Renault Prospects In Russia Worry One Investor.
“Russia …….. will lose hundreds of millions of euros in 2015”
Renault investors have been impressed by its recovery, but one analyst is puzzled by how the company has managed to shrug off losses in Russia, with the promise of torrents of red ink to come.
Max Warburton of Bernstein Research warned before Renault published its results for 2014 that it might have to suffer a massive financial write-down because of problems with the Russian economy, the tanking Russian rouble, and the damage this has inflicted on car sales.
In the event, Renault raised 2014 automotive operating profit by €363 million to €858 million. Automotive revenues rose 0.3 per cent to €38.87 billion compared with 2013. Renault wrote down the book value of its Russian subsidiary AvtoVAZ by close to €250 million. Before the results Warburton said the AvtoVAZ stake is on Renault’s books valued at the equivalent of $576 million, but has a current market value of about $102 million.
After the results Max Warburton paid tribute to Renault’s profit progress, but reckoned Renault was being dangerously sanguine about Russia.
Billions invested in Russia
“These factors (behind the results) are indisputably positive and look like hard-won achievements. But Renault is highly reliant on emerging markets for its profitability, markets that are now getting ugly. Most notably, Renault has invested billions in Russia yet seems to be in denial about the consequences of the geopolitical and economic turmoil now enveloping the country,” Warburton said.
Renault, through its affiliate Nissan of Japan and its control of local AvtoVAZ has more than 30 per cent of the Russian market. Renault and Nissan indirectly own 50.01 per cent of AvtoVAZ, which makes the Lada, among other vehicles.
After a couple of weeks to arrange his thoughts, Warburton returned to Renault.
“Russia’s decline should spell significant financial pain for Renault – as Russia and Brazil were probably its two most profitable markets until recently. Yes despite the pressure, Renault plays down the issue of Russia and forecast improved overall Group profitability in 2015,” Warburton said.
“We believe the company’s huge emerging market exposure is going to prove troublesome,” Warburton said.
Warburton reckoned in 2013 Brazil and Russia each made between €250 million and €300 of EBIT (earnings before interest and tax).
“Brazil doesn’t look good, while Russia looks plain disastrous. Russian car sales fell 24 per cent in January, with Renault sales down 32 per cent. How much could Russia lose in 2015? Russia …….. will lose hundreds of millions of euros in 2015. Renault is going to have to sell a lot of Twingos in Europe to offset the pain,” he said.