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Decline in car sales moderates

 
09.08.2013

The rate of the YoY decline has slowed after drops of 11% in June and 12% in May. We expect a further improvement, although FY sales are still likely to see a mid-single-digit decline.

Meanwhile, on a SA basis the monthly growth in car sales recovered to 4.6% in July (from almost zero in June), according to our macro team. In general, this summer’s move looks like a bounce from the especially weak levels in March-May, but is not the start of a sustainable rebound so far. While there is the risk of a one-off worsening in August, with a double-digit YoY drop (due to a spike in August 2012 prior to Russia’s WTO accession), the government incentive launched in July 2013 might support market activity. Overall, July car sales highlight that the growth in consumer spending remains bleak and we continue to anticipate a tangible shift as early as 4Q13 (along with improvements in the base effect).

Sollers strongly outperformed the market in July (+7%), driven by a 37% rise in SsangYong sales, which more than offset the 10% drop in UAZ sales. The company’s YTD sales fell 3%. Meanwhile, Ford sales (carried out through the JV with Sollers) dropped 11% in July and 18% YTD. This was primarily driven by poor sales of the Ford Focus, due to tough competition in its segment. However, we highlight that Ford’s sales, excluding the Focus, were up 28% in July and down just 2% YTD. This supports our view that ramping up the production of new models (Ford Kuga, Ford Explorer) will boost sales. Overall, Sollers remains our top pick in the Russian auto universe and its robust performance during the current market slowdown supports our positive view.

GAZ LCV sales fell 5% in July and 4% YTD. This decline is hardly dramatic, in our view, given the company’s internal efficiency. The company remains attractively valued from the fundamental perspective, but corporate governance remains our key concern.

Vladimir Bespalov, Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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