The Razgulyai group disclosed its audited FY 2007 financial results on Tuesday, which on the whole coincided with the preliminary financials released by the company in mid-February. Revenue surged by more 43.6% in dollar terms to USD 1,213.6 mn, with the upturn attributed to favorable conditions on the grain market and sales growth reported by the company's grain division.
Table. Razgulyai: Basic financials for FY 2007, mn USD
| Indicator | 2006 | 2007 | 2007/2006 |
|---|
| Revenue | 845.2 | 1213.6 | 43.6% |
| Grain sub-holding | 430.6 | 774.9 | 80.0% |
| Sugar sub-holding | 415.9 | 442.2 | 6.3% |
| Cost of production | 686.8 | 1043.1 | 51.9% |
| Gross profit | 173.5 | 233.1 | 34.3% |
| Gross margin | 20.5% | 19.2% | |
| Distribution expenses | 23.8 | 48.9 | 105.0% |
| Operating expenses | 44.8 | 75.8 | 69.3% |
| EBITDA | 117.8 | 183.9 | 56.2% |
| EBITDA margin | 13.9% | 15.2% | |
| Net profit | 33.9 | 48.1 | 41.9% |
| Net margin | 4.0% | 4.0% | |
Source: company data, Finam estimates
Given the robust growth in the company's key financial indices, its profit margins grew marginally last year. The EBITDA margin grew due to the inclusion of non-operating profits of about USD 45 mn.
On the whole, we are neutral about the company's performance in 2007, pointing to a marginal downturn in profit margins, caused by outrunning growth of expenses. In our view, the development strategy voiced by the company's agrarian subdivision could emerge as a key upside driver for its stock valuations. Speaking at a teleconference, the company's management stated plans to expand its cultivated area by more than 2.7x to 600,000 hectares in 2008, from 217,000 hectares last year. The goal is to boost the grain harvest from 140,000 tons in 2007 to one million tons by 2010, which, given high grain prices, could help raise profit margins. We believe that if this strategy is adopted, it could help to increase the appeal of its shares, for investors, ahead of its Russian SPO.
Our estimates show that the fair value of the Razgulyai group should be USD 10 per share, which implies an upside potential of over 30% to the current stock valuations.
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