Daily analyst comments

On August 27, AvtoVAZ president, Boris Aleshin said that the company had made a decision to acquire 100% of IzhAvto shares. As of today, IzhAvto's largest shareholder is SOK Group, which owns 98% of the plant's shares. The transaction price has not been disclosed yet.

In our opinion, this news is positive for AvtoVAZ, since the acquisition of IzhAvto should help the company increase its production capacities and assemble automobiles based on the Renault chassis. At the moment, AvtoVAZ's production line is completely engaged in assembling automobiles under the VAZ brand. We believe that the expansion of existing capacities through the acquisition of IzhAvto is the best way for AvtoVAZ to raise its production volumes, since IzhAvto has a lot of unused capacity and its market price is quite low. In 2007, IzhAvto manufactured 78,800 vehicles, while its real production capacity is 350,000 automobiles a year. Additionally, since the plant already produces one VAZ model, the production line could be re-equipped to produce other VAZ models at minimum cost. As for KIA vehicles, which stood for 63% in IzhAvto's total production volume in 2007, AvtoVAZ plans to continue assembling them only if they generate enough profit.

The fair value of AvtoVAZ common shares is USD 0.93 per share, which implies a 40.3% upside potential and corresponds to a Buy recommendation. The fair value of the car maker's preferred shares is USD 0.46 per share with a 13.7% upside, which corresponds to a Hold recommendation.