equity research



Year founded: 2007

Business areas: Aluminum, Alumina, Bauxite.

Employees: 71000 (aprox.)


  2011 2010 2009
Revenue $12,291 $10,979 $8,165
Income(Loss) $1,794 $2,031 $(63)
Dividends 0.0 0.0 0.0
Total Assets $25,345 $26,525 $23,886
Cash Flow $2,193 $2,261 $1,365


Key Strengths:

Rusal has 16 aluminum smelters which are located in four countries – Russia (13 plants), Ukraine (1 plant), Sweden (1 plant), and Nigeria (1 plant). It has access to low-cost and relatively abundant hydro power generation. Rusal has 12 alumina refineries which are located in 6 countries – Ireland (1 plant), Jamaica (2 plants), Ukraine (2 plants), Italy (1 plant), Russia (4 plants), Guinea (1 plant). Rusal’s Mining assets comprise 16 mines and mine complexes, including eight bauxite mines, two quartzite mines, one fluorite mine, two coal mines, one nepheline syenite mine and two limestone mines.

Rusal’s 5.13% shareholding in Norilsk Nickel, the world’s largest nickel and palladium producer and one of the leading producers of platinum and copper.

Risk Factors:

Rusal’s business, financial condition or results of operations may be impacted by a number of risk factors including exposure to o interest rate risk due to interest rate fluctuations in the floating rate of its long-term borrowings; exposure to o foreign currency risks on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group entities, primarily USD but also the Russian Rou- ble, Ukrainian Hryvna and Euros. In 2011, the LTIFR for the Group reached 0.21, compared with 0.25 in 2010 and 0.27 in 2009, which are all lower than the 2010 average LTIFR of 0.34 reported by the IAI. In 2011, there were 11 fatal accidents involving employees and four involving contractors. In 2010, there were 11 fatal accidents involving employees and three involving contrac- tors, whereas in 2009, there were 7 and 2, respectively.

The Group’s competitive position in the global aluminium industry is highly dependent on continued access to inex- pensive and uninterrupted electricity supply, in particular, long-term contracts for such electricity. Increased electricity prices (particularly as a result of deregulation of electricity tari↵s), as well as interruptions in the supply of electricity, could have a material adverse e↵ect on the Group’s business, financial condition and results of operations.


The Group’s business activities expose it to a variety of lawsuits and claims, which are monitored, assessed and con- tested on an ongoing basis. Where management believes that a lawsuit or other claim would result in the outflow of the economic benefits for the Group.

Horizontal Analysis (analysis over time):

Gross profit of Rusal was $3,505 million at the end of fiscal year 2011 which grew by 0.6% since 2010 ($3,484 million). However the percentage gross profit from previous year was on inclined trend from 2008 to 2010 and then it declined.

Net cash from operations for Rusal was found to be almost stable in 2010 and 2011 at $1,781 million. However it in- creased by 441% in 2010 from 2009 ($321 million).

Rusal’s total assets at the end of fiscal year 2011 were $25,345 million as compared to $26,525million in 2010, and $23,886 million in 2009. The total assets increased by 11% in 2010 and then decreased by 6% in 2011.

Rusal’s total liabilities were $14,806 million at the end of fis- cal year 2011 as compared to $15,069 in 2010 and $17,554 in 2009. The total liabilities were decreased by 1.7% in 2011 and by 14% in 2010 from previous year. There is a downward trend found in total liabilities from 2009 to 2011.


Vertical Analysis (common-size analysis):

Rusal’s net revenue growth was 11% in 2011 as compared to 34% in 2009 from previous year.

Rusal’s gross profit grew by 13.9% to $3,484 million at the end of fiscal year 2010 from 2009 ($1,455 million). There was not much change (0.06% growth) in gross profit in 2011.

Rusal’s interest expanses were $1,289 million at the end of fiscal year 2011 as compared to $1,233 million in 2010. It is increased by 0.04% in 2011 while stable in 2010 and 2009.

Rusal’s income tax expanses were $375 million as compared to $144 million in 2010 and $18 million in 2009. Income taxes were increased by 159% in 2011 as compared to 7% from previous year.

Rusal’s cash shortfall were $2,443 million in 2011 as com- pared to $2,624 million in 2010. The shortfalls were reduced were 0.06% in 2011 as compared to growth of 3% in 2010.

Rusal’s property, plant and equipment were increased to $19,828 million in 2011 as compared to $17,455 million in 2010 and $5746 million in 2009.

Rusal’s current liabilities were increased by 58% at the end of fiscal year 2011 as compare to decreased by 2% in 2010 from previous year.

Rusal’s stock holder’s equity was increased by 11% to $11,735 million at the end of fiscal year 2011 as compared to $10,539 million in 2010 and $11,456 million in 2009.

Rusal’s working capital is negative $1,647 million at the end of fiscal year 2011. It might be a concern for new year growth. However working capital was positive at $2,237 mil- lion in 2010 and $1,010 in 2009. Its current ratio is de- creased to 81% in 2011 from 191% in 2010. It was 134% in 2009. There is a downward trend in current ratio. It might be a concern at current assets are decreasing to cover up current liabilities.

Rusal’s financial leverage is on upward trend since 2009. It was 57% in 2009, 58% in 2010 and 62% in 2012.

Rusal’s profit margin before taxes was 4% at the end of fiscal year 2011 as compared to 3% in 2010. Rusal’s change in operating cash is increased by 438% to $1,738 million at the end of fiscal year 2011. Operating cash went down by 89% in 2010 to $323 million from 2009 ($3,043 million)..

Rusal’s ROE-CI follows a downward trend. ROE-CI went down to -8% in 2011 as compared to 32% in 2010. It was 13% in 2009. ROE follows the similar downtrend since 2010. It went down to 2% in 2011 as compared to 32% in 2010 and 15% in 2009.

Rusal’s market-to-book ratio was 0.87 at the end of fiscal year 2011.

Rusal’s inventory turnover ratio was found to follow down- ward trend. It was 2.92 at the end of fiscal year 2011 as compared to 3.0 in 2010 and 3.10 in 2009.

Senstivity Analysis:

Rusal’s sensitivity analysis is also done for 10% increase in net income in 2012 and decrease in net income by 10% in 2012. We found that on 10% increase of net income, rusal’s gross profit improves by 35% to $4.7 billion. On decreasing net income by 10% Rusal’ss gross profit decreased by 35% to $2.3 billion approximately. Rusal’s operating profit has increased by 70% to $3.0 billion upon 10% increase in net income and it decreased by 70% to $520 million. Rusal’s PBT is increased by 201% to $1.8 billion on increasing 10% net income and it decreased by 154% to $619 million (loss) upon decreasing 10% in net income. rusal’s ROE is increased by 13% on net income increase by 10% and decreased by 9% on 10% decrease in net income.

Perspective Analysis and Forescasting:

We have take into account a few assumptions: 1) Rusal’s netincomeisexpectedtodecreaseby15%in2012 and increased by 5% in 2013 and by 15% in 2014. 2) Rusal’s bookvalueisexpectedtodecreaseby12%in2012 due to current economic crises in the world. Book value is expected to increase by 10% in 2013, increase by 22% in 2014 and increase by 12% in 2015.

Rusal’s expected dividends are found to be $10050 million at the end of 2012 fiscal year, $21165.61 million in 2013, and $22939.45 million in 2014. We calculated Rusal’s equity value to be $30401.94 million.

Public Perception and Recent Results:

Rusal just experienced its worst quarterly earnings margin since it went public in 2010. Rusal reported net loss of $118m in the third quarter, compared with a net profit of $432m a year earlier. Sales fell 18.9 per cent to $2.6bn, while the company’s margin for adjusted earnings before interest, tax, depreciation and amortisation fell to 5.1 per cent. Rusal is struggling to pay back $10.9bn of net debt – $1.3bn of which is due by the end of next year. The company has been hit hardest by a sharp drop in aluminium prices, which have fallen 6 per cent so far this year. Rusal’s share price is down 9.2 per cent year-to-date. Rusal is getting hurted by weak demand and declining aluminum prices, and warned that the short-term outlook for the metal remained uncertain. Rev- enue fell 19% to $2.56 billion. Rusal produced 1.04 million metric tons of aluminum in the quarter, up 0.1% from a year earlier, while alumina production fell 15% to 1.74 million tons.

Conclusions and Recommendations:

Rusal did not declare any div- idends in past and most likely it may not declare dividends in future. Rusal$#39s P/E ration is on declining trend and also its EPS. Rusal$#39s operating profit margin is also found to be on declining track. Rusa’s return on total assets declined in 2011 while it increased in 2010. Rusal$#39s net profit margin is also declined in 2011. Rusal is quite sensitive to net in- come change and it may go in debt if net income changes by 10%. Rusal stock price went down by 60% to 4.36 HKD since last month. Based on our analysis, Rusal is too volatile for investment in near future.


Leave a Reply

Your email address will not be published. Required fields are marked *