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Russian car and LCV sales remain robust in March


According to the latest data from the Association of European Businesses, Russia's 1Q12 car and LCV sales increased 19% YoY to 614,273 units, while March sales were up 13% YoY to 252,816 units. 

In our view, the latest data implies that underlying market demand remains robust. While we expect the market growth to continue slowing down in the coming months, we still see upside risks to our current full-year projections, which imply just 5% growth for car sales and flat LCV sales.

We note that both our top picks in the auto sector, GAZ (LCV sales up 3% YoY in 1Q12 and down 1% YoY in March) and Sollers (up 3% YoY and down 12% YoY), underperformed the market. However, this does not undermine their investment cases, in our view. We believe that GAZ remains undervalued on fundamentals, while its flattish performance in 1Q12 is in line with our full-year forecast of flat LCV sales. Moreover, LCVs account for just 25-30% of the company's business in revenue terms.

Meanwhile, Sollers’ performance was strongly affected by the end of production of Fiat models (Sollers is just now selling out the remaining stocks). Excluding Fiat, Sollers' vehicle sales increased 18% YoY in March on the back of strong sales of SsangYong models. We also note that Ford sales, which are carried out through Ford Sollers (a 50:50 JV), were up 30% in 1Q12 and up 8% in March.

We are reiterating our Buy recommendations for GAZ ords (12-month Target Price USD 81) and prefs (USD 39), as well as for Sollers (USD 26). AvtoVAZ’s car sales were down 15% YoY in 1Q12 and 17% YoY in March, and we are reiterating our negative view on the stock. 

Vladimir Bespalov
VTB Capital analyst

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