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Alrosa: April sales results and 1Q21 financials preview

  • ALROSA delivered its April sales figures which came in at a solid $401 mn, up by 12% m/m
  • ALROSA’s sales results followed De Beers, which reported a successful 3rd sight preliminary results
  • We view the continued customer activity, the result of the recovering demand for polished goods

ALROSA (ALRS.RX, O/W, RUB 118.8/share) delivered its April sales figures which came in at a solid $401 mn, up by 12% m/m (or 26% above the pre-pandemic 2019), highlighting robust demand in the sector. Recently the company noted stable demand for high-quality rough diamonds in April. As per recent CEO comments, during the April auction, the company sold more than 90% of the lots tendered with the total proceeds significantly higher than the starting prices. We note that generally the April sales demonstrate a lower pace of restocking following the major rough purchases ahead of the holiday seasons in 4Q/1Q.

ALROSA’s sales results followed De Beers, which reported a successful 3rd sight preliminary results that came amid the ongoing Covid pandemic in India. Provisional data for De Beers reports $440 mn of rough diamond sales. It is noted that as in the case with ALROSA the miner had fewer diamonds available for clients after a strong first quarter, when it sold 13.5 mn cts against production of 7.2 mn cts (inventories down by 6.3 mn cts). In 1Q21, De Beers also suffered operational difficulties including excessive rainfall in southern Africa and a Covid-19-related shut down in Canada, and planned maintenance in Namibia.

We view the continued customer activity, the result of the recovering demand for polished goods. Steady retail sales suggest that rough diamond purchasers may face lower availability of certain diamonds especially considering the tight inventories at major producers. We note that ALROSA decreased its inventories by 8 mn cts in 1Q21. Meanwhile India’s diamond and jewelry sector has received permission to operate during the country’s severe coronavirus pandemic following which manufacturing levels decreased by between 10% and 50% in the past month. According to industry sources companies that manufacture larger diamonds operate in factories with more space for social distancing and are able to retain workers by offering higher pay. Jewelry sales in the US more than tripled in April according to MasterCard Spending Pulse. This was seen as an effect of government stimulus payments, warmer weather and broader reopening after major coronavirus restrictions.

ALROSA is scheduled to report 1Q21 financials on 18 May. We expect the top line decrease to RUB90 bn largely on back of lower volumes of carats sold post major restocking in 4Q20 and ruble appreciation. We note that in 4Q20 sales volumes surged 239% q/q supported by robust end-consumer demand expectations which successfully materialized. As prices for gem-quality diamonds in 1Q21 grew 25% q/q we expect this to result in margin increase and project quarterly EBITDA at approximately RUB 30.7 bn. We do not anticipate capex to accelerate in 1Q21 and expect support to free cash flow from the 8 mn cts released from the diamond inventories. Free cash flow by our estimates may reach RUB 42.8 bn.

The company is scheduled to hold the conference call same day, 18 May at 10 am (New York), 5 pm (Moscow). Dial-in details: +49 692 2222 54 29 (International); +1 844 286 0643 (Free Call USA); 0800 376 61 83 (free Call UK); +7 800 500 9863 (free Call Russia). Conference ID: 23143767#


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The contents of this document have been prepared by Joint Stock Company “Alfa-Bank” ("Alfa Bank") as Investment Research within the meaning of Article 36 of Commission Delegated Regulation (EU) 2017/5...

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