PACRA Maintains Entity Ratings of Pak Suzuki Motor Company Limited

Pak Suzuki Motor Company's (“PSMC” or “the Company”) ratings reflect a vigorous business profile represented by its prominent position among the established auto OEMs in Pakistan. The ratings are further supported by the foreign sponsor, Suzuki Motor Corporation, Japan (SMC-Japan), which extends comprehensive support to the company. Following its delisting from PSX, the parent company now exercises full control over PSMC. The automotive industry continues to face multifaceted challenges due to adverse macroeconomic conditions. On the supply front, production has been hampered by difficulties in establishing L/Cs for importing CKD kits and other essential raw materials. On the demand side, high inflation and soaring interest rates have significantly increased the prices of locally assembled vehicles, thereby eroding consumer purchasing power. According to PAMA (Pakistan Automotive Manufacturers Association) passenger car sales depicted a decline of ~16% in FY24 and stood at 81,577 units as compared to 96,811 units in FY23. However, PSMC’s sales in the last 2 quarters showed considerable improvements. The company's top-selling car is the Suzuki Alto, followed by the Swift, which offers premium features not available in any other local cars in this segment, then the Cultus and Wagon R. Moving forward, stabilizing foreign exchange rates and reducing policy rates could enhance consumer confidence and contribute to the recovery of the industry. PSMC has achieved approximately 46% market share for cars and light commercial vehicles among PAMA member companies and operated at about 39% capacity utilization in the first quarter of CY24. The financial performance of the company is also improving as the Company has already paid a major chunk of foreign liabilities which resulted in a hefty exchange loss in CY23. The assigned ratings also take comfort from the financial support undertaking provided by SMC-Japan on August 23, 2023, to ensure its continuing operations and to provide sufficient funds to settle liabilities when they fall due. The financial risk profile of the company is characterized by sufficient cashflows and improved coverages. The current capital structure is low leveraged, and borrowings are mainly comprised of long-term (TERF) for CAPEX, and short-term borrowings limits were unutilized.
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. However, adherence to maintaining its debt metrics at an adequate level is a prerequisite.

About the Entity
PSMC was delisted from the Pakistan Stock Exchange on April 22, 2024. The parent company, SMC-Japan, bought back its shares from the minority shareholders and now holds ~98.5% of the stake. The principal business activity of the Company is assembling - progressive manufacturing, and marketing Suzuki cars, pickups, vans, 4 x 4s, motorcycles and related spare parts. The control of the Company vests with the Board of Directors, which comprises seven members. The Chairman of the board is Mr. Kinji Saito.