Research Notes

Amtel-Volga: Russian European

At present, Amtel-Volga Tire complex owned by the Russian-Dutch holding Amtel- Vredestein is one of the most rapidly expanding tire plants in Russia. The company ranks second in terms of aggregate output and holds a leadership status in the premium class tire segment. The rising number of cars in Russia, primarily due to imported car sales, is driving demand for high quality tires, which will assist in the company's development and improve its financials. The strong investment appeal of Amtel-Volga shares is also underpinned by the following factors:

The company is part of major tire holding Amtel-Vredestein, which ensures stable raw material supplies and a reliable sales market.

Due to the timely upgrade of production facilities and implementation of progressive technologies, the company ramped up annual output by 150% to 7.2 mln pieces over the last five years.

According to estimates, by 2009, the Russian car market will grow 50% to 3 mln units and foreign car makes will account for over 50% of this amount. Replacement of domestic cars with imported and foreign car makes assembled in Russia require tires of higher quality. As a result, demand is shifting towards the premium class.

Amtel-Volga holds leadership status on the premium class domestic tire market with annual output equal to 3.3 mln units, which makes it possible to successfully compete with foreign rivals looking to expand their production facilities in Russia.

Amtel-Volga's development program provides for launching output of new premium class tires fully compliant with Dutch original Vredestein products, which should push up demand for the company's products.

The company is expected to supply tires to Renault Logan cars manufactured in Russia.

We assign a Buy recommendation to Amtel-Volga shares with an estimated target price of $108 per common share, which implies 84% upside to the current market valuations.

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Michael Frolov

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Sector: Chemicals & Petrochemicals, Tires & Raw Rubber
Company: Amtel-Volga

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