Page 98 - bne IntelliNews Russia Country report May 2017

companies refused to comply. Among the latter was LinkedIn, access to which has been blocked in Russia since November 2016.
Luxoft shows healthier underlying trends. Even though Luxoft’s FY17 (ended March 2017) results and FY18 (ending March 2018) guidance failed to surprise on the upside, mostly due to the persistent pressures from top legacy accounts, we see strong progress in rebalancing the company’s growth profile. In particular, the high growth of new accounts and decreasing client concentration, along with diversification across verticals and geographies, is set to underpin a re-acceleration in growth. Improving underlying trends. On the surface, Luxoft’s guidance of 20% y/y growth in FY18 just reiterated earlier statements and was at the lower end of the market expectations. Meanwhile, a deeper look into the underlying trends leads us to believe in a healthy re-balancing of the growth profile. Bankers estimates show that in FY17, revenues from DB and UBS, the top two accounts, fell 5% y/y and rose 7% y/y, respectively. In order to offset that slowdown and maintain the y/y growth at 20+%, Luxoft had to make acquisitions, while organic growth hovered around the low to middle teens. For FY18, the company sees DB falling 15-20% y/y and UBS being flat or slightly positive, but its 20% y/y growth guidance does not imply any new acquisitions, with organic growth somewhere at 17-18% y/y.
Mail.ru reports strong 1Q17 IFRS results. The company's revenue increased 24.4% y/y to RUB12.6bn driven by acquisitions, as well as a solid performance from advertising. EBITDA added 10.7% to RUB4.9bn, with implied EBITDA margin at 38.6%. Net income rose 25.4% to RUB3.5bn. The results are above the Interfax consensus that forecast 21.7% revenue growth to RUB11.8bn, and a 0.8% decline in EBITDA to RUB4.5bn, with implied EBITDA margin at 38.5%. The net cash position remains at RUB8.4bn.
Mail.ru Group has signed an agreement to purchase 90% of food delivery firm ZakaZaka , which is the second-largest player on the Russian food delivery market after Delivery Club that Mail.ru acquired last year. Mail.ru assumed the minority stake in ZakaZaka as part of the Delivery Club acquisition in November last year, and the package was increased to 9.9% in March. For the remaining 90.1%, the company will pay $18mn, valuing the entire company at $20mn. Currently, 2,600 restaurants are connected to the service. ZakaZaka's revenue for 2016 was RUB56mn and RUB30mn for 1Q17.
Mail.ru has announced the acquisition of automotive classifieds service Am.ru from Rambler in a $10mn transaction. The move is logical from the strategic perspective, in our view, as it is intended to boost Mail.ru's exposure to the classifieds business by supplementing its general classifieds Youla project with automotive classifieds. However, we believe that the Russian market for automotive classifieds is pretty congested, with three strong incumbent players already heavily competing with each other (Avito.ru, Yandex's Auto.ru and Drom.ru). During the latest conference call, Mail.ru highlighted automotives and real estate as potential areas for developing its classifieds business, which is currently represented by general classifieds Youla.
EPAM had a strong top line in 1Q17, but pressured margins. Despite EPAM outperforming its top line guidance for 1Q17, management was still cautious on the full-year outlook due to lingering uncertainties, with the latest upgrade of the expected FY17 growth rate from 20% y/y to 21% y/y mostly driven by more favourable FX assumptions. Given the persistent pressures on
98 RUSSIA Country Report May 2017 www.intellinews.com