Pak Suzuki’s ratings upgraded to AA

August 5, 2025 (MLN): The Pakistan Credit Rating Agency (PACRA) has upgraded the entity ratings of Pak Suzuki Motor Company Limited (PSX: PSMC), enhanced its long-term rating from AA- to  AA and its short-term rating from A1 to A1+ with a stable outlook.

The upgraded ratings show PSMC’s strong business fundamentals and its leadership among automotive original equipment manufacturers (OEMs) in Pakistan.

The company assembles and manufactures a diverse range of vehicles locally and maintains a commanding presence in the small and mid-sized car segments.

PSMC also boasts the largest dealership network across the country and continues to play a key role in shaping the domestic auto industry.

As a wholly owned subsidiary of Suzuki Motor Corporation, Japan (SMC-Japan), PSMC benefits from both operational and strategic backing.

The local automotive sector is currently transitioning from a traditionally concentrated market to a more diversified and competitive one, with new entrants such as Kia, Hyundai, Haval, MG, and Changan introducing innovations, particularly in SUV/crossover, hybrid, and electric vehicles broadening consumer options across segments.

Passenger car sales rebounded strongly in FY25, rising approximately 38% to 112,203 units from 81,579 units in FY24, according to Pakistan Automotive Manufacturers Association (PAMA) figures.

Similarly, the light commercial vehicle (LCV) and jeep segment surged by around 61% to 35,820 units, up from 22,250 units the previous year.

In line with these market trends, PSMC posted notable growth in sales performance during CY24 and 1QCY25.

The rating upgrade also takes into account PSMC’s strengthened market position, improved financial metrics, and better profitability, which are expected to continue based on the company’s forward-looking estimates.

The Suzuki Alto remains PSMC’s top-selling model, followed by the Swift, Cultus, and Wagon R, which retain strong consumer appeal due to their reliability, value for money, and distinct features.

The company holds an estimated 60% market share among PAMA-member companies in the passenger car segment and recorded 43% capacity utilization in CY24, up from 27% in CY23. The motorcycle segment reached 45% capacity utilization in the same period, up from 36% a year earlier.

Despite the positive trajectory, the company faces growing competition from new market entrants.

Although the core sub-1,000cc and 1,000cc segments remain relatively unaffected, potential entry of Chinese brands with aggressive pricing strategies could pose future risks. Additionally, rising imports of used vehicles are expected to add further pressure on local sales.

On the regulatory front, the company is challenged by the targets outlined in the Auto Industry Development and Export Policy, particularly due to the industry's dependence on imported completely knocked-down (CKD) kits.

This dependency undermines export competitiveness and calls for a strategic roadmap moving forward.

PSMC’s financial risk profile remains robust, supported by strong cash flow generation and efficient working capital management.

The company maintains a low-leverage capital structure, with limited long-term borrowing through the TERF facility and unutilized short-term credit lines.

Capital expenditures are primarily funded through internal cash generation. Notably, after clearing all foreign liabilities, the company reported a foreign exchange gain during CY24.

The ratings are contingent on PSMC’s ability to sustain its market leadership, maintain its profitability and growth momentum, and continue adhering to relevant regulatory and policy standards.

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