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Rating action

Scope Ratings GmbH (Scope) has today affirmed the issuer rating of Hungarian auto spare parts distributor Unix Autó Kft. at BB/Stable. Scope has also affirmed the senior unsecured debt rating at BB.

The full list of rating actions and rated entities can be found at the end of this rating action release.

Key rating drivers

Business risk profile: BB (unchanged). Scope’s assessment is primarily driven by the good operating profitability in Unix Autó’s key markets of Hungary and Romania and the good outlook for those markets. The rating is constrained by the issuer’s low diversification.

Unix Autó is the leading auto spare parts company in Hungary in terms of market share and product range, with revenues of EUR 273m in 2023 (up 16.3% YoY). In addition to its clear dominance in Hungary (35% market share), Unix Autó ranks fifth in Romania and is also present in Slovakia.

Unix Autó’s retail network is expected to remain at its current size due to the saturated market in Hungary. The issuer does not aim to expand heavily its market presence in Romania because of the significant investment which this would require. Geographical diversification is limited, with a focus on Hungary and Romania (under 10% of 2023 revenues). On a positive note, the company is well diversified in terms of suppliers and sales channels. For each product category, there are several suppliers for different price points. In addition, Unix Autó operates through three different sales channels: brick and mortar retail shops, an electronic catalogue software for B2B customers such as repair garages, and a web shop. Physical shops account for around 60% of sales. This diversification ensures the resilience of Unix Autó's ability to serve customers in the event of supply chain disruptions or the loss of a distribution channel.

Operating profitability is generally good and is supported by: i) a very strong Scope-adjusted EBITDA margin* of 12.2% in 2023 (down from 13.8% in 2022), which Scope expects to remain well above 10%; and ii) a moderate EBITDA return on assets of 20.4% in 2023 (down from 23.3% in 2022), which should remain well above 15% going forward. The profitability trend is supported by a relatively high share of high-margin private label products and good working capital management. Slight pressure on profitability levels is related to pricing pressure and rising inventory value to ensure product availability and grow market share in Hungary in 2024-26.

Financial risk profile: BBB+ (revised from BB+). The improvement in Unix Autó’s financial risk profile is driven by successful deleveraging after a period of heavy investment. The company aims to be debt free by 2026 and to keep only buffer working capital lines.

Reported gross debt was stable in the range of HUF 21-24bn in 2019-2023. Deleveraging to debt/EBITDA of 1.1x in 2023 from 2.5x in 2021 was due to the doubling of EBITDA between 2019 and 2023 and the accumulation of significant cash. Reported gross debt will decrease by HUF 3.5bn in 2025 and by HUF 12.0bn in 2026, as the company plans to repay most if its debt (a bond and a Baross Gábor loan), should interest rates stay at current levels. Funds from operations/debt has gradually improved on the back of the deleveraging to 79% in 2023 from 28% in 2019.

Scope expects leverage to improve further, with debt/EBITDA of below 1.0x and funds from operations/debt of around 100% by end-2025. This will be thanks to the reduction in gross debt and a growing cash balance given the strong cash generation of Unix Autó’s business. Scope applies cash netting in its leverage calculation, as cash is considered to be permanent and accessible, with the recent cash build up earmarked for debt repayment. Still, leverage could deteriorate in the event of a major new investment programme, such as the broadening of private-label products.

Scope expects cash flow cover to remain positive due to good cash flow generation and the absence of a committed major investment plan. Cash flow cover could become volatile if a new investment plan is launched, as has happened in the past.

EBITDA interest coverage has remained strong (above 10x since 2019). This is due to management’s prudent approach of fixing all long-term interest rates and also the positive evolution of EBITDA. Scope therefore believes this strong metric will be sustained, supported by a reduction in payable interest linked to the anticipated reduction in gross debt.

Liquidity: adequate. Scope expects the liquidity ratio to exceed 200% in 2024-25. Unix Autó has high cash reserves of HUF 9.7bn as at 30.06.2024, earmarked for debt repayment, and HUF 10.4bn in undrawn short-term working capital facilities (excluded from Scope’s assessment due to their short maturity). This provides a significant buffer along the possibility of drawing supplier financing. Scope believes the company will be able to repay the HUF 12.0bn bond maturing in November 2026 from existing cash sources.

All loan facilities mature in 2025 (investment loans, working capital loans and overdrafts). There is no refinancing risk as the only significant drawn credit facility of HUF 3.5bn is invested in a term deposit. The remaining small repayments of HUF 100-200m do not pose a liquidity risk.

Scope notes that Unix Autó’s senior unsecured bond, issued under the Hungarian National Bank’s Bond Funding for Growth Scheme, has a covenant requiring the accelerated repayment of the outstanding nominal debt amount (HUF 12.0bn) if the debt rating of the bond stays below B+ for more than two years (grace period) or drops below B- (immediate accelerated repayment). Such a development could adversely affect the company’s liquidity profile. The rating headroom to entering the grace period is two notches. In addition to the rating deterioration covenant, bond covenants have a list of soft covenants including for a change of control. Banking covenants have been met with a high buffer as banks are ready to finance Unix Autó up to a net financial leverage/EBITDA ratio of 4.0x.

Scope therefore sees no significant risk of the rating-related or leverage covenant being triggered.

Supplementary rating drivers: credit-neutral. Financial policy is risk averse, exemplified by low leverage, mainly fixed-rate drawn debt and low dividends. On the governance side, Scope notes that major decisions are taken unilaterally by the owner-CEO, but key person risk is reduced by a significant back-office staff. Parent support is neutral. There has been no significant equity contribution in the past, as the company did not need it (partly because of the owner’s low dividend expectations).

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation that Unix Autó can continue to tackle inflation-linked cost pressure, maintain double-digit margins and execute capex plans while keeping debt/EBITDA well below 3.0x.

The upside scenarios for the ratings and Outlook are (collectively):

1. Improved business risk profile due to growing revenues and better geographical diversification (remote)
    
2. Maintenance of credit metrics at solid levels

The downside scenario for the ratings and Outlook is:

1. Deterioration in financial risk profile exemplified by debt/EBITDA increasing above 3.5x (remote)

Debt rating

Scope has affirmed the BB rating on senior unsecured debt issued by Unix Autó Kft., which includes the HUF 12.0bn bond (ISIN: HU0000359286). The debt category rating reflects the ranking of the debt below a significant amount of HUF 14.1bn in senior secured bank debt (25% drawn, 75% undrawn). Scope expects an ‘average’ recovery (30%-50%) for outstanding senior unsecured debt in a hypothetical default scenario at YE 2025, based on a going-concern scenario, noting the possible introduction of further senior secured debt, which could rank ahead of the bond.

In November 2019, Unix Autó Kft. issued a HUF 12.0bn senior unsecured bond (ISIN: HU0000359286) through the Hungarian Central Bank’s Bond Funding for Growth Scheme. The bond proceeds were used for a new automated warehouse and the partial repayment of supplier balances. The bond has a tenor of seven years and a fixed coupon of 4.0%. Bonds have a bullet repayment at maturity in November 2026.

Environmental, social and governance (ESG) factors

Overall, ESG factors have no impact on this credit rating action.

Unix Autó is investing in energy efficiency and energy transformation. The company also has an adequate governance structure with strategic decisions taken by the owner-CEO. While the automotive sector remains among the highest polluters, it is becoming greener with the growth of electric cars and the recycling of used parts and oils, mainly through governmental concession operators.

All rating actions and rated entities

Unix Autó Kft.

Issuer rating: BB/Stable, affirmation

Senior unsecured debt rating: BB, affirmation

*All credit metrics refer to Scope-adjusted figures.

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

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 16 October 2023; Retail and Wholesale Rating Methodology, 26 April 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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 Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With the Rated Entity or Related Third Party participation   YES
With access to internal documents                                      YES
With access to management                                               YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Barna Szabolcs Gáspár, Associate Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 27 August 2019. The Credit Ratings/Outlook were last updated on 4 October 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis 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.