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Russia — car sales up in December — driven by rouble devaluation


Russian car and LCV sales rose 2.4% YoY to 270,653 units in December. As a result, in 2014 sales were down 10.3% YoY to 2.5mn units, according to AEB.

The spike in demand for cars in late 2014 was driven by the sharp rouble depreciation, as many buyers tried to take advantage of old rouble prices for foreign brands. Meanwhile, as most market players have already announced significant price hikes, we believe that the market will plummet this month. In our view, 1Q15 will be especially challenging given that it will take time for consumers to get used to new price levels. In addition, we note the unfavourable base effect (1Q14 was relatively strong) and the pull-forward demand in late 2014. According to AEB, Russia's car and LCV sales will fall 24% to 1.89mn units in 2015, while our forecast implies a 15% drop to 2.1mn.

AvtoVAZ's sales in Russia fell 9% YoY in December and 15% in 2014. We believe that the underperformance in December was driven by ongoing problems with suppliers and consumers' focus on foreign brands amid the rouble's depreciation. Meanwhile, given its average localisation of 81%, AvtoVAZ is well positioned to outperform in 2015. We also think it will be helped by a more favourable base effect and the planned launch of the Lada Vesta in autumn 2015.

Sollers' standalone sales rose 1% YoY in December, but fell 12% in 2014. In particular, UAZ sales in Russia dropped 3% YoY, while SsangYong’s full year sales decreased 27%. The sales of Sollers’ joint venture with Ford were down 26% YoY to 9,159 units in December, and 38% to 65,966 units in 2014. We note that sales of Ford models excluding the Focus outperformed the market, which we attribute to a ramp-up in production of new models. We think the trend is set to persist in 2015, while we also expect to see Focus sales gradually stabilising. This will result in the JV's sales outperforming the market in 2015, despite adverse FX effects, in our view.

We continue to believe that both AvtoVAZ and Sollers are fundamentally cheap, although the prevailing market sentiment and uncertainties in the Russian economy are likely to cap this fundamental upside in the short term.

Vladimir Bespalov
VTB Capital analyst

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