Ukrainian Railways gets 2021 financial plan approved

Cabinet of ministers approved the financial plan of
Ukrainian Railways (RAILUA) for the year 2021, the company reported on March 31.
According to the plan presented on the company’s website, it is going to
increase net revenue by 15% yoy to UAH 86.5 bln and double its EBITDA to UAH
19.3 bln in 2021.

The company plans to increase freight transportation
revenue 12% yoy to UAH 72.1 bln, mostly by increasing effective freight rates
(as turnover is expected to increase by just 1.3% yoy). Its revenue from
passenger transportation is planned at UAH 7.8 bln, or 89% more yoy, with the
recovery of passenger traffic (up 70% yoy) to be the key driver.

Its total operating costs are planned to be only 3%
higher yoy, as the company expects to decrease material costs by 10% yoy and
maintenance costs by 15% yoy, and it expects to see fuel and electricity costs
to increase only 1% yoy. At the same time, it plans that salary expenses will
increase 5% yoy to UAH 34.6 bln.

Ukrainian Railways plans to increase capital
expenditures 2.8x yoy to UAH 27.0 bln in 2021. Its net debt is planned at UAH
47 bln as of end-2021, we estimate, which is UAH 5.6 bln higher yoy. Meanwhile,
its net debt to EBITDA ratio should decrease to 2.4x as of end-2021, from 4.4x
as of end-2020.

Alexander Paraschiy: As we commented before, it does not
look realistic that the company’s key business customers (entities related to
Rinat Akhmetov and Kostyantyn Zhevago) will allow it to raise significantly (by
about 10-13%) freight rates this year. Therefore, the company’s plans to
increase freight revenue by 12% does not look realistic. The recovery of
passenger transportation also might look too optimistic, taking into account
that quarantine measures related to the pandemic are still in place. All this
suggests Ukrainian Railways’ revenue plan looks overly optimistic. Also, it
does not look realistic for the company to decrease maintenance costs, and
especially fuel costs.

If the company is not able to reach its revenue and
EBITDA outlook (which is likely), it will have to downgrade its CapEx plans to
keep its leverage multipliers under control. Therefore, even though the
company’s P&L plan looks too optimistic, we believe it is possible for
Ukrainian Railways to decrease its net debt to EBITDA ratio back below 3.0x in
late 2021.