The Ebitda margin of Russia’s flagship carmaker Avtovaz turned positive for the first time in years on the back of a return to growing car sales, and while it is still loss-making, those losses are shrinking.

Car sales grew 1% in the first quarter for the first time in four years. Since then, sales have picked up some momentum. In the second quarter overall, sales grew by 12% year-on-year and sales of cars and light commercial vehicles in Russia grew by 15% year-on-year in June, following gains of 9.4% and 15% y/y in March and May, the Association of European Businesses (AEB) that oversees the industry said on July 7.

The fall in incomes have made the Lada brand one again the market leader, with sales up 23% y/y in June and 13% y/y in January-June overall.

Avtovaz’s first–half revenues increased 18% y/y, primarily driven by the 13% y/y rise in domestic unit sales, along with a recovery in exports and model mix changes.

The Ebitda margin turned positive, coming in at RUB3.8bn ($63.8mn) against RUB4.1bn Ebitda loss in in the first half of last year. The Ebitda margin was 4% in the reported period.

Avtovaz continued to be loss-making, although its net loss declined from RUB27bn ($453.1mn) in the first half of 2016 to RUB4bn ($67.2mn) in the first half of 2017.

Another problem the company faces is its high level of net debt at RUB86bn ($1.4bn) at the end of the first half of this year. The company plans to refinance a significant portion of this debt during the second stage of its recapitalisation, which is to be completed either later this year or early in 2018.

“The improvement in sales and continuing cost optimisation helped to improve profitability. In particular, AvtoVAZ's COGS increased just 8% y/y, while SG&A expenses were down 3% y/y in 1H17,” VTB Capital (VTBC) said in a note.

VTBC says a squeeze-out remains a likely scenario for Avtovaz's minority shareholders once the recapitalistion is completed which makes the future of the stock uncertain.

 

AvtoVAZ 1Q16 IFRS highlights
RUB mn	1Q15	1Q16	1H16	1H17
Revenues	48,514	38,417	87,130	102,485
Operating profit	-483	-6,572	-4,076	3,775
Operating margin, %	-1%	-17%	-5%	4%
Net profit attributable to equity holders	-185	-8,603	-27,149	-4,427
Net margin, %	0%	-22%	-31%	-4%
Net debt			97,035	85,722
Source: Company data, VTB Capital Research