Fitch affirms Eurotorg at 'B'; outlook negative
<p> MINSK, Dec 8 - PrimePress. Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) of Belarus’ largest retailer Eurotorg at 'B' with a negative outlook. </p> <p> </p> <p> “The rating of Eurotorg reflects its small scale, limited diversification outside its domestic market and high foreign-exchange (FX) risks, which weigh on its financial flexibility relative to rated sector peers. These weaknesses are balanced against its conservative capital structure and a strong position in Belarus’ food retail market. We believe that the rating can accommodate increasing competitive pressures from hard discounters, as seen recently, and that Eurotorg is well-positioned to retain its leading market share,” the report says. </p> <p> </p> <p> The Negative Outlook is in line with that on Belarus’ sovereign rating (B/Negative) and reflects the risk of a downgrade of Belarus’ Country Ceiling to below 'B'. This factor currently constrains Eurotorg's rating, as the company does not have export earnings and foreign assets and financial support from a foreign parent or strategic partners. </p> <p> </p> <p> Fitch experts believe that that competition from hard discounters, including Russian Svetofor and Dobrotsen, has intensified, as consumer interest in hard discounter format has been increasing in Belarus over the past five years. To fend off competition, Eurotorg ensures its selling prices remain attractive to consumers and also develops its new soft- and hard-discounter formats, which together accounted for almost 25% of its retail sales in 1H21. </p> <p> </p> <p> “We do not expect increased competition to weaken Eurotorg’s credit profile, although it may put some pressure on its profitability and cash generation,” Fitch experts said. </p> <p> </p> <p> Fitch analysts assume that Eurotorg’s EBITDA margin may reduce from 9% to around 8% over the medium term as Eurotorg's like-for-like (LfL) sales will lag behind inflation, due to prices being kept low and competitive. </p> <p> </p> <p> “We expect Eurotorg’s cash generation in 2021 will be affected by fewer payment deferrals with suppliers and increased stock levels. However, we assume the related cash outflow in 2021 would be around Br100 million ($39.237m) lower than 2020’s Br264 million ($103.586m) and would not exceed Br50 million ($19.619m) a year over 2022-2024. Eurotorg may change payment terms with suppliers to attain purchasing-price benefits, which could then be passed onto consumers.” </p> <p> </p> <p> “Eurotorg faces high FX risks as its debt is solely in foreign currency, while its revenue is in Belarusian rubles (Br). In addition, part of Eurotorg’s costs (2020: 2.5% of revenue) is also exposed to FX as operating-lease agreements are primarily in hard currency (93% of total rental payments).” </p> <p> </p> <p> “Russian-ruble funding partially mitigates the situation: We assume that weak financial-market development in Belarus will not allow the company to fully switch the currency of its debt and operating-lease agreements to Belarusian rubles over the medium term. Nevertheless, funding in Russian rubles (1H21: 39% of total debt after swap) provides some financial flexibility as Belarusian and Russian rubles have shown some correlation in the past.” </p> <p> </p> <p> “Eurotorg’s market position and bargaining power in Belarus is stronger than those of Russian peers X5 (BB+/Stable) and Lenta (BB+/Stable) in their respective markets. This is due to the large distance in market share between Eurotorg and its next competitor, and significant price advantage. However, in annual absolute EBITDAR, Eurotorg is substantially smaller than its Russian peers and has material exposure to FX risks, while it has a similar leverage profile. As a result, Eurotorg is rated lower than its Russian peers.” </p> <p> </p> <p> Eurotorg has been operating since 1993, the first shop under the brand name Euroopt was opened in 1997. Eurotorg’s self-estimated share in the retail market of Belarus stands at 19%. End ($1=Br2.5486) </p> <p> </p>
2021-12-09
Primepress
Fitch affirms Eurotorg at 'B'; outlook negative
MINSK, Dec 8 - PrimePress. Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) of Belarus’ largest retailer Eurotorg at 'B' with a negative outlook.
“The rating of Eurotorg reflects its small scale, limited diversification outside its domestic market and high foreign-exchange (FX) risks, which weigh on its financial flexibility relative to rated sector peers. These weaknesses are balanced against its conservative capital structure and a strong position in Belarus’ food retail market. We believe that the rating can accommodate increasing competitive pressures from hard discounters, as seen recently, and that Eurotorg is well-positioned to retain its leading market share,” the report says.
The Negative Outlook is in line with that on Belarus’ sovereign rating (B/Negative) and reflects the risk of a downgrade of Belarus’ Country Ceiling to below 'B'. This factor currently constrains Eurotorg's rating, as the company does not have export earnings and foreign assets and financial support from a foreign parent or strategic partners.
Fitch experts believe that that competition from hard discounters, including Russian Svetofor and Dobrotsen, has intensified, as consumer interest in hard discounter format has been increasing in Belarus over the past five years. To fend off competition, Eurotorg ensures its selling prices remain attractive to consumers and also develops its new soft- and hard-discounter formats, which together accounted for almost 25% of its retail sales in 1H21.
“We do not expect increased competition to weaken Eurotorg’s credit profile, although it may put some pressure on its profitability and cash generation,” Fitch experts said.
Fitch analysts assume that Eurotorg’s EBITDA margin may reduce from 9% to around 8% over the medium term as Eurotorg's like-for-like (LfL) sales will lag behind inflation, due to prices being kept low and competitive.
“We expect Eurotorg’s cash generation in 2021 will be affected by fewer payment deferrals with suppliers and increased stock levels. However, we assume the related cash outflow in 2021 would be around Br100 million ($39.237m) lower than 2020’s Br264 million ($103.586m) and would not exceed Br50 million ($19.619m) a year over 2022-2024. Eurotorg may change payment terms with suppliers to attain purchasing-price benefits, which could then be passed onto consumers.”
“Eurotorg faces high FX risks as its debt is solely in foreign currency, while its revenue is in Belarusian rubles (Br). In addition, part of Eurotorg’s costs (2020: 2.5% of revenue) is also exposed to FX as operating-lease agreements are primarily in hard currency (93% of total rental payments).”
“Russian-ruble funding partially mitigates the situation: We assume that weak financial-market development in Belarus will not allow the company to fully switch the currency of its debt and operating-lease agreements to Belarusian rubles over the medium term. Nevertheless, funding in Russian rubles (1H21: 39% of total debt after swap) provides some financial flexibility as Belarusian and Russian rubles have shown some correlation in the past.”
“Eurotorg’s market position and bargaining power in Belarus is stronger than those of Russian peers X5 (BB+/Stable) and Lenta (BB+/Stable) in their respective markets. This is due to the large distance in market share between Eurotorg and its next competitor, and significant price advantage. However, in annual absolute EBITDAR, Eurotorg is substantially smaller than its Russian peers and has material exposure to FX risks, while it has a similar leverage profile. As a result, Eurotorg is rated lower than its Russian peers.”
Eurotorg has been operating since 1993, the first shop under the brand name Euroopt was opened in 1997. Eurotorg’s self-estimated share in the retail market of Belarus stands at 19%. End ($1=Br2.5486)