Research Notes

Moscow Brake Plant Transmash (MTZ Transmash) is Russia's biggest manufacturer of brake equipment. In recent years the company has steadily ramped up output on the back of rising demand for its products on the part of its primary consumers: Transmashholding, Uralvagonzavod and repair units of Russian Railways Co. We expect that thanks to such strong demand and technical capabilities the company will manage to scale up production in the future, which will produce a positive impact on its financial performance in the coming years.

MTZ Transmash is a key manufacturer of brake equipment for rolling stock, commanding some 40% of the domestic market. The brake equipment manufactured by MTZ Transhmash is widely used at carriage-, locomotive- and electric locomotive-building plants, and is applied in equipping subway carriages and trolleybuses.

The company's products are mainly consumed by Tver Carriage-Building Plant, Kolomna Works (both plants are part of Transmashholding), Altayvagon, Uralvagonzavod and also carriage repair units of Russian Railways Co. We believe that in light of rising output of new railroad machinery and a wider scope of work to repair out-of-commission equipment, a spike in demand for spare parts for this machinery may be expected in the near future, especially for brake equipment. Thus, in the years to come production volumes will jump at MTZ Transmash, producing a favorable impact on its financial indicators.

At present, the company's margins considerably overshoot the industry average, its leverage is marginal as no loans were raised (both long-term and short-term loans). All of these factors underscore the company's fairly strong financial stability and the robust efficiency of its activities.

An extra advantage of the company is the fact that MTZ Transmash is a parent company within the Association of Brake Equipment Producers and Consumers, which enables the company to lobby its interests at quite a high level.

In line with our calculations, the fair price of MTZ Transmash's common share is some $11.00, which implies 86% upside to the current stock valuations.

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Denis Gorev

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