PEFINDO: PT Industri Kereta Api Indonesia (Persero) rated “idBBB+”, outlook revised to stable

(May 13, 2022)--PEFINDO has affirmed its “idBBB+” ratings for PT Industri Kereta Api Indonesia (Persero) (INKA) and “idBBB+(sy)” rating for its Sukuk Mudharabah I Year 2020. We revised the corporate rating outlook to “stable”, reflecting our expectation on INKA’s improved financial profile, given the business recovery of PT Kereta Api Indonesia (Persero) (KAII) as INKA’s main customer will lead to higher capital expenditure and accordingly positively affecting INKA’s revenue generation from the new contracts from KAII. During the first two months of 2022, number of train passengers has increased by 34.3% year-on year compared to the same period in 2021.

An obligor rated idBBB has an adequate capacity to meet its long-term financial commitments relative to those of other Indonesian obligors. However, adverse economic conditions or changing circumstances are more likely to weaken its capacity to meet its financial commitments. The plus (+) sign indicates the rating is relatively strong within its category.

The suffix (sy) means that the rating mandates are compliant with Islamic principles.

The corporate rating reflects INKA’s strong support from the government, leading market position in rolling stock manufacturing, and strong financial flexibility. However, the rating is constrained by its aggressive capital structure, weak cash flow protection measures, and exposure to the fluctuation of raw material and component costs.

The rating may be raised if INKA consistently achieves its projected revenue and/or EBITDA and improves its financial profile on a sustained basis. However, the rating may be under pressured if INKA’s long-dated inventory position extends to the degree that it will significantly weaken its profitability due to the heightening interest burden; thereby, raising its leverage as it needs to incur more debt to fund its sizeable working capital needs.

INKA is a state-owned manufacturing company, mainly producing rolling stock products, and is the only player in Southeast Asia in this industry. Its products include passenger wagons, freight cars, several units of electric train carriages (EMU), diesel train carriages (DMU), locomotives, bogies, engineering, procurement and construction (EPC projects), and rail-related services. INKA owns two subsidiaries to support its main business: PT Inka Multi Solusi, providing total solution provider services in construction and trading of railroad components/spare parts and land transportation products, and PT Rekaindo Global Jasa, engaged in engineering consulting services and

support train components. INKA is fully owned by the Indonesian government. (ends)