The credit rating of Elektroresheniya LLC (hereinafter, EKF or the Company) is based on the Company’s very high profitability, medium leverage coupled with medium coverage, strong liquidity, medium assessments of the market position, business profile, corporate governance and geographic diversification, as well as the weak cash flow and the below-medium size of the Company.
Previously, the Agency assigned the status “Rating under review: negative” to the credit rating in connection with tax claims of the Federal Tax Service of Russia and the adoption of provisional measures under a lawsuit. After the Company’s application to replace the provisional measures was satisfied, the amount of seized funds was significantly reduced (to RUB 200 mln). The Agency believes this will not create additional risks of disruption to operational activities given the significant balances of funds in the Company’s accounts at the end of 2024.
At the same time, the “Rating under review: negative” status has been retained due to the continued uncertainty regarding the final size of tax claims against the Company. The Agency is monitoring the legal proceedings in order to assess the situation’s possible influence on the Company’s metrics.
Elektroresheniya LLC, the representative of the EKF brand in Russia, is engaged in the design, production and sale of electrical equipment and associated solutions, and software. Its product range includes over 19,000 items in 36 product lines, including smart home systems, professional lighting equipment, electricity meters, low-voltage electrical products and medium-voltage equipment, heating systems, etc. Manufacturing assets include two production sites in the Vladimir Region, a state-of-the-art test laboratory, a design bureau, and seven logistics centers. The Company has more than 2,000 employees.
key assessment factors
Medium operational risk profile assessment. The Company is a competitive player in the fragmented electrical engineering market in several product categories, including modular automation systems, power equipment, electrical enclosures, cable support systems and busbars, etc.), annually achieving growth of operating metrics. EKF is present in the main price segments of the market. The Company’s sales market is characterized by steady demand for electrical equipment from various sectors of the Russian economy (manufacturing, power, commercial and civil construction, housing and utilities). EKF’s sales volumes are stable and show steady growth in the historical period regardless the absence of significant contracted volumes. Sales are carried out through distributors (90% of orders are automated) and federal network companies (Lemana PRO, OBI, STD Petrovich, etc.). The Company’s finished products are made at EKF’s own factories, as well as by foreign subcontractors. The Company’s investment program is aimed at further development of manufacturing assets and increasing the share of localized products. Export destinations are diversified. Products are supplied to CIS and non-CIS countries, but the share of exports in the revenue structure is low (up to 20%).
Very high profitability and below-medium size of business. By the end of 2024, the Company's revenues reached RUB 21 bln (a 29.4% increase year-on-year), and FFO before net interest payments and taxes amounted to RUB 2.9 bln. The FFO margin before interest and taxes in 2024 declined to 13.5% (vs. 15.4% a year earlier) in 2024. At the same time, the average weighted value of the margin from 2022 to 2027 is 15.1%, according to ACRA’s calculations.
Medium leverage and coverage. As of the end of 2024, the ratio of total debt to FFO before net interest payments was 3.2x compared to 3.3x a year earlier, while the weighted average value of this indicator for 2022 to 2027 grew to 2.5x. The ratio of FFO before net interest payments to interest payments declined to 2.2x in 2024 (due to the increase in total debt and higher expenses on servicing it), which corresponds to a low level. During the forecast period from 2025 to 2027, the Agency expects an improvement in this indicator, in connection with which debt servicing as a whole is assessed as average. The loan portfolio is sufficiently diversified by maturity and lender. Part of the funds are preferential long-term loans obtained to finance the Company’s investment program. The Company uses credit lines from several large Russian banks to fund its current operations.
Strong liquidity assessment. EKF has diversified sources of internal and external financing — significant cash balances held in accounts and committed credit lines, as well as borrowings in the debt market. The repayment schedule for investment loans is smooth and comfortable, and the main annual repayment volumes are formed by short-term credit lines used to finance current activities.
The free cash flow (FCF) margin is negative. The Company is at the stage of its active growth, which implies dynamic expansion of operating activities, an outflow of funds to finance the working capital, and expenses on the investment program of no less than RUB 1 bln annually. In view of the above, the weighted average FCF margin remains negative.
KEY ASSUMPTIONS
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Average annual revenue growth of at least 20% in 2025–2027;
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Implementation of the investment program as planned;
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Balanced dividend policy throughout the forecast horizon of 2025 to 2027.
potential outlook or rating change factors
The “Rating under review: negative” status assumes that the rating may be downgraded.
Removal of the “Rating under review: negative” status and affirmation of the credit rating may be prompted by:
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Withdrawal of the lawsuit;
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Maintaining the assessments of financial risk profile factors in the event of satisfaction of claims under the lawsuit.
Removal of the “Rating under review: negative” status and downgrading the credit rating may be prompted by:
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The weighted ratio of FFO before net interest payments to interest payments declining below 2.5x;
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The weighted FFO margin before interest and taxes declining below 15%.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bbb.
Support: none.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to Elektroresheniya LLC 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 credit rating of Elektroresheniya LLC was published by ACRA for the first time on October 20, 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 data provided by Elektroresheniya LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Elektroresheniya LLC 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 additional services to Elektroresheniya LLC. No conflicts of interest were discovered in the course of credit rating assignment.
