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The Pakistan Credit Rating Agency Limited
Press Release

Date
26-Aug-19

Analyst
Muhammad Noor Ul Haq
noorulhaq@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Honda Centre (Pvt.) Limited

Rating Type Entity
Current
(26-Aug-19)
Previous
(25-Feb-19)
Action Maintain Upgrade
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The rating takes comfort from Honda Centres' alliance to Honda Atlas Cars Pakistan Limited– owned by Atlas Group and Honda Motor Company Limited, Japan. Honda Centre (Pvt) Limited is one of the largest authorized 3S dealership for Honda Atlas Cars Pakistan Limited in Pakistan. Honda Centre has been in the auto dealership industry for over a decade now and has captured adequate market share. The sponsors have a good understanding of the business. The company’s profitability and leveraging are good. The sponsors have injected a sizable amount as a subordinated debt. The overall auto sector business is dependent on economic indicators and demand led by businesses and investors. Of late - massive rupee depreciation, rising interest rate environment and increasing inflationary pressures - overall demand for auto has plummeted with the automakers seeing a considerable reduction in their capacity utilization and profitability. However, Honda Centre has built a sustainable position in this competitive auto industry by securing contracts with a few key institutions which drive bulk of their demand for vehicles. It is important to sustain the growth while managing the rising competition, which is more of a Principal’s domain. It is crucial for the overall demand to pick-up for the alleviation of related concerns. In the meantime, the profitability is being supplemented by the 'After Sale' segment-reporting net profitability for the dealership and covering its operational cost. Hence limiting and/or cushioning the unforeseen drag on the risk absorption capacity. Foreign players are also taking interest in the local market. Control environment may be strengthened by including independent directorship and adopting quarterly accounts.
The ratings are dependent on sustaining a steady revenue stream, credit quality of the receivables, the transaction structure and the servicer's experience. Any prolonged downturn in subdued business volume can have a detrimental effect on the rating. Good corporate governance practice is considered pivotal for a growing business concern.

About the Entity
Honda Centre was incorporated in 2007 as a private limited company. It was incorporated to function as an authorized 3S (Sales, Services and Spare Parts) dealership for Honda Atlas Cars Pakistan Limited. The dealership is owned by the three brothers from the sponsoring family. Mr. Yasir Raza as the CEO and Mr. Taimur Raza and Mr. Hassan Raza as executive directors.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.