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The Pakistan Credit Rating Agency Limited
Press Release

Date
31-Dec-20

Analyst
Raniya Tanawar
raniya.tanawar@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Maintains Entity Ratings of Pak Suzuki Motor Company Limited

Rating Type Entity
Current
(31-Dec-20)
Previous
(31-Dec-19)
Action Maintain Initial
Long Term AA- AA-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Pak Suzuki Motor Company Limited (PSMC) is the only player from among the established auto OEM in Pakistan that is predominantly owned by the foreign shareholder. Besides, there is high level of integration with the parent and associates. The ratings reflects prominent industry positioning of PSMC in its respective niche and strong ownership background. With a presence of up to four decades in the automotive industry, the company has established a formidable forte in the domestic market. The industry that had been reigned by only three OEMs for many years, including PSMC, is now facing competition from the new entrants. PSMC operates in the industry which is cyclical and prone to adverse macro-economic indicators. This is truer for the customer segment of PSMC, which is more price sensitive. Prior CY19, PSMC witnessed sustainable growth in preceding years amid growing middle class with stable margins. Ongoing market conditions and economic slowdown has adversely impacted the Company's revenues and profitability, resulting in a net loss. This was primarily due to slower paced yet multiple times of adjusting the prices upward and later on the pandemic impact, kept the demand restricted. Since the impact has been largely absorbed at the both ends, it has started to reflect positively from the third quarter of the year 2020. It is noticeable that the company has no long term debt on its books, despite challenges. Under the debt metrics, the company has appreciably reduced its debt pressure (short term) to quite an extent, which was built-up to fund its working capital needs. Now the debt requisites are shared with the sponsors, that too at an adequate level, henceforth, recovery is visible in the financial profile. After facing months of muted sales due to COVID-19 on the last couple of quarters, present market conditions appears docile as recent figures represents gradual recovery. The fortune of the industry became hazy if second wave prolongs, therefore the quantum of recovery is dependent on duration and aftermaths of the pandemic. Moreover, reduction in interest rates will help auto-financing pick up pace over the medium-term.
The ratings draw comfort from the diversity in business streams, continuous dominance in volumetric sales despite challenges, integration of supply chain at group level and technical support from the sponsor in accordance with License agreement. The ratings are dependent on the Company’s aptness to manage its financial profile by reducing leveraging and rationalizing its working capital, endurance of which is crucial. Additionally, reversal of losses is important while any significant increase in debt and/or working capital will impact the ratings.

About the Entity
Pak Suzuki Motor Company Limited was incorporated as Public Limited Company in 1983. It is listed on Pakistan Stock Exchange (PSX) with symbol PSMC. The controlling stake is held by Suzuki Motor Company Japan which holds ~ 73% of stake. The remaining shareholding is held by individuals and financial institutions. The principal business activity of the Company is assembling, progressive manufacturing and marketing of Suzuki cars, pickups, vans, 4 x 4s, motorcycles. Further, Company is also involved in trading activity of Suzuki cars, Heavy bikes, outboard motors and related spare parts. The registered office of the Company is in Karachi. The control of the Company vests with Board of Directors, which comprises seven members. There are two independent directors, three non-executive directors and two executive directors including CEO. The Chairman of the board is Mr. Kinji Saito.

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.