Engines of the Russian economy

newsletter 02/12/2016

In any state with high GDP there are companies well-known abroad. Their activity spreads beyond the national borders, and sometimes the brand cost exceeds fixed assets value. These corporations rule the roost of the world economy, being the largest investors and employers, and source of innovations at a global scale. They supply goods and services being an integral part of the modern house-keeping. Toyota, Samsung, Siemens, Apple, Michelin, Exxon Mobil – rather everybody know profile and country of these holdings’ origin.

Russia is no exception: the Russian companies are on the international markets and their brands are well-known. Mainly it is about companies of the fuel and energy complex (FEC). One school of thought holds that opportunities for formation of high level added value are limited due to the raw materials base of the country’s economy. However the Russian economy has natural competitive advantages, because industry and agriculture are rarely existed without HC-hydrocarbon, as well as city-living will be quite difficult without them. Despite of active search of new sources of energy by foreign researchers and investment in alternative energetics, Gazprom and other companies leading in FEC still play the key role at this market.

The largest companies of Russia in term of annual turnover

According to the analyses of the largest companies of Russia in term of turnover (Top-100), excluding FEC enterprises accumulating 58,4% of total annual turnover for 2015, quite high share falls for companies engaged in trade (14,1%), metallurgy (6,2%), transport (5,6%), electric power (4,1%), chemistry and petro-chemistry (3,6%), communications (3,6%), etc.

These figures are self-explanatory: currently the national economy is quite diversified (see picture 1).

Distribution of total revenue of Top-100 companies of Russia by sectors, % according to the results of 2015Picture 1. Distribution of total revenue of Top-100 companies of Russia by sectors, % according to the results of 2015

The table of leaders according to the results of 2015 and compared to 2014 has not been significantly changed: seven of ten from Top-10 companies are included in FEC, wherein Gazprom leaved its long-time competitor, Rosneft Oil Company, behind and took the lead. Turnover of gas corporation amounted to 4 334,3 bln RUB that is equivalent to USD 70,7 bln at the mid-year ruble-dollar rate. For example Wal-Mart, American retail corporation, leading in the world by annual revenue, has an annual turnover of USD 482,1 bln.

Retailers Tander (Magnit chain) and Trading House Perekrestok have demonstrated the largest increase in revenue (see table 1).

Table 1. The largest companies of Russia by annual turnover
Company Annual turnover for 2015,Bln RUB. Increase (decrease) in turnover to 2014, % Sector
1 PJSC Gazprom 4 334,3 8,6 FEC
2 PJSC Oil Company Rosneft 3 831,1 -10,9 FEC
3 PJSC Russian Railways 1 510,8 7,8 Transport
4 PJSC GAZPROM NEFT 1 273,0 1,9 FEC
5 JSC TANDER (Magnit) 1 032,0 24,3 Trade
6 PJSC SURGUTNEFTEGAZ 978,2 13,4 FEC
7 LLC GAZPROM MEZHREGIONGAZ 853,5 -4,8 FEC
8 PJSC TRANSNEFT 756,9 5,5 FEC
9 JSC TRADING HOUSE PEREKRESTOK 726,4 24,6 Trade
10 LLC LUKOIL-West Siberia 695,8 11,0 FEC

The largest companies of Russia by net profit

Net profit is another indicator speaking about engines of the Russian economy.

FEC is also leading by this indicator: 71% of total net profit of Top-100 companies is accumulated in this sector (see picture 2). The second place is taken by the ferrous and nonferrous metallurgy (8,9%) and then follows the chemistry and petro-chemistry (4,8%).

Besides traditional industries, Top-100 contains IT-company Yandex, providing services in Russia, CIS, Turkey and France.

Distribution of total net profit of Top-100 companies of Russia by sectors, % according to the results of 2015Picture 2. Distribution of total net profit of Top-100 companies of Russia by sectors, % according to the results of 2015.

Mining and Metallurgical Company "Norilsk Nickel", world's No. 1 in nickel production, grew 2015 net profit by 329% (almost in 4 times).

Following the results of 2015, the largest net profit was recorded for Surgutneftegaz (751,4 bln RUB), that exceeds Gazprom’s results (403,5 bln RUB) almost in two times (see table 2).

Table 2. The most profitable companies of Russia
Company Net profit in 2015, bln RUB Increase (decrease) in net profit to 2014 г., % Sector
1 PJSC SURGUTNEFTEGAZ 751,4 -15,7 FEC
2 PJSC GAZPROM 403,5 113,5 FEC
3 PJSC Oil Company Lukoil 302,3 -18,7 FEC
4 PJSC Oil Company Rosneft 239,4 -52,2 FEC
5 JSC ROSNEFTEGAZ 149,4 -18,8 FEC
6 PJSC MMC NORILSK NICKEL 146,2 329,3 Mettalurgy
7 PJSC ORENBURGNEZT 98,7 -3,2 FEC
8 LLC LUKOIL-West Siberia 97,0 15,6 FEC
9 JSC TATNEFT named after V.D. Shashin 85,0 3,6 FEC
10 PJSC NOVATEK 84,1 101,4 FEC

Except key figures of activity, the most expensive companies of Russia by total assets worth and current market capitalization should be mentioned.

The largest companies of Russia by assets worth

Gazprom is on the top of the rating of the most expensive companies by total assets worth: in 2015 they were assessed in almost 13 tln RUB. The second place is for Oil Company Rosneft (9,4 tln RUB) and Russian Railways are the third (5,1 tln RUB). The sum of assets of Top-10 companies will exceed 42 tln and be a half of the Russian GDP.

The state controls the majority of companies in the list, and plans of Rosneft privatization for tinkering with the budget seem to be reasonable – the company is a sweet spot in the governmental property. The opponents of the accommodating approach speak about undesirability of these measures. Background of the nearest Eastern European countries where the sale of the most expensive assets in the governmental property took place, lead to disappearance of some real economy segments or their complete degradation.

Table 3. The most expensive companies of Russia by the assets volume
Company Assets volume in 2015, bln RUB Increase (decrease) in assets to 2014, % Sector
1 PJSC Gazprom 12 981,2 6,0 FEC
2 PJSC Oil Company Rosneft 9 449,9 21,3 FEC
3 PJSC Russian Railways 5 057,1 4,3 Transport
4 PJSC SURGUTNEFTEGAZ 3 704,5 22,8 FEC
5 JSC ROSNEFTGAZ 2 834,8 25,6 FEC
6 PJSC Oil Company Lukoil 2 023,2 15,2 FEC
7 SUE MOSCOW METRO 1 601,9 10,6 Transport
8 JSC ATOMENERGOPROM 1 473,8 3,6 Electric power
9 PJSC ROSENERGOATOM CONCERN 1 470,7 8,5 Electric power
10 PJSC GAZPROM NEFT 1 400,5 19,5 FEC

The largest companies of Russia by market capitalization

Currently, following the results of stock exchange trading, Oil Company Rosneft is first by the market capitalization: in November 2016 its capitalization approached to 3,7 tln RUB.

On November 28 Sberbank, being the third, for several hours was the most expensive company that indicates volatility of trades.

Comparing the assets volume and market capitalization, it is reasonable to conclude that the Russian business is highly underestimated. Assets of Oil Company Rosneft’s exceed the market capitalization in 2,6 times. Enormous potential for assets market growth is obvious, while now it is under the pressure of external fundamental grounds (statements of politics and opinion of financial institutions, volatility in oil market) and doesn’t indicate the real cost of enterprises.

Table 4. The most expensive companies of Russia by market capitalization
Company Current market capitalization, bln RUB Share in total capitalization of all PJSC in Russia, % Sector
1 PJSC Oil Company Rosneft 3 682,3 10,9 FEC
2 PJSC GAZPROM 3 539,0 10,5 FEC
3 PJSC SBERBANK of Russia 3 350,9 9,9 Banks
4 PJSC Oil Company Lukoil 2 700,5 8,0 FEC
5 PJSC NOVATEK 2 208,9 6,5 FEC
6 PJSC MMC NORILSK NICKEL 1 660,0 4,9 Metallurgy
7 PJSC SURGUTNEFTEGAZ 1 042,8 3,1 FEC
8 PJSC MAGNIT 991,7 2,9 Trade
9 PJSC GAZPROM NEFT 913,9 2,7 FEC
10 PJSC BANK VTB 891,0 2,6 Banks

Though complicated economic conditions, the Russia companies have potential for growth. Currently about 4,6 mln companies operates in the country. Domestic economy is quite diversified. There are industries where the losses after the dissolution of the Soviet Union are observed - first of all, it is about engineering industry and machine tool industry. Conversely, companies of next generation have appeared for the relative short time range: IT, mobile operators, trade chains, even nowadays are approaching to FEC and metallurgy corporations by financial indicators.