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Russia's car sales up 14% YTD


Russia’s car and LCV sales increased 14% YoY in July and YTD to 166,455 and 1,461,251 units, respectively. July sales of foreign brands advanced 22% YoY, while Russian brands declined 7%.

The market is running tangibly ahead of our contained expectations for car sales in 2012, and the July data suggests upside risks to our 2012 forecast of 5% YoY growth. In our view, this upside risk mainly benefits Sollers, which has the highest exposure to foreign assembly among Russian producers and is the best play on the market trends. The sales of its JV with Ford increased 13% in July and 18% YTD, while own sales rose 19% in July and 27% YTD, primarily driven by the strong outperformance of SsangYong assembly. Its UAZ brand also outperformed Russian peers GAZ and AvtoVAZ (up 3% in July and 13% YTD). We are reiterating our Buy recommendation on Sollers with a Target Price of USD 26 (96% upside).

GAZ’s LCV sales have begun to underperform our forecast of flat sales this year, with YTD sales falling 2% and July sales down 9%. Still, we believe that the stock’s current price builds in a more downbeat scenario. The decline in AvtoVAZ’s sales moderated to 7% in July, bringing the YTD result to -13%. We still believe the stock currently offers little upside and are reiterating our Sell recommendation.

Our macro team points out that on a seasonally adjusted basis car and LCV sales have been stagnating for five months, while July posted a 0.1% SA MoM decline. This is happening despite strong growth in wages and lending, which might point to an increase in households’ savings ratio due to turmoil on the global and local markets, and chimes with our expectation of consumer demand cooling in 2H12. Were this trend to persist, the market growth might slow to single digits by the year-end. As the structure of sales continues to shift towards foreign brands, higher imports of cars and components could push imports higher, despite the likely slowdown in vehicle sales.

Vladimir Bespalov
VTB Capital analyst

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