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March 13 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed the National Long-Term rating at ‘AA-(idn)’ for retail companies Alfaria Trijaya Resources Tbk (Alfamart) with a Stable Outlook.
National Rating ‘AA’ reflects the expectation of default risk that low relative to corporate bonds issued in the country same. The risk of default is basically just a little different from the The highest ranking company or bonds in the country concerned.
Factors Supporting Rating
Market Leadership: Rating reflects Alfamart market leadership in the small modern retail segment, with a market share of approximately 50% based on the number of stores, with 8.557 stores at the end of 2013. With a distribution network extensive and distribution centers located in strategic locations, the company has the advantage of economies of scale and a strong bargaining position with suppliers. This provides a unique advantage compared Alfamart stores traditional, which enables the company to offer competitive prices, attractive products and shopping convenience.
Expansion on track: Alfamart reached a new record growth in 2013, to add nearly 1,500 new stores. New store openings in higher from the initial estimate has increased the amount of capital expenditures in 2013. Nonetheless, Fitch considers it positive because it gives Alfamart discretion to reduce the amount of capital expenditures in 2014, given the expectations slowing the growth of Gross Domestic Product (GDP) of Indonesia compared previous years.
Broad network: Alfamart extensive distribution network is a factor important for bargaining power with suppliers. Approximately 40% of the store Alfamart located in densely populated areas such as Jakarta and surrounding areas. The company is also expanding its business rapidly to other areas in Java and outside Java such as Sumatra, Kalimantan, and Sulawesi. Penetration Alfamart in a residential area resident enable rapid product distribution and efficiently, where it is not economical for a conventional distributor.
Flexible Capital Expenditure: Fitch believes the flexibility of capital spending and track record in executing high level of capital expenditure is important risk mitigation. The flexibility comes from the size of the store Alfamart small and new store opening process relatively quickly. Furthermore, Alfamart will gradually be able to expand the network to the capital expenditure lower in line with the company’s plans to increase the share of franchise stores.
Competitive environment: Rating limited by a negative free cash flow in the short to medium term, the strategy Alfamart to rent space stores, and the dominance of the traditional stores in Indonesia. Fitch also considers competitive business environment as an important constraint for the operation Alfamart must continue to invest in a new store or shop for rejuvenation maintain market share.
Stable Outlook: Achievement Alfamart in the year 2013 in general accordance with Fitch’s expectations, and the company has been maintaining appropriate financial profile with a current ranking. Within 12-18 months, although the company continues to expand, Fitch expects Alfamart will be maintain the appropriate profile, as reflected by the ratio of FFO-net leverage in Under 3x (2013: 2.6x) and the ratio of FFO-fixed charge cover above 2.5x (2013: 2.7x), which supports Outlook Stable.
Negative: future developments that may, individually and collectively, triggering the decline include:
- The ratio of FFO-net leverage above 3.5x on a sustained
- FFO fixed charge ratio below 2.5x on a sustainable
Positive: Increased levels was expected in the middle period with the Alfamart commitment to capital spending funded by debt.