Products and Services

Industrials, Transportation, Infrastructure, Chemicals


The Russian fertilizer industry plays an important role on the global scale. Russia accounts for 8% of the world’s production of nitrogen fertilizers, 7% of phosphate fertilizers and 20% of potash fertilizers. This is possible thanks to the large, high-quality reserves that Russia has in natural gas (# 1 globally), phosphates and potash (the Verkhnekamskoye potash deposit is the second largest in the world). Russian companies have competitive products and enjoy a low cost environment, which helps them to maintain high margins (the EBITDA margins of potash producers, for example, are in excess of 50%). The largest companies are EuroСhem (nitrogens and phosphates, private), PhosAgro (phosphate and nitrogen, public), Uralkali (potash, public), Acron (nitrogen, public) and UralChem (nitrogen, private).


The Russian auto market has shown impressive growth over the past five years, with car sales increasing at an average annual rate of 17% since 2003, driven primarily by rising personal income. As a result, Russia has started to challenge Germany’s status as Europe’s No 1 car market. The truck and light commercial vehicle (LCV) segments have also grown rapidly on the back of the strong economy. The expanding market, policy decisions taken by the Russian government and changing customer preferences (in favour of more expensive, higher quality foreign brands) have convinced many leading global producers to launch assembly in Russia. This strengthened the general trend of a growing share of imports and foreign assembly in the total supply. Thus the prospects of domestic auto makers largely depend on their ability to get access to modern technology through partnerships with foreign producers. All major Russian producers have already taken steps in this direction: a 25% stake in AvtoVAZ (passenger cars) was sold to Renault, GAZ (cars, LCVs, trucks and buses) has tried to acquire and localise foreign production, 10% in KamAZ (heavy trucks) was sold to Daimler and the latter can increase its stake, while Sollers (cars, LCVs) has been increasingly involved in the assembly of foreign brands.


As a function of the overall state of the economy, transportation has been expanding rapidly of late, supported by Russia’s strong GDP numbers. Over the past ten years, Russia’s cargo turnover has grown by an average of 5% per annum, but the growth rates in rail, road and air cargo turnover have been much stronger (8%, 11% and 6% per annum, respectively). The sector is likely to be among the key beneficiaries of future economic growth as well as the government’s efforts aimed at developing Russia’s decrepit infrastructure.

The key theme in the railway industry has been liberalisation, which was aimed at gradually separating potentially competitive businesses from Russian Railways, with the latter retaining only the role of an infrastructure operator (a regulated non-competitive business). While the company remains the dominant player in the industry, the reform has already resulted in i) a number of its subsidiaries being spun off along various business lines (including Freight One (general cargo) and TransContainer (containers)) and ii) the creation of a number of strong private players, such as GlobalTrans, Transoil, Transgarant and DVTG. At this point, only GlobalTrans is a publicly traded company. TransContainer has held a private placement and its shares could also be available to investors, while other players are private non-public companies.

Rising incomes and expanding business activity have led to the Russian aviation industry’s passenger turnover more than doubling over the past ten years. However, the industry’s recent difficulties (a surge in fuel prices followed by the financial crisis) are likely to foster the badly-needed consolidation: there are 170-180 airlines in Russia, while total passenger traffic is only 50mn passengers per year (well below the amount carried by the leading global airlines). The industry leaders, Aeroflot (publicly traded) and the recently created Russian Airlines (a non-public alliance of a number of leading regional airlines), are likely to become consolidation centres. Other key players are S7, UTair and Transaero (all are private, but shares of the first two are potentially available to investors).

Companies under coverage

Avtovaz, GAZ, Kamaz, Power Machines, Mostotrest, Sibirskiy Cement, Uralkali, Sollers, Iskitimcement, Gornozavodskcement, Steppe Cement, Acron, Aeroflot, Fesco, Globaltrans

VTB Capital

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