Capitalists are coming to Russia’s
A plausible growth story for the Russian agriculture sector exists. But high debt levels, unproven management teams and climatic vagaries leave plenty of room for doubt.
Russia certainly doesn’t lack space. The country’s arable land stretches to about 120 million hectares, the world’s
That, at least, provides the chance for a
The bet for investors is such companies can pursue ambitious growth plans while improving returns. Rusagro’s financial details are scarce, but its posttax profit margin, on $183 million of earnings, improved to 16.7% in 2010 from 9.7% in 2009. Razgulay Group, a listed sugar producer, wants to increase its 324,000 hectares of land in cultivation by 50% in five years, while tripling earnings before interest, taxes, depreciation and amortization. Its return on invested capital should be 18.9% by then, from 2.7% in 2009, according to Renaissance Capital.
But there are plenty of risks. Company managements may not be able to handle rapid growth. Razgulay’s earlier expansion up to 2008 left it heavily indebted, and its net debt is still 5.9 times expected Ebitda. Its share price is a quarter of that from February 2008.
The Russian farm sector relies heavily on continuing government subsidies for bank lending; Cherkizovo, a
With opportunities to invest in large European agricultural stocks rare, investors prefer stocks like Astarta, operating in Ukraine’s more fertile, temperate conditions. Its enterprise value is 12.6 times expected Ebitda, compared with Razgulay’s 6.9 times and Cherkizovo’s 6.7 times.
Despite some favorable tailwinds, investors in Russian agricultural companies still require a leap of faith.
Petelinka, one of Cherkizovo Group’s flagship brands and the best-selling chicken product, has entered into partnership with the iconic GUM Ice Rink, which opens annually on Red Square. This year, visitors will have an opportunity to take a break in the cozy Petelinka cottage and take photos next to a Christmas tree standing on chicken legs.
Cherkizovo Group employees have held a volunteer event supported by the Ray Foundation for Helping Homeless Animals. They brought food, medicines and other useful supplies to two Moscow shelters and helped with dog walking.
Cherkizovo Group’s chicken and turkey products have once again been awarded the annual Product of the Year title, with flagship brands Petelinka and Pava-Pava winning two categories of the award.
Cherkizovo Group, Russia's largest meat producer, is taking part in Our Brand, an international food festival in Ufa. The Company showcased its products during a tasting session at its stand.