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Fitch affirms Nissan Motor at BBB with stable outlook

Staff writer |
Fitch Ratings has affirmed Nissan Motor Co., Ltd.'s (Nissan) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) and senior unsecured debt rating at BBB. The Outlook is Stable.

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Fitch has also affirmed the company's Short-Term Foreign- and Local-Currency IDR at F3. Nissan's ratings and Stable Outlook reflect expectations of a modest growth outlook in global automobile demand in 2014, driven by continued growth in in the US and China and a gradual recovery in Europe, which will offset a moderate decline in Japan.

Fitch expects Nissan's credit metrics to remain well within agency'a guideline for a BBB rating, despite its forecast for a slight decline in profitability and higher capex in the financial year ending March 2014.

Fitch expects Nissan's vehicle sales to continue to grow in the US and China as Nissan benefits from a boosted product portfolio. In China, Nissan is likely to continue to regain its market share lost following a territorial dispute between China and Japan in September 2012, although a resumption of tensions between the two countries remains a risk.

In Europe, intense price competition and volatile consumer demand, with the exception of the UK, is likely to limit Nissan's volume growth. We expect Nissan's vehicle sales in Japan to be dampened in FY15 by an increase in sales tax, but will improve in FY16, albeit at modest rates.

Fitch expects Nissan's profitability to decline slightly in FY14. EBIT margins (automotive) declined to 3.2% in 1HFY14 from 4.2% a year earlier due to costly recalls and a sharper-than-expected fall in vehicle sales in certain emerging markets as well as weakness in European sales.

Fitch expects a gradual improvement in Nissan's profitability from FY15 due to a boosted product portfolio, continued vehicle sales growth in key markets and cost control. However, unexpected auto demand downturns in Nissan's key markets or higher-than-expected competition, particularly in the US and China, could weigh on profits.

Fitch expects Nissan's capex as a percentage of revenue to peak in FY14 primarily due to investments in production facilities in the emerging markets, which will contribute to negative free cash flow in that year. Capex, together with increased dividends, will contribute to reduced, though positive, FCF in FY15-17. Nissan's financial profile is likely to remain stable, however, with net leverage (adjusted net debt to EBITDAR) at below 1.0x through to FY17 (FY13: 0.7x).

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