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March 13 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Indonesia-based retailer PT Sumber Alfaria Trijaya Tbk's
(Alfamart) National Long-Term Rating at 'AA-(idn)' with Stable Outlook.
'AA' National Ratings denote expectations of very low default risk relative to
other issuers or obligations in the same country. The default risk inherently
differs only slightly from that of the country's highest rated issuers or
KEY RATING DRIVERS
Market Leadership: The rating reflects Alfamart's leadership in Indonesia's
small-format modern retail segment - it has about 50% share of the market by
number of stores with 8,557 stores at end-2013. With an extensive store network
and strategically located distribution centers, the company benefits from
economies of scale and a strong bargaining position with suppliers. These
provide Alfamart with a distinctive edge compared with traditional "mom and pop"
stores - it is able to provide competitive pricing, attractive product mix and
On-track Expansion: Alfamart set another growth record in 2013, by adding almost
1,500 new stores. The higher-than-expected new store openings resulted in higher
capex for 2013, however. Fitch views this favorably as it provides room for
Alfamart to scale back capex in 2014, which could be necessary given
expectations that Indonesia's GDP will grow at a slower pace than in previous
Extensive Network: Alfamart's extensive distribution network is an important
bargaining chip with suppliers. About 40% of Alfamart's stores are located in
densely populated Jakarta and the surrounding areas. The company is also quickly
expanding to other areas in Java and other islands, such as Sumatra, Kalimantan
and Sulawesi. Alfamart's deep penetration in residential areas allows quick and
efficient product distribution, enabling it to enter areas where it is not
economical for conventional distributors to do so.
Scalable Capex: Fitch believes the scalability of its capex and its track record
in executing high levels of expenditure are important mitigating factors.
Scalability derives from Alfamart's small-store format and quick turnaround for
new store openings. In addition, the company will gradually be able to expand
its network with less capex as it moves to raise the proportion of franchise
Competitive Landscape: The rating is constrained by negative free cash flows in
the short to medium term, Alfamart's strategy to rent property for its stores,
and the dominance of highly fragmented traditional grocery retailers in
Indonesia. Fitch also considers the competitive operating environment as an
important constraint because Alfamart has to continuously invest in new stores
or refurbishments to maintain its market share.
Stable Outlook: Alfamart's full-year 2013 results are broadly in line with
Fitch's expectation and it has maintained a financial profile appropriate for
its current rating. In the next 12-18 months, despite continued expansion,
Fitch expects Alfamart will be able to maintain comfortable metrics,
characterized by FFO-net leverage below 3x (2013: 2.6x) and FFO fixed charge
cover of above 2.5x (2013: 2.7x); which underpins the Stable Outlook.
Negative: Future developments that may, individually or collectively lead to
negative rating action include:
- FFO net leverage at more than 3.5x on a sustained basis
- FFO fixed charge cover at less than 2.5x on a sustained basis
Positive rating action is not expected over the medium term, due to Alfamart's
debt-funded capex commitments.