Press reports on September 4 revealed the price Avtovaz paid for Renault licenses. Last June, the partners reached a deal on the licensed production of three vehicle models on Renault Logan chassis with 1.4- and 1.6-litre Renault engines and transmissions. Under the agreement, the licenses may be used indefinitely. The issue of the licenses is yet to be approved by a GM of Avtovaz shareholders. The license for chassis is priced at EUR 100 million and that for engines at EUR 120 million.
We view the news as positive for Avtovaz. The cost of buying the licenses is much lower than the price the carmaker would have paid to develop these parts from scratch. On the other hand, the price paid is higher than the respective prices paid by other Russian automotive producers.
We believe that the deal is beneficial for the carmaker and should enable it to expand its range of customers and raise its car sales. The licenses will enable the carmaker to produce modern vehicles on advanced chassis, making it possible to better meet the needs of customers. The carmaker also gets the opportunity to make modern, efficient and reliable engines for installation into both Renault automobiles and its own car models. The deal reveals that the carmaker continues to give preference to the production of small-sized and inexpensive cars for sale in one of the most competitive market segments.
Our fair price for one common share in Avtovaz is USD 0.94, with an upside potential of 20%, which corresponds to a BUY recommendation. The target price of one preferred share should be USD 0.47, with an upside of 14.0%, which corresponds to a HOLD recommendation.
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