Research Notes

Iskitimcement is one of the leaders among cement producers in the rapidly expanding and developing Siberian region. In addition to the favorable market conditions and being in a position to significantly improve its financial performance, the company has a balanced ownership structure which protects the minority shareholders from the possibility of a forced buyout. This favorably distinguishes it from other companies in this sector.

Following the revaluation of Iskitimcement assets, we assign Buy recommendation to the company’s common shares and put the fair value at USD 5,000, with an upside of 48%.

We highlight the key factors that make the company attractive for investors:

• Persistent cement shortages which have created an increase in domestic cement prices. We estimate the domestic cement prices to average $175 per ton in 2008, approximately 35% higher than last year
• Implementation of an ambitious development strategy to increase production capacity by more than 70% by 2010
• Production growth rates have outpaced market growth. CAGR averaged 21% between 2002 and 2007
• Limited investment opportunities in the industry and the unlikely buyout of minority shareholdings in the company, in contrast to other companies in the sector, is to boost investor appeal
• Siberian Cement’s IPO, the company conducts core operations in the same region as Iskitimcement, set for 3Q 2008, could be a powerful driver to revalue Russian cement companies

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Vladimir Sergievskiy

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