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Truckmaker Kamaz has halted its truck assembly line for two weeks due to sluggish demand for its vehicles. This, in our view, may have a toll on the company’s financials. The downturn in the indices, however, has already been priced into current quotes for Kamaz shares. We believe that the decision to stop the production line is the right one, given the fall in demand for vehicles and current difficulties in drawing working capital.
On November 25, Kamaz Information Policy Department’s director stated that the company would halt its truck assembly line for two weeks and that employees would take a thirty percent wage cut during the forced leave. The company cited a drop in demand for its vehicles as the reason for the stoppage.
We are downbeat about this news as the stoppage reflects the slackening demand for Kamaz vehicles. However, the effect of the crisis has already been factored into the company’s current stock valuations. Limited access to leasing programs and the fall in demand for trucks, due to the slowdown in the construction sector, are the main reasons for the sluggish demand. We look upon the decision to stop the production line as a move in the right direction, given the falling demand for vehicles and difficulties in drawing working capital. We also believe that the production stoppage will do less harm than the growing inventory of unsold vehicles, which could cause the company to freeze its working capital, which now costs it over 20% annually on the free market.
We estimate the fair value of one common share in Kamaz at USD 3.33, with an upside potential of 222%, which corresponds to a BUY recommendation. Konstantin Romanov
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KAMAZ
Capitalization: $597 168 156,24
Common shares:
Price: $0,76
Delta week: -0,3%
Delta month: -17,4%
Delta year: -85,1%
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0.244
0.616
