DBRS Confirms Nissan Motor Co., Ltd. at A (low) and R-1 (low), Trends Stable

DBRS Limited (DBRS) has today confirmed the long- and short-term ratings of Nissan Motor Co., Ltd. (Nissan or the Company) and its related companies at A (low) and R-1 (low), respectively, with Stable trends. The confirmations recognize the Company’s solid business profile as a major automotive original equipment manufacturer of improving geographic diversity. DBRS notes that Nissan’s financial risk profile is also quite strong, with the automotive operations having a significant net cash position as of March 31, 2015, and the Company’s credit metrics being well commensurate with the assigned ratings.

Profitability in F2014 (ending March 31, 2015) improved moderately relative to F2013, reflecting significant gains in North America, partly offset by weaker results from Nissan’s native Japanese market given lower local sales volumes (reflective of local industry headwinds) and reduced export activity. DBRS estimates that these market dynamics, which in aggregate represent reasonably favourable industry conditions, will likely continue over the near to medium term, with the Company’s growth in China also persisting (albeit becoming progressively more tempered).

Nissan’s future performance will also likely benefit from its relatively strong product cadence, with several new models slated for introduction in the near term, including, among others, an all-new Maxima and a new Titan pick-up truck in the key U.S. market. Moreover, the Company is further developing its brand strategy, with Infiniti’s future product direction being outlined through the recent unveiling of the Q60 and QX30 concept vehicles and the Datsun brand being launched in emerging markets.

DBRS also expects Nissan to continue deriving meaningful gains from the Renault-Nissan Alliance, with associated synergies concentrated in areas such as purchasing and product (research) development. Earnings, however, remain sensitive to the value of the Japanese yen, which (after having substantially bolstered the Company’s results in recent years) appears likely to revert to a moderate headwind to profitability over the near term, with Nissan looking to increase localized production (primarily across emerging markets) in order to reduce its sensitivity to the yen going forward.

The Company remains committed to its “Nissan Power 88” mid-term plan that outlines two broad strategic objectives: an 8% global market share by F2016 and sustained operating margins of 8%. DBRS notes that while Nissan would appear to be on track with respect to several of the underlying strategies cited in Nissan Power 88, these two high-level targets might currently appear somewhat aggressive given Nissan’s global share of 6.2% as of F2014 (unchanged year over year) and a consolidated operating margin below 6%.

This notwithstanding, the Stable trend incorporates DBRS’s expectation that Nissan will maintain its solid financial and business risk profiles, reflecting generally favourable conditions across its key markets (save Japan), with the Company’s global competitive position possibly strengthening moderately, in line with its improving product cadence, increasing geographic diversity and progressive implementation of its developing brand strategy.

Notes:
All figures are in Japanese yen unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The Commercial Paper rating of Nissan Canada Financial Services Inc. is supported by Nissan Motor Co., Ltd. through a Keepwell Agreement.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Automotive Manufacturing Industry, which can be found on our website under Methodologies.