The latest information on the rating, including rating reports and related methodologies are available on this LINK.

Rating action

Scope Ratings assigns a corporate issuer rating of BB- to Hungarian-based Unix Auto Kft. The Outlook is Stable. Scope also assigns a BB- to the company’s senior unsecured debt.

Rating rationale

The rating is positively influenced by Unix Auto’s dominant market share in the Hungarian auto-parts market and by its well-known brand domestically. Current economic conditions and solid GDP growth in its two main countries of operation, Hungary and Romania, are also credit-positive for industry aspects. Diversification is good in terms of suppliers and customers, with no parties representing a meaningful share of the total. Moreover, the company has a massive spare-parts product range, as well as some business in services and special-tool rental, which help to diversify its product offering to some degree. However, the relatively high geographical dependence on Hungary (~70% of sales) somewhat negatively affects the rating agency’s diversification assessment. Additionally, Scope has slight concerns over the recent decline in EBITDA margin, declining from 9.3% in 2015 to 6.2% in 2018, mainly due to staff cost increases.

The company’s financial risk profile is mixed. Positive aspects of strong interest cover and acceptable historical leverage ratios are constrained by the negative free cash flow generation due to the company’s high growth and investments. Based on the company’s current business plan, Scope-adjusted debt (SaD)/EBITDA and FFO/SaD are expected to deteriorate in the medium term. The more aggressive financial risk profile is mainly due to ambitions to grow more rapidly abroad, including more branch networks. Moreover, the company plans to establish more logistics distribution centres and grow its A.Z. Meisterteile brand.

The Stable Outlook reflects Scope’s expectations that Unix Auto will continue to dominate the Hungarian auto-parts market and can decelerate the pace of the deteriorating profitability margins seen of late. It also assumes that the company will improve its liquidity somewhat by introducing a new senior unsecured long-term bond, but this will be countered by weaker credit metrics due to its continued high growth strategy, which will continue to result in negative free operating cash flow (FOCF) according to Scope Ratings’ estimates.

Rating-change drivers

A positive rating action could be warranted if the business risk profile improved. This could be through a stronger position in non-domestic markets and improved profit margins with a higher share of own-brand spare-parts sales. An upgrade is also possible if both FOCF and net debt improve, as reflected in a FOCF/SaD of more than 5% on a sustained basis.

A negative rating action is possible if the financial risk profile deteriorated, exemplified by SaD/EBITDA moving above 4x on a sustainable basis and FFO/SaD moving below 15%.

Stress testing & Cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodology used for this rating and rating outlook (Corporate Rating Methodology) is available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months

Solicitation, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rated entity and/or its agents participated in the rating process. Scope had access to accounts and management for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst: Henrik Blymke, Managing Director
Person responsible for approval of the rating: Olaf Tölke, Managing Director
The ratings/outlooks were first released by Scope on 27.08.2019.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2019 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.
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