The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of Pak Suzuki Motor Company Limited

Rating Type Entity
(05-Aug-22 )
(11-Aug-21 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Pak Suzuki Motor Company Limited (“PSMC” or “The Company”) is the only player among the established auto OEMs in Pakistan that is predominantly owned by foreign shareholders. Besides, there is a high level of integration with the parent and associates. The rating incorporates PSMC’s strong position as a prominent industry player in its respective niche with strong ownership background. Having a presence of more than four decades in the automotive industry, the Company has established a formidable forte in the domestic market. Pak Suzuki offers various product options in the hatchback car segment ranging from 660CC to 1200CC. According to Pakistan Automotive Manufacturers Association (PAMA), the top-selling car is the 660cc Suzuki Alto which is having 47% sales volume against total vehicle sales. Pak Suzuki unveiled its premium Hatchback “Swift” with premium features that are not available in any local cars in this segment. The company holds the highest market share of 54% among the largest three OEMs in the market. PSMC operates in an industry that is cyclical and prone to macroeconomic indicators. The main industry challenges are global supply chain disruptions, semi-conductor chip shortages, resulting in late deliveries, and associated financial charges. Furthermore, soaring raw material and energy prices coupled with rupee devaluation further deteriorate the margins. On the flip side, a higher policy rate of 15% will slow down the demand for car financing. Despite these challenges, PSMC will remain in the optimal place as rising fuel prices and relatively low maintenance costs will skew demand towards small engine cars for better fuel mileage. The financial risk profile of the company is characterized by comfortable cashflows and a working capital cycle. The capital structure is low leveraged and the company has paid off foreign currency loan from holding company. During the year the Company has available SBP’s subsidized borrowing (TERF) for new plant & machinery.
The ratings draw comfort from the diversity in business streams, and its ability to dominate in volumetric sales despite challenges and diverse product streams. Sponsor support remains inevitable along with the integration of the supply chain at the group level and technical support from the sponsor in accordance with the license agreement. The ratings are dependent on the Company’s ability to uphold its financial risk profile. However, sustainability in profits and a stable risk profile remain imperative.

About the Entity
Pak Suzuki Motor Company Limited was incorporated as a 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 the stake. The remaining shareholding is held by individuals and financial institutions. The principal business activity of the Company is assembling, progressive manufacturing, and marketing Suzuki cars, pickups, vans, 4 x 4s, and 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.