S&P Global Ratings assigned 'B+/B' long- and short-term issuer credit ratings to Akfa Aluminium (Akfa), Uzbekistan's leading manufacturer of aluminum and PVC profiles, with a stable outlook. In 2023, Akfa recorded sales of UZS 4.3 trillion (approximately $347 mn), securing its position as the largest producer in Uzbekistan and one of the largest in Central Asia. The company controls 62% of the aluminum profiles market and 55% of the PVC profiles market by revenue, outperforming local competitors, who have two-to-three times smaller businesses.
Akfa’s stronghold in Uzbekistan’s rapidly expanding building materials market is driven by increased demand for construction materials, supported by residential projects and urban modernization initiatives. Uzbekistan's growing population (around 700,000 annually) and government programs to promote affordable housing further contribute to this high demand. S&P notes that while Akfa’s franchise is well-established locally, the company’s global presence is limited, which somewhat offsets its market dominance.
Financial performance and profitability
S&P’s analysis of Akfa highlights its robust asset base and operational efficiency, contributing to adjusted EBITDA margins expected to remain above 20% over 2024-2025. The company's extensive investment in production facilities, amounting to approximately UZS 1.1 trillion ($95mn) in capital expenditure over the past three years, supports future growth with minimal additional capex required. Akfa operates eight manufacturing plants in Uzbekistan, with average capacity utilization between 30%-50%, providing room for scaling up production to meet rising demand without incurring significant new costs.
Akfa benefits from low operational costs, supported by Uzbekistan's relatively low wage and logistics expenses. Selling and administrative costs account for just 6% of revenue, significantly lower than those of its international peers. This cost advantage enables Akfa to maintain above-average profitability and adjust its prices to offset raw material fluctuations, such as those of aluminum and PVC.
Debt and leverage considerations
Despite its modest debt levels, Akfa’s leverage is set to increase due to a $100 mn guarantee provided to a related party for a project. This raises S&P’s adjusted debt-to-EBITDA ratio to 2.2x in 2024, from 1.1x in 2023. S&P expects the ratio to improve to 1.8x in 2025 as EBITDA grows, supported by strong cash flow generation. Akfa’s free operating cash flow (FOCF) is forecasted to remain healthy, ranging from UZS 850bn to UZS 1.1 trillion over 2024-2025. However, there is some uncertainty regarding how this cash will be allocated between debt reduction and dividend payouts.
Akfa’s liquidity profile is constrained by its reliance on short-term financing. The company recently secured a $130mn credit line from a Kazakhstan-based bank, comprising $100 mn in non-revolving tranches and a $30mn revolving credit facility. This extends the weighted-average debt maturity to over three years. However, most of the debt remains short-term, and Akfa's liquidity remains reliant on solid FOCF to manage its financing obligations.
Geographic and product diversification challenges
While Akfa is a domestic leader, its revenue generation is concentrated in Uzbekistan (88%) and neighboring Central Asian countries (9%). In contrast, competitors like Profine and Corialis generate significantly higher revenues with more diversified global operations. Akfa aims to expand its exports to the European Economic Area and North America, but S&P views this strategy as challenging due to high logistics costs and intense competition. As a result, Uzbekistan will likely remain Akfa’s primary market, and its exposure to raw material costs will continue to affect profitability due to the lag in transmitting cost changes.
Additionally, Akfa’s product diversity is limited, with all offerings catering to the window manufacturing industry. The absence of vertical integration, such as owning a distribution network, further constrains the company’s business risk profile. Akfa relies on raw material purchases and sells its products primarily to distributors or window manufacturers.
Governance and risk factors
S&P's assessment of Akfa’s governance practices highlights some concerns. Although the company has maintained relatively low adjusted leverage, the recent guarantee for a related-party project increased its financial obligations. While Akfa’s management does not foresee any further related-party transactions, the lack of a formal financial policy leaves future governance practices open to scrutiny. This governance risk is typical of many corporations in Uzbekistan, where corporate transparency and disclosure practices remain underdeveloped.
Environmental and social factors have a neutral impact on Akfa’s credit rating. Aluminum products, generally regarded as environmentally friendly, contribute positively, while PVC products are considered energy-efficient, particularly in the domestic context. However, Akfa’s overall environmental exposure is lower than that of companies in the heavy building materials sector, such as cement manufacturers.
Outlook
The stable outlook reflects S&P’s expectation that Akfa will maintain its solid revenue growth and profitability, with adjusted EBITDA margins exceeding 20% in the next 12 months. S&P anticipates that the company will continue to benefit from strong domestic demand, while maintaining a debt-to-EBITDA ratio slightly above 2x. Akfa’s liquidity is expected to remain stable, provided that its free cash flow continues to offset short-term financing needs.
A rating downgrade could occur if Akfa engages in additional related-party transactions or if its liquidity significantly deteriorates due to increased short-term debt. Conversely, an upgrade is unlikely in the near term, as it would require sustained growth, improved governance practices, and conservative leverage management.
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