of adjusted leverage does not use lease liabilities, which are reflected on the Company's balance sheet in accordance with IFRS 16.
Medium leverage. ACRA assess the Company’s leverage as medium. In 2020, the adjusted amount of debt to FFO before fixed payments declined to 5.4х versus 6.2х in 2019, while the ratio of total debt to FFO before net interest payments fell to 3.0х compared to 4.6х in 2019. ACRA assumes the possibility of the Company’s adjusted and total leverage continuing to fall in 2021 due to higher FFO. ACRA assesses the Company’s coverage as low primarily due to high rents in the Company’s key region — Moscow. According to ACRA, the FFO before fixed payments to fixed payments ratio amounted to 1.4x in 2020, while the FFO before net interest payments to interest payments ratio stood at 3.8x. The Agency notes that Azbuka Vkusa managed to significantly reduce the cost of bank funding thanks to lower interest rates on loans. Further positive results will allow the Company to continue reducing its leverage and improving its coverage in 2021–2022.
High liquidity and medium cash flow. Azbuka Vkusa’s debt is primarily made up of short-term credit lines. However, positive operating results in 2020 coupled with the free and available credit limits worth RUB 20.9 bln are evidence of the Company’s strong liquidity position. Azbuka Vkusa’s positive operating results and the stabilization of the macroeconomic situation in Russia have made it easier for the Company to access additional sources of liquidity.
- Growth in revenues in the segment of small format stores (“AB Daily”) in 2021–2023;
- FFO profitability before fixed payments and taxes in the 14–16% range in the forecasted period (2021–2023);
- FCF profitability at no higher than 2.5% in the forecasted period (2021–2023).
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:
- Weighted ratio of adjusted total debt to FFO before fixed payments falling below 4.0x and weighted ratio of FFO before fixed payments to fixed payments exceeding 1.5x;
- Weighted FFO profitability before fixed payments and taxes at above 15% coupled with weighted ratio of FFO before fixed payments to fixed payments exceeding 1.5x.
A negative rating action may be prompted by:
- Weighted ratio of adjusted total debt to FFO before fixed payments rising above 6.0x;
- Weighted ratio of FFO before fixed payments to fixed payments falling below 1.0x;
- Short-term liquidity ratio falling below 1.0x and worsened access to external sources of liquidity.
Bonds of OOO Gorodskoy Supermarket (RU000A100HE1), maturity date: June 15, 2029, put option date: June 29, 2022, issue volume: RUB 3.5 bln — A-(RU).
Rationale. The issue is a senior unsecured debt obligation of OOO Gorodskoy Supermarket (hereinafter, the Issuer), which is wholly owned by Sanymon Corporation Limited (CYP). The credit rating of the issue has been upgraded based on the upgrade of the guarantor’s credit rating. In accordance with the prospectus, in the case of default by the Issuer on its obligations, Sanymon Corporation Limited (CYP) (the guarantor) must redeem the bonds (taking into account the accumulated coupon income). Due to the absence of either structural or contractual subordination of the issue, ACRA regards it as equal to other existing and future unsecured and unsubordinated debt obligations of the guarantor in terms of priority. According to ACRA’s methodology, the credit rating of the issue is on par with the credit rating of Sanymon Corporation Limited (CYP) (Azbuka Vkusa) — A-(RU).
The credit ratings of Sanymon Corporation Limited (CYP) and the bonds of OOO Gorodskoy Supermarket (RU000A100HE1) have 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 Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation was also applied to assign the credit rating to the above issue.
The credit rating of Sanymon Corporation Limited (CYP) was published by ACRA for the first time on April 17, 2017. The credit rating of the bond issue of OOO Gorodskoy Supermarket (RU000A100HE1) was published by ACRA for the first time on June 28, 2019. The credit rating of Sanymon Corporation Limited (CYP) and its outlook and the credit rating of the bond issue of OOO Gorodskoy Supermarket (RU000A100HE1) are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on the data provided by Sanymon Corporation Limited (CYP), information from publicly available sources, as well as ACRA’s own databases. The credit ratings are solicited, and Sanymon Corporation Limited (CYP) participated in their assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to OOO Gorodskoy Supermarket. No additional services were provided to Sanymon Corporation Limited (CYP). No conflicts of interest were discovered in the course of credit rating assignment.