Jul
17
AvtoVAZ: Terrible debts - July 13, 2009
Filed Under Bullet-moments |
AvtoVAZ output report for 2008 by IAS. The company’s financial estimates turned out to be worse than we expected. Deviation on sales was not bad, but on other estimates – automobile giant was full of surprises. The company gained loss at the operating level in the amount of 25.9 bn RUR versus 8.7 bn RUR of profit a year before. EBITDA value was also negative – 14.1 bn RUR. Net loss by the results of the previous year totaled 24.3 bn RUR. We should outline that a share of loss was “paper”. In course of re-evaluation of the principal assets, a 10.7 bn RUR reserve against their depreciation has been established, which actually worsened 2008 financial results. However, even not considering the given item, EBITDA of AvtoVAZ forms a negative value – 3.4 bn RUR.
Negative results of AvtoVAZ are explained by the costs growth going faster than sales’. So, resulting from the price growth of metal products in 2008 by 40-60%, the prices for parts upped by 15%. All the shipping types’ fees have climbed. Besides, last year AvtoVAZ, we assume indexed salaries by 14.3%. So, the cost grew by 10.5%, and the total and administrative expenses – by more than 20%.
Debt load of AvtoVAZ is at a high level. According to the data of the report, the credit portfolio of the group as of the beginning of the year totaled 50 bn RUR. At that, 95% of the arrearage is short-term one. According to the message of the company’s management, currently the credit portfolio built up to 53 bn RUR. Likely that is not a final maximum, due to AvtoVAZ intends to attract 80 bn RUR of borrowed assets for financing the investment program. Partners of the given initiative are the following: Gazprombank, Sberbank and VTB. However, attraction of a credit under market conditions via 20-22% interest rate is unacceptable for AvtoVAZ, due to that would bring payments on debt maintenance, unaffordable for the company. Due to that, the company again hopes on bailout measures on behalf of the State, which might be provided in form of subsiding the interest rate.
We revised the model of the company considering the output data. As a result, we worsened the forecast of financial estimates of 2009 and the following years. According to our estimations, AvtoVAZ will gain operating profit not earlier than in 2012. Because of the high level of capital costs, which are expected in coming years, the company generates negative cash flow, and indefinite future of the model line of the automobile giant, makes evaluation of forecasted estimates and enterprise’s fundamental cost very complicated. In its turn, high debt load increases the risk of investing into the company’s shares. Due to the mentioned reasons, we recommend refusing from purchasing the shares of AvtoVAZ and do not assign any target prices for the plant’s shares.