Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website. 

Scope completed the monitoring review for Inotal Zrt. (B+/Stable issuer rating; B+ rating on senior unsecured debt) on 1 April 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Revenues increased faster in 2021 than previously anticipated. This came from a rapid increase in the price of aluminium and increasing output fueled by higher demand during the post-pandemic economic recovery. Operational profitability, however, is expected to remain below Scope’s previous assumptions due to a strong effect from the sudden increase in energy prices from Q3 2021 onwards. Scope expects operating conditions to recover in 2022, with Inotal being able to fetch higher selling prices, unchanged high demand for semi-finished aluminium products, and a business strategy focusing on hedging electricity and gas prices. Scope assumes no further escalation on the geopolitical front and recognises the high degree of volatility on the market, with operational profitability highly dependent on the future direction of energy prices.

The company’s business risk profile continues to be supported by good geographical, customer and end market diversification and stabile, long-term customer relationships. As major competitors decided to cut their production due to energy price concerns, Inotal now has a more favorable bargaining position in a market driven by strong demand and concerns over the availability of materials. The rating is constrained by the company’s relatively small size in global terms and relatively low margins that remain under pressure from the rapid increase in prices for input materials.

The financial risk profile reflects moderate leverage in the medium term, with a temporary spike expected in the Scope-adjusted debt/EBITDA ratio in 2021. This would be significantly above Scope’s previous expectations but remain below 4.0x in the medium term. The free operating cash flow/Scope-adjusted debt ratio is expected to be volatile in future, driven by fluctuating working capital. CAPEX was higher in 2021 than the historical average. The company managed to successfully apply for CAPEX subsidies from the government and brought forward maintenance from upcoming years. In the medium term, CAPEX is expected just above the level of depreciation, while dividends are prohibited under the terms of its bond. Scope considers liquidity to be adequate, with no short-term loans and the first installment (12.5%)* of a HUF 6bn loan maturing in 2023.

*Editorial Note: This number was amended to 12.5% from 20% on April 12, 2022 to rectify a typo. The amendment has no impact on our analysis.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Corporate Rating Methodology, 6 July 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Istvan Braun, Associate Director

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