Research Notes

In April, Interregional Distribution Grid Company Center and Volga, or MRSK Center and Volga, got a listing on Russian stock exchanges. In our view, Russia’s MRSKs are conspicuously undervalued by the market and should become leaders among Russian electricity companies in capitalization growth terms in the mid-term. MRSK Center and Volga is among the most undervalued companies in the segment.

MRSK Center and Volga is a natural monopoly company with operations in the Vladimir, Ivanovo, Kaluga, Kirov, Nizhni Novgorod, Ryazan and Tula regions, and the Mariy-El and Udmurt republics. Given the specifics of its business, the company has no rivals, and is unlikely to have any in the future.
The company has a rather diversified client base. The share of each client in the total volume of services provided by the company is now under 10% in revenue terms. The share of each client is expected to decline further as new electricity retail companies are formed within the operating area of MRSK Center and Volga.
Application of a new internationally-accepted tariff setting methodology, called Regulatory Asset Base, or RAB, is expected to fuel investor interest in the new blue-chip stocks, with guaranteed returns on RAB and an option, thanks to profits from streamlined operations.

Konstantin Reily

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