Renault Shares Pummelled Again As Russian Operation Threatens Recovery Plan

Renault’s recovery plan is being undermined by fears its Russian operation could generate big losses, according to Fitch Ratings, which said the extent of the impact of sanctions designed to isolate the economy after the Ukraine invasion is currently unclear.

Fitch said in a statement Tuesday Renault generated 10% of its revenue and around 12% of its operating profit margin in Russia in 2021.

Renault’s shares have been taking a hammering on the stock market, falling 40% since mid-February to end at close to €22 Tuesday. Over the same period, the Euro STOXX 600 Autos index has fallen about 25%.

Renault has owned 51% of AvtoVAZ since 2016, along with Rostec State, a Russian government-owned corporation headed by Sergey Chemezov. Renault took a 25% stake in AvtoVAZ in 2007 in a deal led by the French state, which owns about 15% of the French company. AvtoVAZ makes Lada and Dacia budget vehicles among others.

The French government has said it will support the sanctions regime mounted against Russia

According to Fitch, Renault is the most exposed European auto manufacturer to Russia.

“Renault’s exposure to Russia remains the highest in Fitch’s portfolio of European auto and auto-supplier issuers. Fitch estimates that Renault generated 10% of its revenue and around 12% of its operating margin in Russia in 2021. In the absence of contingency measures, Fitch forecasts that the potential loss off these operations could turn Renault’s free cash flow (FCF) generation negative for the next 24 months, and delay the company’s recovery,” Fitch said.

Renault CEO Luca de Meo has launched a recovery program, “Renaulution”, which sees the launch of 24 new vehicles by 2025 and more electric cars. Last month Renault reported an annual profit for the first time in 3 years and said the turnaround plan was ahead of schedule. Renault is in an alliance with Nissan and Mitsubishi.

“Renault’s auto margins, which we had expected to reach 3% by 2024 due to cost-cutting programs, are now more likely to take longer to fully recover from the pandemic, beyond our forecast period. We expect Renault’s free cash flow margin to improve to about 0.5%-1.0% in the medium term despite increased planned capex related to electric vehicles, and despite our conservative assumptions around raw-material cost inflation, which should continue to pressure profitability for the next 24 months,” Fitch said.

Investment bank UBS said Monday Renault has the largest Russian operations amongst European carmakers with high uncertainty about the value of the asset, and its shares have been among the worst performers.