Page 48 - RusRPTJul21

4.3.2 Corporate profits dynamics
At the end of last year, Surgutneftegaz, which earned RUB743bn, was ranked first in the list of the most profitable Russian companies from Forbes, whose profit is influenced by operating results and exchange rates, Russian media writes. When the ruble depreciates, the funds in the company’s accounts are revalued, and the profit in grows. However, excluding the revaluation, the company’s profit fell from RUB393bn , up to RUB165bn .
Norilsk Nickel is in second place, whose net profit last year decreased by 29% and amounted to RUB264bn . The revenue growth was driven by an increase in exchange prices for palladium and rhodium and an increase in production at Bystrinsky GOK. At the same time, due to a diesel leak in May, the company has reserved RUB148bn for a fine to Rosprirodnadzor.
Rosneft closes the top three in the Forbes rating. In 2020, the company’s profit decreased to RUB181bn , amid falling oil prices and restrictions on the OPEC + deal.
Russia’s retail sector has been marked by a flurry of M&A deals this year as the sector consolidates in the face of growing competition, especially by the new entrants into the e-commerce segment of the business.
Accelerated M&A activity in the food retail sector reduces the risks of increased price competition, as modern space growth remains at 2.5-2.8% per year versus industry revenue growth of 8-9%. Recent acquisition multiples are well below the levels seen in 2010, so ROIs comparable to organic growth can be achieved with smooth integration. We are positive on Magnit but cautious on Lenta.
Market consolidation accelerated last year, with the share of the top five rising 3 pp to 32%, above the average increase of 1.4 pp per year over 2016-19. Last year's uptick was driven by Covid-related changes in shopping patterns, which drew more customers to large chains.
The share of the top five remains well below levels in some European countries (57-61%), but we think the 47% level in the US is a better benchmark for Russia, so we assume a 45% longer-term figure for the country to account for its larger territory and ongoing online boom.
M&A has provided an additional boost this year, with three deals already announced to acquire companies (Dixy, Billa and Semya) with combined revenues of R348bn (2% of the market). Considering Magnit's and Lenta's ambitious plans, we expect such deals to continue happening.
We welcome M&A, as it could help modern space growth in the industry stay
48 RUSSIA Country Report July 2021 www.intellinews.com