Fitch Ratings on Sept. 23 affirmed Honda Motor Co. Ltd.'s long-term foreign- and local-currency issuer default ratings and the Japanese carmaker's senior unsecured rating at A with a stable outlook, citing the company's strong position in key markets such as Japan, North America and Asia.
The rating agency also affirmed Honda's short-term foreign- and local-currency issuer default ratings at F1, reflecting the company's healthy liquidity.
Fitch highlighted Honda's well-diversified business profile and its position as the world's largest motorcycle business. The agency said Honda has a strong product portfolio and is competitive in the hybrid vehicles segment.
Fitch also commented on Honda's financial profile, which it said is underpinned by low leverage and resilient free cash flow.
The rating agency noted that Honda's ratings are constrained by its moderate scale and lower profitability compared to peers such as Toyota Motor Corp. However, Fitch said it believes Honda's competitiveness remains strong, as seen in its robust market share in key markets.
In China, Honda sedans saw a 22.4% increase in unit sales for the first six months of 2019, despite the overall automotive sales decline in the country.
Fitch added that Honda is particularly strong in the motorcycles segment.
The agency said a near-term upgrade of Honda's ratings is unlikely given the company's modest scale compared to global peers.
Fitch said it could downgrade the ratings if Honda's market share erodes in key markets, if global auto demand substantially deteriorates, if free cash flow margin falls below 1%, if industrial funds from operations adjusted gross leverage exceeds 1.0x, or if Honda fails to remain competitive in new technologies.
