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Rating action

Scope Ratings GmbH (Scope) has today affirmed its BB-/Stable issuer rating on JSC Nikora Trade (Nikora Trade). Scope has also affirmed its BB- rating on senior unsecured debt.

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

Key rating drivers

Business risk profile: BB- (unchanged). Nikora Trade’s market share continues to grow steadily, reaching 19.4% from 19% in 2023 and 18.1% in 2022, despite the recent consolidation of Daily Group through the merger of several retail chains, demonstrating resilience and competitiveness in a consolidating market. The company’s growth strategy remains primarily organic, with plans to open up to 100 new stores a year, focusing on locations that ensure adequate returns. The issuer’s diversification is weak as it operates exclusively in Georgia, with a strong concentration in Tbilisi, which accounts for 67% of its revenues, making its performance sensitive to local economic conditions.

Profitability has been under pressure, with the Scope-adjusted EBITDA margin* declining to 7.2% in 2024 from a peak of 10.0% in 2021, mainly due to rising salary costs. This cost pressure has since stabilised. While the margin is expected to dip further to nearly 6% in 2025, a recovery to around 7% is projected for 2026, driven by improvements in gross margin due to a realignment of pricing strategies. EBITDA margin volatility is low, with the return on assets forecast to gradually decline to 17%-19% by 2026 from 21.8% in 2024.

Financial risk profile: BB- (unchanged). Scope projects Nikora Trade’s sales growth at 9%-10% in 2025, broadly aligned with the organised retail market’s expected revenue increase. This growth is primarily driven by market share gained within the unorganised sector in regions outside Tbilisi. However, revenue growth is anticipated to moderate to 7%-8% in 2026, reflecting a slowdown in Georgia’s GDP expansion.

Capital expenditure will be managed conservatively, with spending contingent on free operating cash flow, financing availability and covenant compliance. The company’s investment priorities will be focused on the construction of logistics centres, whose completion will increase efficiencies and profitability. Despite these investments, Scope expects that the company will remain committed to financial discipline and avoiding excessive leverage.

Scope expects that elevated capital expenditure will keep free operating cash flow low or even negative. This will be despite the anticipated improvement in working capital management linked to a faster inventory turnover after the successful implementation of the SAP system. Further, external financing to support the issuer’s growth targets, paired with a slight decline in EBITDA due to competitive pressures, will temporarily exert pressure on leverage, with the debt/EBITDA ratio forecasted to increase to above 3x in 2025 (2024: 2.5x). However, leverage should stabilise to around 3.0x going forward as Scope expects improved cash generation on the back of topline growth and margin recovery.

Funds from operations/debt is expected to fall and remain within 20%-25%, from 34% in 2024, due to lower operating profitability, elevated debt and a higher interest burden. The latter will also take its toll on the EBITDA interest coverage, which Scope projects will decline and remain below 5.0x (2024: 5.9x) due to higher debt costs that will not be offset by anticipated growth in EBITDA in the short term.

Liquidity: adequate (changed from inadequate). Nikora Trade relies on rolling over short-term debt rather than maintaining large revolving credit facilities, a common practice in emerging markets like Georgia, which helps reduce costs but increases refinancing risk.

Accessible cash and cash equivalents at the end of 2024 amounted to GEL 3.5m, which Scope estimates at 20% of the reported value as most of the cash is required for the daily operations of the brick-and-mortar shops. However, this will not cover cash uses, which include GEL 6.6m of projected negative free operating cash flow and GEL 6.9m of maturing short-term debt for 2025. However, despite the expected moderate deterioration in credit metrics in 2025, the company’s strong local reputation, consistent bank support, and ability to manage liquidity through flexible capital expenditure justify the 'adequate' liquidity assessment. This is further supported by last year’s successful issuance of a GEL 60m bond, which has eased refinancing pressures with no large maturities coming due before 2029.

Supplementary rating drivers: The ratings are unaffected by supplementary rating drivers.

Outlook and rating sensitivities

The Stable Outlook reflects Scope's view that Nikora Trade will maintain adequate credit metrics, namely a debt/EBITDA ratio of 2.5x-3.5x, despite continued expansion. This follows Scope's view that the company will execute its large capital expenditure programme by focusing on high-impact priorities, while carefully preserving its creditworthiness and supporting a recovery in operating profitability, despite increased competitive pressure.

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

1. Improvement of the business risk profile as displayed by an improvement of diversification
    
2. Significant geographical expansion outside Georgia

The downside scenario for the ratings and Outlook is:

1. Debt/EBITDA sustained above 3.5x

Debt rating

Scope has also affirmed senior unsecured debt rating at BB-. The recovery analysis is based on a hypothetical default scenario in 2025, which results in an above-average recovery rate. However, given the unsecured nature of the bonds and the risks associated with emerging markets, Scope has not notched up the senior unsecured debt rating above that of the issuer.

Environmental, social and governance (ESG) factors

ESG factors have no impact on this credit rating action.

All rating actions and rated entities

JSC Nikora Trade

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 Outlook, (General Corporate Rating Methodology, 14 February 2025; Retail and Wholesale Rating Methodology, 25 June 2025), are available on 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 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 scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication/. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at 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 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 Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
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 Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings and Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlook are UK-endorsed
Lead analyst: Dániel Szebényi, Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 30 March 2018. The Credit Ratings/Outlook were last updated on 29 August 2024.

Potential conflicts
See 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
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