Westa reports weakened bottom line in 2011

Westa ISIC (WES PW), the CIS’ leading car battery maker, reported a 13% yoy increase in net revenue to USD 173 mln in 2011 on an 18% yoy increase in battery sales in conventional units and a 4% yoy decline in average battery prices. Amid worsened battery pricing, the company decreased EBITDA to USD 28 mln (vs. USD 46 mln, net of a government grant, a year ago). The FY11 results imply the company generated just USD 2 mln in EBITDA in 4Q11 (down 9x yoy), the quarter that used to seasonally be the company’s strongest. Westa’s full-year financial costs grew 25% yoy to USD 41 mln, but a total USD 13 mln in income tax benefits and one-off gain from the disposal of its Techkomplekt subsidiary allowed it keep its bottom line marginally positive at USD 1 mln for 2011. While cash flow from operations was strongly negative at USD 26 mln (mainly due to high interest expenses), Westa’s cash balance doubled yoy to USD 21 mln as of end-2011.

Alexander Paraschiy: The company’s full-year EBITDA was below our estimates, mainly due to much lower than we expected achieved battery prices in 4Q11: contrary to past experience, battery prices did not see a seasonal advance in 4Q, and were down 16% qoq (a sharp contrast vs. the 12% increase qoq in 4Q10) – the company attributed this to the negative shock on the lead market in mid-autumn 2011, ruble depreciation (which caused a decline in revenues from Russian sales, almost half of Westa’s total) and unusually warm weather in late 2011. Instead, the company expects first half of this year (usually a calm period for batteries) will be much stronger than usual on postponed demand from 2H11 – we are yet to see proof of this trend in the company’s 1Q12 results. The sale of Techkomplekt turned out to be good balance sheet cleanser: it allowed the company to decrease outstanding borrowings by USD 120 mln and net debt by a hefty USD 83 mln. While the weak 4Q11, which might drag into 1H12 as well, leads us to downgrade our forecast for Westa’s financials for 2012, we still see the company as one of our top picks for this year. The expected decrease in finance costs by 1/3 this year, availability of postponed demand for batteries in 1H12, as well the company’s entrance into the VRLA battery segment will be the main bottom line drivers for 2012.