The Pakistan Credit Rating Agency Limited
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Raniya Tanawar

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PACRA Maintains Entity Ratings of Pak Suzuki Motor Company Limited

Rating Type Entity
(11-Aug-21 )
(31-Dec-20 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Pak Suzuki Motor Company Limited (PSMC) is the only player among the established auto OEMs in Pakistan that is predominantly owned by the foreign shareholder. Besides, there is 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. PSMC operates in an industry which is cyclical and prone to macro-economic indicators. This is more applicable for the customer segment of PSMC, which is more price sensitive. This is going to be in favour of the Company in near future as upcoming new auto policy (2021-2026) tends to provide much awaited relief to local operators, particularly to the segment where PSMC is a market leader, making it a beneficiary. The industry that had been reigned by only three OEMs for many years, is now facing competition from new entrants. It is noticeable that there has been few addition in the past under below 1000cc car segment, but it did not effect PSMC market position. The last 2-3 years have been a rough journey for auto manufacturers in Pakistan where the industry suffered various challenges, though PSMC remained resilient. After facing months of muted sales due to COVID-19, present market conditions appear positive. Recent figures represent strong uptick in sales during 1HCY21, on the back of lower interest rates (7%) - thus boosting consumer auto-financing, eventually enabling the companies to enhance their revenue base. Moreover, future of the industry is getting better and clearer as COVID-19 driven risk factors are settling. The year 2021 started with good fortune, as adversities that pushed the Company into losses (for a while), turns to evade and profitability returned at net level on the books of the Company. The risk profile seems credible as it is pertinent to note that the company carries a low leverage book and strong coverages. Under the debt metrics, the Company has eliminated its debt pressure (short term) from the external exposure. Now the debt requisites are shared with the sponsors, that too at an adequate level, henceforth, recovery is visible in the financial profile.
The ratings draw comfort from the Company’s revival of profits within its targeted timeline, ability to dominate in volumetric sales despite challenges and diverse product streams. Sponsor support remains inevitable along with integration of supply chain at group level and technical support from the sponsor in accordance with license agreement. The ratings are dependent on the Company’s ability to uphold its financial risk profile. However, sustainability in profits and stable risk profile remains imperative.

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