Apr
11
We revised our financial estimation of GAZ considering the new fundamentals. Worsening of the economic conditions leaded to rapid reduction of demand for equipment, manufactured by GAZ. In 2008 the selling dropped in all groups of produced vehicles, but the segment of medium- and heavy-duty commercial motor vehicles was most vulnerable – 67% in natural terms. That leaded to decline of financial estimates: EBITDA of the group lost 62%, and after percent and income tax payoff GAZ gained loss in the amount of 185 mn USD.
In January 2009 the selling in natural terms reducer by 2-4 times versus the similar period last year. By the end of 1Q 2009 selling might reduce again more than twice within all groups of motor vehicles versus the estimate a year before, and by the end of the year we suppose the selling will drop 55-60% in natural terms. In 2009 GAZ sales might reduce by 40%, EBITDA – by 77%. At the same time, the loss of the group will be at the operating level. Rallying is expected in 2H 2009, and return to the before-crisis levels – not earlier than 2015-2016.
The key moment worth paying attention to is the debt load. The combined value of GAZ credit portfolio by the beginning of the year totaled about 1.7 bn USD. At the same time 1.3 bn USD is in short-term loans, 13% of which are nominated in currency. The group’s net debt grew during the previous year by 44% in dollar terms. In March GAZ tolerated default on the bond issue for the amount of 4.88 bn RUR. Currently GAZ is negotiating with its creditors on loan restructuring. We estimate the chances of positive solution as good.
In order to support GAZ the state raise the volume of state contracts, which currently form about 47% of forecasted 2009 sales. Also the program of state warranties has been developed, however, the volume of state warranties cannot exceed 10 bn RUR per enterprise, and that amount will not cover even one forth of the arrearage. Besides, the final decision on that matter has not been made yet.
We conducted estimation of GAZ basing on the plan of bonded loan restructuring considering decrease of demand for the group’s products. Resulting from the calculations, conducted basing on DCF method, the cost of GAZ group turned out to be 267 mn USD, which corresponds with 16.5 USD per common share and 9.6 USD per preferred share of the company.
GAZ Group: More questions than answers - April 10, 2009 (PDF)