Page 101 - RusRPTMay20

in the sector when the recovery inevitably begins. Most of the subcontractors are small and medium-size enterprises that will find it difficult to sustain additional operational costs and are likely to see a temporary outflow of workers and a potential shortage of personnel, with commissioning delays likely. These companies actively employ people from other Russian regions and neighbouring countries, whose living conditions could deteriorate, creating incentives to go home. Migrant workers from all over the Former Soviet Union (FSU) come to Moscow to work on construction sites, but since the lock down began they have found themselves unemployed and with the borders close they have no way to go home to wait out the pandemic. “Were the freeze to be prolonged beyond 1 May, we think residential developers might need to support their sub-contractors or ease the deadline requirements for their services,” VTBC said. The Moscow Metropolitan area is a key region for residential construction in Russia and accounted for 17% of completions last year. In the sales of listed developers, large-scale residential construction represented 88% of PIK’s volumes, 48% for Etalon and 29% for LSR in 2019. The region is the most appealing for commercial developers and its affluent nature underpins higher prices, which are 1.5-3.0x the blended level in Russia, calculates VTBC. “We anticipate more details on the timing of the residential construction freeze in the [residential segment] and see downside risks to the pipeline accelerating after the second week,” says VTBC. “Relaunching production and development greatly depends on a company’s vertical integration into prefabricated parts and the sustainability of the labour force, so could take anything up to several weeks.”
The crash of the ruble last month has led many Russians to buy real estate in a bid to protect their money, and a 31% rise in apartment sales in Moscow ​was observed last month, ​Reuters​ reported citing the country’s cadastre office. A total of 14,801 sales of already built apartments, the so-called secondary market, were agreed in Moscow in March, up about a third from February and an increase of 13% from a year earlier, the federal service for property registration, ​Rosreestr​, said on April 14.
Russian real estate developers could see sales decline by 5-25% and lose RUB45bn-200bn ($589mn-$2.6bn) in revenues​, depending on the duration of the anti-coronavirus (COVID-19) lockdown, the National Credit Rating agency (NKR) estimated as cited by RBC business portal on April 6. As reported by ​bne IntelliNews,​ the real estate sector had been ​anticipated to get a boost from state social spending announced earlier this year​, but the outlook correction due to COVID-19 was inevitable. NKR believes that under the best-case scenario with the lockdown lasting unitl end-May, the 20 largest Russian developers would lose up to RUB90bn (10% of top line in 2019). The worst-case scenario sees lost revenues at RUB200bn, should the lockdown continue into 2H20.
Etalon​ has released mixed FY19 financial results. Revenues grew 17% y/y to RUB84bn. Adjusted EBITDA was RUB11.9bn, 17% below our forecast, mostly due to the development gross margin coming short of our estimates (3pp y/y higher at 31% vs. our forecast for 33% and a return to historical norms). Net income was minor, at RUB186mn, and in our view created uncertainties over the upcoming dividend distribution, as the guidance was for at least RUB12/GDR, implying a 13% yield. Net operating cash flow was robust, at RUB8.5bn, and kept leverage at 1.8x net debt/EBITDA. Etalon is moving through volatile times, and sales spiked for two weeks in mid-March to cause some 20% upside to management’s monthly expectations, with a 10% YTD
101​ RUSSIA Country Report​ May 2020 ​ ​www.intellinews.com