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

DBRS Limited (DBRS) has today confirmed the long-term ratings of Nissan Motor Co., Ltd. (Nissan or the Company) at A (low) as well as the Commercial Paper (CP) rating of Nissan Canada Financial Services Inc. at R-1 (low). DBRS has subsequently discontinued the CP rating of Nissan at the request of the Company. The trend on the ratings is Stable. The confirmation recognizes the Company’s solid business profile as a major automotive original equipment manufacturer whose competitive position is readily bolstered through the Renault Nissan Alliance (the Alliance), which provides substantial scale benefits and associated synergies. 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, 2016, and the Company’s credit metrics slightly exceeding levels commensurate with the assigned ratings as a function of Nissan’s conservative financial policy.

Profitability in F2015 (ending March 31, 2016) increased materially relative to F2014, primarily because of gains in North America (as expected given several recent core product launches) and in Japan (the latter significantly reflecting increased export activity as local market conditions remained lacklustre), although Nissan attained year-over-year (YOY) earnings improvement across all of its geographic market segments. The Company’s stronger North American results incorporate increases in both volume and product mix, with Nissan also benefitting from local consumers’ growing preference of light truck models (including CUVs/SUVs) relative to cars. DBRS estimates that these market dynamics, which in aggregate represent reasonably favourable industry conditions, will likely continue over the near to medium term, with Nissan’s growth in China also persisting (albeit becoming progressively more tempered).

DBRS also expects Nissan to continue deriving meaningful gains from the Alliance, which looks to be further strengthened by the Company’s planned acquisition (pending further due diligence) of a 34% stake in Mitsubishi Motors Corporation (for further information, please see DBRS’s press release dated May 13, 2016). Synergies derived from the Alliance remain subject to ongoing increases and are targeted at EUR 5.5 billion by 2018 (combined annual level). Nissan’s future performance will also likely benefit from its relatively strong product cadence, with additional model introductions slated in the near term, including, among others, the all-new Nissan Kicks as well as next generation models of the Infiniti Q60 and QX30. Moreover, Nissan will also expand the Datsun brand with the planned launch of the new redi-GO.

Earnings, however, remain sensitive to the value of the Japanese yen, which is anticipated by the Company to represent a moderate headwind to profitability over the near term. Nissan projects both revenues and earnings in F2016 to somewhat soften YOY, although the Company is still forecast to generate significant free cash flow, and DBRS expects the ratings to remain constant over the near term.

Notes:
The Commercial Paper rating of Nissan Canada Financial Services Inc. is supported by Nissan Motor Co., Ltd.

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 applicable methodologies are Rating Companies in the Automotive Manufacturing Industry and Global Methodology for Rating Finance Companies, which can be found on our website under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.