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
(04-Aug-23 )
(05-Aug-22 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings take primary comfort from predominant foreign sponsor ( Suzuki Motor Corporation, Japan) to extend all types of support to the company. Pak Suzuki Motor Company Limited (“PSMC” or “The Company”) is among the established auto OEMs in Pakistan. 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 a strong market share. 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 and caters to the need of different income groups of customer segments. FY23 was a challenging year for the automobile industry, the sector is heavily dependent on CKD Kits, and import restrictions due to depleting foreign exchange reserves created essential raw material shortages. This situation led to frequent plant shutdowns and non-production periods, observed by all OEMs. Furthermore, massive rupee depreciation coupled with high inflation and rising interest rates contracted consumer demand. PAMA (Pakistan Automotive Manufacturers Association) latest stats FY23 revealed a significant drop in automobile sales volumes, where passenger cars sales recorded at ~96,812 units as compared to ~234,180 units in FY22 depicting a decline of ~59%. Suzuki Alto sustained its position as a top-selling car with a sale volume of ~35,379 units in FY23. Overall, under passenger car category, the company was able to hold a market share of ~64% (FY22: ~58%). Nexus to the adverse macroeconomic condition, the financial performance of the company remained distressed and resulted in hefty foreign exchange loss during 1QCY23. However, assigned ratings take comfort from the financial support undertaking provided by SMC Japan on 17th March 2023 to ensure its continuing operations and to provide sufficient funds to settle liabilities when they fall due. As of 1QCY23 financial risk profile of the company is characterized by insufficient cashflows and weak coverages. The capital structure is leveraged, and borrowings are mainly comprised of short-term, for working capital management, and long-term (TERF) for CAPEX. 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 and rationalization of management strategies to achieve sufficient liquidity and profitability. Furthermore, removal of material uncertainty related to going concern in annual report for financial year 2022 is important.

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 control of the Company vests with Board of Directors, which comprises seven members. 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.