In a recent assessment, Fitch Ratings upheld UzAuto Motors' (UAM) Long-Term Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook, reinforcing the integral ties between UAM and the Republic of Uzbekistan. This affirmation reflects a government-related entity relationship, aligning with Fitch's criteria.
The strength of UAM's connection with the state is emphasized, driven by full state ownership and operational control, as well as historical state support. The socio-political implications of a potential UAM default on the sovereign are significant, given its dominant market position and a workforce of approximately 30,000, which could lead to socio-political tensions.
While UAM's financial implications are robust due to its exposure to international capital markets after issuing a Eurobond, the Standalone Credit Profile (SCP) reveals certain challenges. UAM faces constraints such as limited scale, a narrow product range, and sales concentration in Uzbekistan. Profitability pressures are anticipated in 2023, primarily due to raw material price inflation.
Fitch Ratings' key assumptions about the future developments of the company are:
- Revenue around $4.5bn over the rating horizon
- EBITDA margin of 7% in 2023 before gradually trending towards 9% by 2025
- Negative to neutral working capital changes
- Average capex at 2.5% of sales from 2023 to 2026
- Dividend payout ratio between 15% and 30%
- No mergers and acquisitions for the next four years
"UAM has a long-term license agreement with General Motors Company (GM; BBB/Stable), and while there may be alternative offers from foreign competitors, a default of UAM would cause temporary disruption to the delivery of new cars. The regulatory environment has softened over the last two years with falling import duties, but demand for UAM's cars is still strong and it remains the dominant seller in Uzbekistan. UAM supplies the most affordable cars in the local market and we believe that it would be hard to substitute its cars with other foreign brands in the short term," says the Fitch Report about car sales of the company.
Fitch expects UAM's 2023 profitability to be squeezed despite an increase in higher-end C-segment and above cars coming to the market, due to sticky raw material and component price inflation, which is partially offset by higher pricing.
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