OREANDA-NEWS. August 15, 2011. Mostotrest released its 1H11 RAS financial results today (15 Aug) which we regard as largely neutral. Nearly 40% growth in revenue was offset by rising raw materials prices which led to a decline in profitability.

- In 1H11 revenues grew 39% YoY to RUB18.4bn driven by implementation of the company’s order book which stood at RUB248.5bn as of YE10 (RUB171.4bn in backlog). CoGS, however, was up 49% YoY to RUB14.4bn. A 50% YoY increase in raw materials prices (to RUB5.8bn) was the main reason for rising production costs. Labour costs increased as well (+48.5% YoY) reaching RUB3.4bn. As a result gross margin deteriorated 5 ppts, falling to 22% (in 2Q11 in fell even further to 20%).

- Mostotrest managed to curb SG&A growth which recorded an 22% YoY increase (vs 39% revenue growth) helping to support operating margin (14% in 1H11 vs 18% in 1H10). Net income for the period increased almost 80% to RUB2.2bn which was largely attributable to (a) RUB589mn in dividends received in 1H11 and (b) lower interest payments (RUB129mn in 1H11 vs RUB465mn in 1H10).

- Debt burden is low with interest-bearing debt coming in at just RUB1.9bn.

Bottom line

We view the results as largely neutral: nearly 40% revenue growth was offset by rising raw materials prices which led to a deterioration in profitability. We note, however, that RAS accounts are not prepared on a consolidated basis. With 1H11 IFRS financial results due this fall, we believe the consolidated data should provide a more accurate depiction of Mostotrest’s financial profile.