Analyst
Kanwal Ejaz
kanwal.ejaz@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of Toyota Jinnah Motors (Pvt.) Limited
Rating Type | Entity | |
Current (10-Jan-24 ) |
Previous (18-Jan-23 ) |
|
Action | Maintain | Maintain |
Long Term | BBB | BBB |
Short Term | A2 | A2 |
Outlook | Stable | Stable |
Rating Watch | - | - |
The success of a car dealership is heavily reliant on the strength and reliability of its principal (auto manufacturer or assembler). The dealership’s effectiveness is intricately linked to how well-positioned the principal is within the market. Moreover, the principal typically imposes predetermined qualitative and quantitative criteria on the dealer’s network. In this context, the endorsement and partnership of Toyota Jinnah Motors (TJM) with Indus Motor Company, owned by Habib Group, Toyota Motor Corporation, and Toyota Tsusho Corporation provide comfort to the assigned ratings. Toyota Jinnah Motors (TJM) holds a 4S car dealership (Sales, Service, Spare Parts & Body and Paints Services) and is classified as Gold Rated by OEM. Over the period TJM has built a sustainable position in the competitive industry of Pakistan. TJM’s income streams derived from sales of new vehicles (85%) and after-sales services (15%). 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. The demand side of automobile industry remained subdued due to various macroeconomic factors, such as soaring inflation, high policy rates, and massive rupee depreciation. Similarly, the supply side was also disrupted due to shortages of CKD kits which caused non-production days and frequent plant shutdowns. According to statistical data from the Pakistan Automotive Manufacturers Association (PAMA), the sales of passenger cars saw a significant drop, with only ~96,118 units sold in FY23, in stark contrast to the ~234,180 units sold in FY22, indicating a substantial decline. In line with the industry, TJM’s revenue (FY23) also posted a decline and recorded at PKR ~3,162mln as compared to PKR ~8,338mln during FY22. however, margins were slightly improved due to operational efficiencies. The Company has also received benefits under the new leadership and of sponsors’ experience and abilities. The financial risk profile of Toyota Jinnah Motors is demonstrated by comfortable cashflows, coverages, and working capital cycle. Capital structure is moderately leveraged and mainly comprised of short-term borrowings for working capital management. The Company has substantially reduced its long-term borrowings from financial institutions through sponsors’ support and through internally generated cashflows.
The ratings are dependent on the management's ability to sustain its business profile while benefiting from positive demand fundamentals, financial discipline/transparency is crucial. Moreover, strengthening of governance framework is pivotal for any growing business concern.
About
the Entity
Toyota Jinnah Motors, incorporated on Jan 17, 2014 as a private limited company and inaugurated its operations on 2nd June 2016. The Company was incorporated to set up 3S authorized dealership (Sales, Service and Parts) of Indus Motor Company Ltd, the partners of Toyota Motor Corporation Japan. The Company is majorly owned by Mr. Muhammad Mushtaq (Chairman), Mr. Asad Munir CEO of the company and Mr. Muhammad Idrees (Director).