OREANDA-NEWS. June 21, 2010. AvtoVAZ released its FY09 IFRS financials. Revenue declined 45% YoY to USD 2.9bn, while EBITDA remained negative (-USD 1.2bn). Net loss doubled YoY to - USD 1.6bn. The key reason for such downbeat full-year results was the sharp drop (-49% YoY) in passenger car sales. The company’s debt-to-equity ratio jumped from 2x in 2008 to 9.2x because of a five-fold decrease in equity from retained losses, reported the press-centre of OTKRITIE Financial Corporation.     

View: Given the collapse of domestic car sales in 2009, the soft results of AvtoVAZ, as well as those of other domestic car manufacturers, come as little surprise. Nevertheless, Sollers’ debt-to-equity was only 4x, as opposed to AvtoVAZ’s D/E of 9.2x. We believe that AvtoVAZ is likely to see higher revenue in 2010 due to the cash-for-clunkers recycling program. However, we are cautious about the company’s large debt and negative equity.

Valuation and Action: It is difficult to compare AvtoVAZ to peers because of its negative EBITDA and net income. We view the company’s financials as neutral for stock because they were expected.