OREANDA-NEWS. March 18, 2010. AvtoVAZ plans to invest RUB183.5bn (USD 6bn) into the modernization of production facilities and the development of new models through 2020, according to domestic media sources. By 2020, AvtoVAZ IFRS revenues are expected to be RUB330bn (USD 11bn), compared with RUB192.1bn (USD 6.4bn) in 2008. The company anticipates reaching pre-crisis output levels (700,000 cars) in 2014, according to the AvtoVAZ management guidance, reported the press-centre of OTKRITIE Financial Corporation.

View: Based on management guidance, we assume that the average car price in 2020 will be below RUB280,000 (USD 9,300), which is only 3% above average 2008 prices. In our view, such figures are only achievable via modernization of fixed assets and a reduction of COGS. We are skeptical about the feasibility of this guidance since the government prohibits management from cutting personnel.

We expect that in order to stem automotive sector decline the state might allow personnel cuts in some industry enterprises, which would allow AvtoVAZ to reduce costs. According to our estimates, AvtoVAZ could make annual personnel cuts of 4,000-5,000 through 2020. In addition, we believe that AvtoVAZ is likely to raise long-term loans from state-owned banks for the development of new car models and the upgrading of production facilities.

Valuation and Action: We view these figures as neutral for AutoVAZ, since the program has not yet to be approved by the government.