Expert RA raised the credit rating of AVTODOM to ruBBB +

The Expert RA rating agency has raised the credit rating of the non-financial company AVTODOM to ruBBB +. The rating outlook is stable. Previously, the company had a rating at ruBBB- with a stable outlook. End Quote

(1888PressRelease) October 26, 2021 - The Expert RA rating agency has raised the credit rating of the non-financial company AVTODOM to ruBBB +. The rating outlook is stable. Previously, the company had a rating at ruBBB- with a stable outlook.

AVTODOM is a car dealer that occupies a leading position in the automotive market of Moscow and St. Petersburg. The company specializes in the sale and service of cars in the premium and luxury segments. The dealer portfolio includes 25 centers and 9 brands: BMW, BMW Motorrad, MINI, Lamborghini, Mercedes-Benz, smart, Porsche, Audi and KTM. The company's revenue is formed through the sale of new cars, used cars, service maintenance, trade-in, sale of spare parts, accessories, insurance and financial products. The company's specialization in cars of a high price segment in regions with a more solvent population minimizes the risk of a strong decrease in sales due to the lesser dependence of this segment on the general state of the economy.

In 2020, there was a shortage of cars in the automotive retail market, which led to a decrease in sales in quantitative terms. At the end of the year, 1.6 million new cars were sold, which is 9% less than in the previous year. Despite the decline in sales in physical terms, the year was successful for car dealers. Delays in supply chains due to the coronavirus pandemic and temporary production stoppages at automaker plants have led to higher prices for new cars and higher margins on each transaction. In 2020, the shortage of new cars contributed to higher prices and sales margins, unlike in previous years, when stocks were overflowing and car dealers were forced to maintain warehouse turnover by providing discounts. The devaluation of the ruble and global uncertainty about the economic recovery kept demand above supply.

AVTODOM increased stocks of new cars and spare parts beyond the planned values at the end of 2019 anticipating possible complications in the supply chain. The company's revenue increased by almost 50% to 45 billion rubles, due to the above factors. EBITDA grew 2.6 times and amounted to 4.1 billion rubles according to the calculations of Expert RA. The company has carried out a set of measures for the development of IT infrastructure and revised its marketing strategy in recent years. This combined with strong sales, increased EBITDA margin to 9% in 2020, up from 5% a year earlier.

The rating upgrade was driven by the continuing trend of a significant increase in the financial results of AVTODOM amid organic growth, including due to the continued limited supply of new cars on the market, both excluding new subsidiaries, and due to the successful integration of dealerships whish were recently acquired. This led to a significant improvement in debt burden indicators, which will remain in the medium term as expected by the agency.

Previously, the entire debt of AVTODOM was denominated in US dollars. However, loans were converted to rubles after the strong devaluation of the ruble in 2014. An agreement on debt restructuring was reached because of negotiations with the main creditor bank in 2019. As part of this, the bank's requirements in terms of currency revaluation to AVTODOM were reduced and partially transferred to the shareholder level through transactions in 2020 on the assignment of rights of claims. When calculating forecast financial indicators, the agency takes into account the distribution of dividends, which, if necessary, will be used to service the shareholder debt. At the end of 2020, the debt to EBITDA ratio stood at 4.7, which was characterized by an increased level of debt burden.

Offers from existing players for the sale of business appeared on the market against the backdrop of a successful year for car dealers. AVTODOM took advantage of them due to limited opportunities to open new dealerships in the regions of its presence. In 2020, the company acquired three Audi dealerships and one BMW dealership in Moscow and opened a used car sales center in St. Petersburg. All M&A deals involve a focus on premium brands, in accordance with the development strategy of AVTODOM. The distribution agreement with KTM for the development of the dealer network of the brand in the territory of the Russian Federation by AVTODOM was also signed. In the first half of 2021, a Porsche dealership was acquired and two KTM dealerships opened.

The company's revenue for the first half of the year reached 42.4 billion rubles as a result of significant improvements in own financial results and synergies from acquisitions of new dealerships. This corresponds to revenue for the full year of 2020. EBITDA LTM as of mid-2021 amounted to 6.8 billion rubles. As a result, the company's debt burden dropped to a comfortable level. Debt to EBITDA ratio is 2.5x as of June 30, 2021. The agency does not expect an increase in the debt burden in the medium term with the recovery of car production and a way out of the shortage of availability of new vehicles.

Assets of the company amounted to 37.5 billion rubles; capital amounted to 9.6 billion rubles according to the consolidated financial statements according to IFRS standards, as of June 30, 2021. Revenue amounted to 71.3 billion rubles for the period 30.06.2020-30.06.2021.

«Our company develops both horizontally, entering new market segments, including commercial and electric transport, and vertically. We are constantly looking for partners for distribution. Therefore, we signed a distribution agreement with the KTM brand last year and we are planning a number of more signings in 2022. We want and, most importantly, we are ready to bring to Russia new brands that we plan to assemble in industrial assembly mode at factories in the Russian Federation. The role of the dealer business for our group will be complemented by new projects of our own. On the one hand, we will become fintech company, and on the other hand, we will become a vertically integrated company with a mode of industrial assembly of cars. All this requires a serious business transformation and investment attraction. We plan to issue the first bonds with a total value of 3-5 billion rubles already in November" – Andrey Olkhovsky, General Director of Avtodom Group of Companies, spoke about plans for business development.

The credit rating of AVTODOM was first published on April 13, 2021 https://raexpert.ru/releases/2021/oct21k// The previous rating press release of this rating object was published on April 13, 2021. The credit rating is assigned according to the Russian national scale and is long-term. The revision of the credit rating and its outlook is expected no later than one year from the date of the assignment or the last revision.

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