The credit rating of Sanymon Corporation Limited (CYP) (hereinafter, Azbuka Vkusa, or the Company) is determined on the one hand, by the strong operating risk profile and high business profitability, and on the other hand, is constrained by the low level of coverage. ACRA notes that the chain’s main consumers are less affected by macroeconomic shocks, however, in connection with current sanctions, Azbuka Vkusa needs to quickly rebuild its logistics supply chains and look for replacements for the absent range of goods. The Agency assesses the impact of sanctions on Azbuka Vkusa’s operations as moderately negative, but does not expect a fundamental deterioration of the Company’s financial metrics in the future.
Azbuka Vkusa is a multi-channel grocery chain in the medium+ segment that operates in Moscow, the Moscow Region, and Saint Petersburg. As of June 30, 2022, the chain had 173 stores, including 102 supermarket format stores, 62 minimarket format stores, 6 market format stores, and 3 Enotecas. ACRA expects the Company’s revenues for the financial year 2021 (March 2021 to March 2022) to amount to RUB 78.6 bln excluding VAT (+5.2% versus 2020), while FFO before fixed payments and taxes should be RUB 11.4 bln excluding VAT (+8.6% versus 2020), according to ACRA’s calculations.
key assessment factors
The strong business profile of Azbuka Vkusa stems from the low cyclicality of demand for products (the main activity of the Company is food retail in the medium+ segment), and moderate diversification of the Company’s chain by formats (the chain consists mainly of Supermarket and Minimarket format stores). Azbuka Vkusa is a well-known brand, and the Company uses all the main types of advertising and promotion to support its reputation and brand awareness. ACRA notes that a considerable part of the Company’s range of products is imported goods from so-called “unfriendly countries”. The current sanctions regime has complicated the process of buying and shipping these products, and due to this the Company must quickly rebuild part of its logistics chains and look for replacements if it is not possible to get round the sanctions. The volatility of the currency market forces the Company to actively adjust its pricing policy in order to support and maintain business profitability. ACRA expects the combination of these factors to have a limited negative impact on Azbuka Vkusa’s business.
Moderate size of business and high profitability. The Agency notes the Company’s sharp growth of revenues in the first quarter of the 2022 calendar year, which is related to a period of high demand in February and March (this will be reflected in the Company’s revenues and FFO before fixed payments for the 2021 financial year). The spike in demand in February and March was followed be reduced consumption in the following months, and due to this, ACRA assumes conservative growth of the Company’s revenues in 2022. The Agency expects FFO before fixed payments and taxes for the 2021 financial year to amount to RUB 11.4 bln (+8.6% compared to 2020). FFO profitability before fixed payments and taxes in 2021 will be 14.5%. ACRA expects the Company’s profitability to decline in 2022 due to sharp exchange rate fluctuations, more expensive logistics, and the certain lag in reflecting the impact of these changes in the prices of goods.
Medium leverage and low coverage of fixed payments. The Company reduced its total debt and increased FFO before net interest payments in 2021. As of the end of 2021, the ratio of total debt to FFO before net interest payments was 2.2x (2.9x in 2020), while adjusted total debt to FFO before fixed payments was 5.0x (5.4x in 2020). The ratio of FFO before net interest payments to interest payments was 4.9x in 2021 (3.8x in 2020), while the ratio of FFO before fixed payments to fixed payments was 1.5x (1.4x in 2020). ACRA expects the assessment of the Company’s coverage to decline in 2022 due to the sharp growth of interest rates in Russia. Azbuka Vkusa takes part in the subsidized lending program, which allows it to partly hold back growth of debt servicing costs. The Agency notes that the low indicators of adjusted debt load and fixed payment coverage are related to the Company’s business model and use of locations with high rent prices.
Strong corporate governance is based on the high assessments of the development strategy, structure and financial transparency and moderate assessments of the management structure and risk management. ACRA expects Azbuka Vkusa to carry out corporate policy aimed at reducing risks related to the holding structure being located in Cyprus. OOO Gorodskoy supermarket (ACRA rating A-(RU), outlook Stable) is still the main operating company and asset holder of the Company’s property.
High assessment of liquidity and average assessment of cash flow. Azbuka Vkusa’s debt is primarily made up of short-term credit lines, although the Company has sufficient unused and available credit limits to maintain a comfortable liquidity position. Amid sharp macroeconomic changes, the Company adjusted the planned level of capital expenditures, and the cash flow distribution policy remains moderately conservative.
key assumptions
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Implementation of the Company’s strategy;
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Maintained access to 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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Adjusted debt to FFO before fixed payments falling below 4.0x and coverage of fixed payments exceeding 1.5x;
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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:
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Ratio of FFO before fixed payments to fixed payments falling below 1.0x and ratio of adjusted debt to FFO before fixed payments exceeding 6.0x;
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FFO profitability before fixed payments falling below 10%;
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Significantly worsened access to external sources of liquidity.
rating components
Standalone creditworthiness assessment (SCA): a-.
Adjustments: none.
issue ratings
No outstanding issues have been rated.
regulatory disclosure
The credit rating of Sanymon Corporation Limited (CYP) 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 Sanymon Corporation Limited (CYP) was published by ACRA for the first time on April 17, 2017. 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 Sanymon Corporation Limited (CYP), information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and Sanymon Corporation Limited (CYP) participated in its 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 no additional services to Sanymon Corporation Limited (CYP). No conflicts of interest were discovered in the course of credit rating assignment.
