Power Machines published its FY 2007 financials to RAS. Revenue rose 22.2% y-o-y, while the gross margin shrank 9.1%. The operating and net profits were down y-o-y, the same as in 2006. Since the company does a major part of its business via affiliates rather than subsidiary companies, their results had to be included in its RAS accounts.
Table 1. Power Machines: Key RAS financials for 2006-2007
| | | 2007 | 2006 | Change |
|---|
| Revenue | mn RUB | 17 701.6 | 14 489.0 | 22.2% |
| COGS | mn RUB | 15 332.6 | 11 225.8 | 36.6% |
| Gross profit | mn RUB | 2 369.0 | 3 263.1 | -27.4% |
| Gross margin | % | 13.4% | 22.5% | - 9.1% |
| Operating profit | mn RUB | -1 894.6 | -191.8 | - |
| Sales margin | % | negative. | negative. | - |
| Net profit | mn RUB | -3 111.2 | -1 014.0 | - |
| Net margin | % | negative | negative | - |
Source: company data, Finam estimates
Revenue growth of 22.2% was offset by the 36.6% surge in the company's production costs. As before, the company incurred losses on its contractual obligations in India and Vietnam, which it continues to fulfill at fixed prices that have not changed since 2004-2005. The drop in the gross margin, caused by the growth in production costs, affected the company's other financial indices. The net loss in particular rose by 3.1x, as compared to its level in 2006.
We do not expect an upturn in the company's financials until it completes its unprofitable contracts in India and Vietnam. The company is unlikely to follow through on its pledge to revise the terms of these contracts.
We estimate the fair value of Power Machines at USD 0.17 per common share, with a downside of 20.3%, which corresponds to SELL recommendation.
0.569
0.073
