Research Notes

Kalina is Russia's largest producer of cosmetics and perfumery, and is a company which has been displaying strong growth in production and sales profit margins. The company's further business development strategy will allow it to strengthen its market positions and push up its financial indicators. Our valuation of the company's shares shows that Kalina is significantly undervalued by the market.

• The Russian perfumery and cosmetics market is one of the most dynamically expanding markets in the world. We expect the domestic market to grow by 13-14% this year, while the global market is projected to increase by just 3.6%.

• Kalina is Russia's leading cosmetic company, which controls about 38% of the Russian market in the skin care segment.

• According to our forecasts, the company's sales growth will slightly outpace the domestic market by rolling out a distribution system and strengthening positions in such promising segments as make-up products and men's cosmetics.

• According to the company's H105 US GAAP financials, Kalina's sales jumped by 46%, while net profit nearly doubled by consolidating Dr. Scheller in its financials and Kalina's results as well. According to our forecasts, Kalina's revenue will surge by 68% this year compared to 2004.

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Olga Samarets

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