Investment company

Research Russia, Moscow, 123610, Krasnopresnenskaya nab. 12, 7th gate, 18th fl.
Tel.: 7 (495) 258 1988
April 16, 2008 Fax: 7 (495) 258 1989

KAMAZ Recommendation: BUY

Analyst: Marina Irkly
Heavy by nature, yet easy to go E-mail: MIrkly@veles-capital.ru

Bullet moments Principal estimates

¾ KAMAZ – Russia’s largest domestic producer of trucks weighing Company’s shares vs RTS index
over 14 tons. Apart from that, company is in world’s top ten
manufacturers of diesel engines. Aside from products mentioned 2,8

above, KAMAZ also manufactures trailers, buses, cisterns and 2,6

2,4
tractors. Share of KAMAZ over Russia’s heavy vehicles market of
2,2
2006 is 33.5%. The value was dropped versus 2005, but just 2,0
slightly (-1.2%). The loss of market was related mostly to limited 1,8
abilities to expand capacities and increasing competition brought 1,6

by foreign manufacturers. 1,4

1,2

1,0
¾ The primary clients of KAMAZ production are enterprises virtually 0,8
from all branches of economy: mining, construction, military and 15/12/06 15/03/07 15/06/07 15/09/07 15/12/07

many corporate clients: Gazprom, LUKOIL and TNK. Note that KMAZ RTSI

business of KAMAZ is also attractive thanks to the niche

occupied by company, a niche where competition is lower than Information about KAMAZ
over niche of passenger vehicles. Ticker RTS
Market price (cs), USD
KMAZ
4.75
Min / max price during last year (cs), USD 1,87 / 4,75
Fair price at year end (cs), USD 6.40
¾ The primary shareholder of KAMAZ – the state in person of Upside (downside) (cs), %
Number of common shares, total
34.73
707,188,809
Federal Property Management Agency. It holds 34.01% of MC, mn USD 3,732
EV, mn USD 4,088
company’s stock. In 2008 the privatization of KAMAZ is set to
occur and state held portfolio will be transferred to some private Consolidated financial values
Sales, mn USD
2006
2,822
2007 (F)
3,766
2008 (F)
5,134
interest. EBITDA, mn USD 373 504 703
Net income, mn USD 52 131 204
EBITDA margin, % 13.2 13.4 13.7
Net income margin, % 1.8 3.5 4.0
¾ The effectiveness of KAMAZ business grows every year. EBITDA NOPAT 211.0 316.3 466.0
margin of 2005 has formed 9.9%, while in 2006 this value formed ROIC, %
ROE, %
9.4
3.0
13.1
6.8
18.7
9.9
13.22%. Net income margin has formed 1.84% versus 0.59% in
Financial coefficients 2006 2007 (F) 2008 (F)
2005. In this year we expect EBITDA margin to comply with past P
/E 72.0 28.4 18.3
year’s level, while net income margin will remain at 3.5%. P
/S 1.3 1.0 0.7
P
/BV 1.9 1.8 1.6
EV
/EBITDA 11.0 8.1 5.8
¾ We have estimated KAMAZ with DCF method and confirmed EV
/S 1.4 1.1 0.8
results with market multipliers. The resulting fair price of one EV
/IC 1.8 1.7 1.6
common stock of KAMAZ as of late 2008 has formed 6.40 USD, ROIC
/WACC 0.7 0.9 1.4
which equals 34.73% growth potential. We recommend “BUY” for
stock of KAMAZ.

Given analytic materials of Veles Capital can only be used in information purposes. The company does not guarantee completeness of given information and its reliability, as well as it is not responsible for
any straight or consequential loss resulting from a non-purpose use. Given document cannot be considered as the reason for buying or selling either, one or another shares.

All rights on this bill belong to Veles Capital. Reproduction and/or spreading of the analytic materials Veles Capital cannot take place without a company’s authorization. © Veles Capital 2008
 Veles Capital R e s e a r c h

Company description
In this review we examine the activities of RF’s largest producer of cargo vehicles (goods transport),
KAMAZ JSC. KAMAZ is most widely known over production of heavy duty trucks of over 14 tons
strong. Apart from this – the company is also a member of world’s top ten producers of diesel
engines. Aside from mentioned products KAMAZ produces trailers, buses, cisterns and tractors.
KAMAZ and its subsidiaries form KAMAZ group of companies. KAMAZ boasts a total of over 80
subsidiaries, however the primary roles are held by Remdiesel, NefAZ, Autopricep-KAMAZ,
Kamsky Pressovo-Ramny Zavod, KAMAZavtotekhinka and Automobilny Zavod (Automobile Plant).
Automobile Plant is a finishing enterprise – which conveyers roll out ready vehicles of about 200
various modifications. The plant also has a conveyor for assembly of custom order vehicles.
Remdiesel’s primary business is capital repairs of KAMAZ’ trucks. This plant is largest specialized
workshop with a high around former USSR countries, boasting a high technical potential. Kamsky
Pressovo-Ramny Zavod – one of the principal branches of KAMAZ, here the primary parts &
components of the KAMAZ trucks are assembled. KAMAZavtotekhnika is a key part in united
production chain of KAMAZ group. Enterprises produce remote control equipment and wheels.
NefAZ – perhaps the largest subsidiary to KAMAZ. This company manufactures dump trucks,
trailers, semitrailers, cisterns and buses. Note NefAZ could be considered a separate financial
entity with own investment potential.
Yet another positive factor of KAMAZ activity is the fact that back in 2006 company got a license by
Federal Property Agency of RF’s Industry and Energy Ministry, allowing them to develop,
manufacture, repair and utilize weapons and military vehicles.
Among KAMAZ export directions are Vietnam, Ethiopia and Poland, aside from all of CIS countries.
KAMAZ also holds own production capacities in these countries. At the end of 2005 a joint
enterprise ZF-Kama with Zahnrad Fabrik was formed. For the first time ever KAMAZ plants began
assembling automobile components under foreign brands. Aside from that, during early 2006
KAMAZ and Cummins Inc have signed an agreement on establishment of Cummins Kama
company, which was set to produce B-series engines (140-275 hp strong) for Russian market. The
first stage of work intends Euro-2 engines production, then following Russia’s ecological standards,
the production will be transferred to Euro-3 and Euro-4 engines. Apart from it, KAMAZ plans on
opening a joint company with Germany’s Khorr-Bremse, producing braking systems. It is planed
that production complex will be located in Naberezhniye Chelni at “Master” Kamsk Industrial Park.
The manufacture is set to start n 2008. The enterprise will produce drum brakes, disk brakes,
tensional balancers and automated levers for regulation of drum brakes. The lion’s share of
production (about 70%) will be used in KAMAZ production, while remainder 30% are to be sold over
Russian market.
We would like to note KAMAZ buying Tuymazinskiy motormixer Plant back during the summer of
2006, consolidating over 51% in July. For past two years TZA production output doubled – from 800
motormixers (2004) to 1,700 units in 2006. The construction boom in Russia provoked an inflated
demand for such vehicles. Only during year 2006 Russia put 34 mn sq m of housing space into
commission, excluding office space, warehouses and etc. Such large scale construction requires
enormous supply of concrete. Hence the demand of automixers grows wide, while Russian car
markets still cannot cover this deficit. While the primary issue of production is chassis.Market
experiences a deficit of construction vehicles, including motor mixes. Therefore, the vacant niche
was flooded by foreign products right after.
The results of 2006 indicate over 30% of motor mixers sold in Russia were imported from abroad.
Local producer were fighting a desperate battle with used vehicles from Japan and Europe, and
new ones from China. Today Russia has several manufacturers of motor mixers: Tuymazinsky
zavod avtobetonosmesiteley, TIGARBO plant (Kamensk-Shakhtionsk, Rostov Region), Diesel-TS
(Dzherzhinsk, Nizhegorod regiod), Becema (Krasnogorsk, Moscow Region) and Pushkinsky
Machine Plant (Krasnogorsk, Moscow Region). TZA is also an undisputable leader among domestic
manufacturers of motor mixers. The primary benefit of the company making it the leader is fact that
Tuymazinsky zavod is a part of KAMAZ group, thus suffers from no undersupply of chassis, i.e.
KAMAZ is Russia’s largest manufacturer of chassis, whilst lion’s share of produce is sent right to
TZA. The housing construction is expected to continued at the same fast pace, thus the
development of supporting industries should follow, production of construction vehicles in particular.
April 16, 2008 page 2
 Veles Capital R e s e a r c h

Among company’s future project is KAMAZ intention to organize tractor production. 200 tractors
were scheduled for production in 2007; further output is set to from 2.5 th units, while the project
output of 4 th units will be reached in 2009. Tractor production became possible thanks to purchase
of a plant in England, the plant produces tractors under McCormick brand. The tractors are to be
equipped with Cummins KAMA produced engines and power unites from Zahnrad Fabrik.
Investments in the project are to form 150 mn RUR.
KAMAZ currently produces about 53 th trucks a year. The project output of 65 th trucks should be
achieved within 2008. Then KAMAZ plans on establishing a new assembly line, sporting output of
20-25 th trucks per year. The launch of production is set for 2010. Investments in the project are to
form 20 mn USD within 5 years.
The remainder clients of KAMAZ are the enterprises from all branches of economy: mining,
construction, military and a range of corporate clients, such as: Gazprom, LUKOIL and TNK. Note –
KAMAZ business is attractive because of its niche having less competition, rather than passenger
automobile segment. Besides – the sale of dump trucks, specialized modules based on KAMAZ
trucks – is first of all owed to growth of demand by construction industry, as well as to dramatically
growing industrial, housing and road building – the primary buyers of KAMAZ vehicles. The
development of construction industry in 2006 was supported by high yet stable price of oil,
increased sums of budget cash for development and support of country’s infrastructure. A direct
demand of oil companies had also demonstrated itself, as company began on developing new gas
& oil reserves, backed by positive conditions over the market.

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 Veles Capital R e s e a r c h

Position within industry

Even despite many purchases by KAMAZ during past years, the primary activity of the company is
production of 14-40 ton trucks. Company’s share of Russia’s heavy duty vehicles market has
formed 33.5% as of 2006. The value has been dropped in contrast with 2005 result, shrinking -
1.2%. Even though this drop is slight, if compared to AvtoVAZ share of the automobile dropping
from 50% to 30% in just 3 years. The fall of the market is above all related to limited abilities for
expansion of capacities and ever growing competition by foreign manufacturers. While the loss of
domestic market share by Russian companies is made towards new import cars. The share of new
imports at Russian market of trucks (up from 14 tons) in 2006 has formed 7%, upping 2 p.p. since
2005. In 2007 we expect the growth to form up to 10%. We think that later on the trend will
continue, though note KAMAZ position at Russia’s truck market is rather strong.

Russian market: balance of forces

100% 2.0% 3.0% 3.5% 4.6%
6.7% 5.5% 5.2% 5.3%
90% 90% 4.9% 5.1% 4.8% 5.7%
78% 6.7% 6.1% 7.6%
80% 80% 7.4%
71%
70% 66% 70%
63%
60% 57% 55% 36.3%
60% 36.5% 34.7% 33.5%
50%
50%
40% 36% 35%
30% 32% 40% 10.2% 10.7%
11.3% 10.3%
30% 26%
19% 30%
11.5%
20% 17.9% 16.2%
10% 20% 22.1%
10% 5% 5% 7%
3% 3%
10% 21.7%
15.9% 17.3%
0% 9.8%
2002 2003 2004 2005 2006 2007 (F) 0%
2003 2004 2005 2006
Russian manufacturers New imports Used imports

Others MAZ URAL KAMAZ VOLVO MAN SCANIA Renault

KAMAZ share of Russian market in 2006

KAMAZ
33,5%

MAZ
Imports
11.4%
43.2%
URAL
10.4%
KRAZ
1.5%

Source: company’s data; Estimation: Veles Capital

April 16, 2008 page 4

 Veles Capital R e s e a r c h

Equity

Primary shareholder of KAMAZ is the state in person of Federal Property Management Agency.
Given authority holds 34.01% of company’s stock. DCC also holds a considerable part of 30.93%,
but only as nominal holder. Over 3Q 2006 different nominal holder – VTB – dropped its stake in
authorized capital of KAMAZ from 27.37% to 17.37%. At the same time 9.93% of KAMAZ got under
ownership of the company itself, solely for redemption purposes. Note that starting with June,
November – the redemption procedure was conducted among real-minor holders. Later on,
authorized capital will be downgraded through redemption of treasury stocks – which was confirmed
past summer.
KAMAZ privatization begins in 2008 and state held portfolio will be sold to a private holder.
Foreseeing this – KAMAZ director general – Sergey Kogonin started buying out all stocks of the
company in interest of company’s management. Thus – “friendly” structures of management hold
stakes in KAMAZ through KAMAZ-Capital (30%), Troika Dialog (19.6%) and portfolios of private
persons, names of whom are not disclosed.

Equity structure as of 09.30.2007

Others
7.8%
KAMAZ
9.9%
FPMA
34.0%

VTB
17.4%

DCC
30.9%

Source: company’s data; Estimation: Veles Capital

April 16, 2008 page 5

 Veles Capital R e s e a r c h

KAMAZ production results

Back in 2006 KAMAZ sold 43.8 th trucks. While 74% of sales were made on domestic market, the
remainder was exported. Production capacities of truck production in 2006 were used at 67.4%.
Production of 2007 is expected to make 53 th trucks, adding +21% above the result of prior year.
KAMAZ plans on reaching a 100% workload for its capacities in 2008. In future KAMAZ hopes to
organize an assembly to produce 20-25 th vehicles per year. The launch of the assembly plant is
planned for 2010.
Bus production capacities make an output of 1500 unites each year. Whilst the conveyors are
almost 100% loaded. Trailers and semi-trailers are built at NefAZ and over Stavropol subsidiary of
KAMAZ – Avtopricep KAMAZ. Stavropol’s capacities are 75.6% loaded as of 2006, NefAZ loaded
79.9% of full capacity. KAMAZ plans on developing the remaining output to 100%in 2008,
expanding total production to 14.6 th units. The production of tractors has been launched in 2007.
The test production should make 200 unites, while 2500 more units are scheduled for production
during 2008, the second stage of production (to be achieved in 2009) is to boost the output to 4 th
units each year. Remember – not so long ago KAMAZ purchased McCormick tractor plant. The
plant itself is being closed down, while KAMAZ – on its part transfers equipment from the plant,
hoping to start production of tractors at Naberezhniye Chelni, ensuring a good rate of vehicle
components’ localization.

Roadbuilding vehicles sales, units

2005 Change, % 2006 Change, % 2007 (F)
Trucks 34,200 28.07 43,800 21.00 53,000
Buses 1,100 18.18 1,300 0.00 1,300
Trailers and semi-trailers 9,400 7.45 10,100 22.28 12,350
Tractors 0 0 200
TOTAL sales 44,700 23.49 55,200 21.11 66,850
Source: company's data; Estimation: Veles Capital

April 16, 2008 page 6

 Veles Capital R e s e a r c h

KAMAZ financial state estimation

Do remember, that up until lately KAMAZ suffered from a long financial crisis, which began after fire
broke out at engine plant back in April 1993. Starting with 1999 to 2000 company suffered only
losses and earned nothing, while after 2001 KAMAZ began earning positive income once more.
While dynamics of 2003-2004 was especially impressive: sales of primary enterprise rose +52%, net
income expanded two times. Company’s assets continue to grow fast too: in 2006 KAMAZ turnover
assets rose +31% versus prior year. While cash of the company rose almost 2.5 times, financial
investments grew 8 times. As we can see from the date below: the share of loans in KAMAZ capital
is low: 21% (2006) dropped -3 p.p., below 2005. Almost 60% of loaned funds consist of long term
loans. Interest expenses are also insignificant, while operating income 11 times higher than debt
service cost, which indicates company’s creditability.

Company risk analysis

2005 2006 2007 (F)
Financial state analysis
Current assets, mn USD 741 976 1,152
Cash and short-term investments, mn USD 44 151 76
Current liabilities, mn USD 641 663 666
Current liquidity ratio 1.16 1.47 1.73
Absolute liquidity ratio 0.07 0.23 0.11
Solvency analysis
Long-term debt, mn USD 299 305 354
Short-term debt, mn USD 247 218 77
Own capital, mn USD 1,732 1,970 2,131
Interest expenses, mn USD 71 43 37
EBIT, mn USD 144 286 416
CapEx, mn USD 26 31 125
Interest coverage ratio 2.02 6.69 11.14
Cash flow/CapEx n/d 9.23 3.39
Debt ratio 0.24 0.21 0.17
Financial leverage 0.31 0.27 0.20
Source: company's data; Estimation: Veles Capital

April 16, 2008 page 7

 Veles Capital R e s e a r c h

KAMAZ’ effectiveness grows richer each year. EBITDA margin of 2005 has formed 9.9%, while next
year in 2006 it already formed 13.22%. Net income margin has formed 1.87% versus 0.59% in
2005. This we year expect EBITDA margin at past year’s level of 3.5%. At the same time, BITDA
margin of KAMAZ has currently reached the levels comparable with its foreign counterparts. For
example – developed market companies’ average EBITDA margin forms 12.99% and 10.87% on
emerging markets. Net income margin of KAMAZ is also not far from its competitors’: average value
of developed markets forms 6.96% and 6.78% on emerging markets. However, in our forecast we
assume that as KAMAZ continues development, it will reach average industrial values. Invested
capital margin of 2006 has formed 9.41%, below industry’s average.

Company’s business effectiveness change

2006 2007 (F) 14
Effectiveness analysis
Sales, mn USD 2,822 3,766 12

EBITDA, mn USD 373 504

10
Net income, mn USD 52 131
Own capital at year start, mn USD 1,732 1,970 8
Own and loaned capital at year start, mn USD 2,278 2,493
Assets, mn USD 3,096 3,309 6
Invested capital at year start, mn USD 2,242 2,406
EBITDA margin, % 13.22 13.38 4

Net income margin, % 1.84 3.49

2
ROE, % 2.99 6.67
ROC, % 9.26 12.69 0
ROIC, % 9.41 13.14 2006 2007 (F)
ROA, % 1.68 3.97
Source: company's data; Estimation: Veles Capital ROE, % ROC, % ROIC, % ROA, %

April 16, 2008 page 8

 Veles Capital R e s e a r c h

Financial values forecast prerequisites

The base of KAMAZ financials forecast has been formed out of: company’s plans on expansion of
production capacities. According to these plans we have estimated CapEx level, required for
support of technical condition of primary assets of KAMAZ. We think that KAMAZ should have
enough of income to implement its planned capital investments, as EBITDA of the company
seriously exceeds investments into PPE, as seen on the graph below.

EBTIDA to CapEx ratio, mn USD

1,400

1,200

1,000

800

600

400

200

0
2005 2006 2007 (F) 2008 (F) 2009 (F) 2010 (F) 2011 (F) 2012 (F) 2013 (F) 2014 (F) 2015 (F)

CapEx EBITDA

We think that during next 3 years KAMAZ sales growth rate should form over 30%, which should be
provided primarily by industry development rate. The demand in KAMAZ produced vehicles
depends on construction, roadbuilding, mining industries and general economic development of the
country, though the latter influence is indirect. We think that active extraction of minerals,
construction boom and development of road network would become a stimulus for expansion of
KAMAZ production and a reason for such a dynamic growth. Above all – a significant support for
mentioned industries will be provided by state’s protection.

April 16, 2008 page 9

 Veles Capital R e s e a r c h

Investment conclusion

We have estimated KAMAZ by DCF method. At the same time we have used a rather high discount
rate due to a low liquidity of company’s sock and high expectations of investors. Thus, the average
value of capital has formed over 14%. Fair price per one common stock of KAMAZ at late 2008 is
set at 6.40 USD, which corresponds to 34.73% growth potential.
In order to confirm our estimations of DCF model, we have used market multipliers of P/S, P/E,
P/BV and EV/EBITDA. The comparison was conducted by analog companies of developed and
emerging markets. Results indicate that when compared to emerging markets – KAMAZ seems
rather cheap by all ratios. This confirms our DCF method estimation. Therefore we recommend
“BUY” on stock of the company.

April 16, 2008 page 10

 Veles Capital R e s e a r c h

PRIMARY VALUES FORECAST

Sales and operating costs dynamics, mn USD

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0
2005 2006 2007 (F) 2008 (F) 2009 (F) 2010 (F) 2011 (F) 2012 (F) 2013 (F) 2014 (F) 2015 (F)

Sales Costs

Effectiveness values dynamics, %

25

20

15

10

0
2006 2007 (F) 2008 (F) 2009 (F) 2010 (F) 2011 (F) 2012 (F) 2013 (F) 2014 (F) 2015 (F)

EBITDA margin, % Net income margin, % ROIC, % ROE, % ROA, %

Source: company’s data; Estimation: Veles Capital

April 16, 2008 page 12

 Veles Capital R e s e a r c h

Comparable analysis
Sector companies' multipliers and coefficients
Financial coefficients
Current
Enterprise value, mln
capitalization, mln P EV EV P P EV EBITDA ROIC
USD /S /S /EBITDA /E /BV /IC ROE, % ROA, % ROIC, % / WACC
USD margin, %

Developed markets
MAN AG GERMANY 19,361 19,239 0.76 0.75 5.50 9.68 2.69 2.72 24.54 8.24 26.90 13.68 2.06
Isuzu Motors Ltd JAPAN 7,747 9,123 0.45 0.53 6.87 9.47 2.60 2.09 21.05 6.68 21.25 7.74 1.93
Hino Motors Ltd JAPAN 4,068 6,126 0.31 0.46 7.09 16.86 1.58 1.32 8.10 2.72 5.93 6.49 0.85
Fuji Heavy Industries Ltd JAPAN 3,330 5,941 0.22 0.39 5.83 16.16 0.69 0.80 4.06 1.40 3.86 6.64 0.68
Hino Motors Ltd JAPAN 4,068 6,126 0.31 0.46 7.09 16.86 1.58 1.32 8.10 2.72 5.93 6.49 0.85
PACCAR Inc UNITED STATES 17,230 14,716 1.12 0.96 7.22 13.38 3.45 5.94 24.69 17.10 47.66 13.29 4.42
Navistar International Corp UNITED STATES 4,074 4,874 0.31 0.37 4.88 10.88 - - 18.83 1.42 - 7.54 -
Oshkosh Corp UNITED STATES 2,668 5,407 0.37 0.75 6.32 8.11 1.87 1.30 20.48 7.90 11.11 11.79 1.23
Oshkosh Corp UNITED STATES 2,668 5,407 0.37 0.75 6.32 8.11 1.87 1.30 20.48 7.90 11.11 11.79 1.23
Scania AB SWEDEN 16,168 19,454 1.06 1.28 7.11 10.69 10.08 3.98 36.50 11.53 32.71 17.97 2.32
Rosenbauer International AG AUSTRIA 283 348 0.44 0.54 6.44 12.27 4.09 2.60 26.65 10.50 31.95 8.45 3.83
Developed markets weighted average 7,424 8,796 0.57 0.67 6.40 11.09 2.62 2.09 23.59 9.43 27.90 12.43 2.39

Developing markets
Ashok Leyland Ltd INDIA 1,055 1,146 0.55 0.59 5.73 9.23 2.41 2.17 23.27 12.23 21.87 10.32 1.62
Tata Motors Ltd INDIA 6,196 7,876 0.82 1.05 9.61 13.33 3.49 2.28 23.11 8.15 13.01 10.88 1.06
Mahindra & Mahindra Ltd INDIA 3,998 4,623 1.12 1.29 10.22 13.62 3.57 2.65 26.58 11.12 13.94 12.67 1.15
CNHTC Jinan Truck Co Ltd CHINA 1,853 1,940 0.82 0.86 26.17 21.30 7.64 5.89 30.50 3.42 12.98 3.28 1.08
Zhengzhou Yutong Bus Co Ltd CHINA 1,358 1,182 1.31 1.14 23.99 28.90 5.04 12.59 23.45 7.00 42.65 4.77 3.78
Xiamen King Long Motor Co Ltd CHINA 1,134 908 0.65 0.52 11.55 36.14 7.64 - 19.70 6.70 - 4.50 -
Liaoning SG Automotive Group Co Ltd CHINA 403 406 0.68 0.69 14.94 25.18 2.58 2.54 11.51 3.50 9.81 4.62 1.01
Developing markets weighted average 2,285 2,583 0.86 0.97 10.63 15.18 3.85 2.72 24.34 8.30 16.51 9.28 1.37
Source: Bloomberg; Estimation: Veles Capital

April 16, 2008 page 15

 Veles Capital R e s e a r c h

Information disclosure
The statement of an analyst and confirmation of the responsibility withdrawal
The given report is prepared by the analyst (-s) of the Investment Company Veles Capital. The given estimations in the present report reflect personal opinion of
the analyst (-s). The award of the analysts does not depend, never depended and will not depend upon the specific recommendations or estimations, provided
in the present report. The award of the analysts depends upon the general efficiency of the business of the Investment Company Veles Capital, determined by
the investment benefit of the company’s clients and also upon the incomes from other types of activity of the Investment Company Veles Capital.
The given report, prepared by the Research Department of the Investment Company Veles Capital, is basing on the public information. The present review was
prepared independently from other Departments of the Investment Company Veles Capital, and any recommendations and judgments, presented in the given
report reflect only the view point of the analyst (-s), participated in making of the present review. Due to that consideration, the Investment Company Veles
Capital considers being necessary to state that the analysts and the Company are not responsible for the content of the given report. The analysts of the
Investment Company Veles Capital do not take overall responsibility to regularly up-date the information, contained in the present report, and also to announce
about all changes, introduced to the present review.
Provided analytical material of the Investment Company Veles Capital could be used only with information aims. The company does not guarantee the
completeness and preciousness of provided information in the given report and its reliability, and also is not responsible for direct and indirect losses from using
of the given materials. This document cannot serve as a basis for purchase and selling any securities, and cannot also be considered as an offer from the part
of the Investment Company Veles Capital. The Investment Company Veles Capital and (or) its subsidiaries along with the staff, directors and analysts of the
Investment Company Veles Capital have the right to purchase and sell any securities, mentioned in the given review.
The Investment Company Veles Capital and (or) its subsidiaries can serve as a market-maker or have the liabilities for underwriting of companies’ securities,
mentioned in the given review, can purchase or sell them for clients, and also make any actions, which do not contradict the Russian law. The Investment
Company Veles Capital and (or) its subsidiaries can also be interested in the possibility of providing the companies, mentioned in the present review, with the
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All rights for the given bulletin belong to the Investment Company Veles Capital. The reproduction and/or distribution of the analytical materials of the Investment
Company Veles Capital are prohibited without the written permission of the Company. © Veles Capital 2008.

The principle of recommendation assignment

The investment recommendations are given based on the evaluation of the company’s share yield. The basis for the calculation of the expected company’s cost
is the evaluation by the discounted cash flows method (DCF). In some estimations the method of comparable coefficients, and also the mixed estimation (by
DCF method and by comparable coefficients method) are applied. All recommendations are assigned based on the determined by us the fair cost of the shares
within the nearest 12 months.
At the present moment the investment scale of the Investment Company Veles Capital is the following:

BUY – corresponds to the growth potential of the shares within the nearest 12 months by 15% or more.
ACCUMULATE – corresponds to the growth potential of the shares within the nearest 12 months for 5-15%.
HOLD – corresponds to the growth (reduction) potential of the shares within the nearest 12 months from -5% to 5%.
REDUCE – corresponds to the reduction potential of the shares within the nearest 12 months from 15% to 5%.
SELL – corresponds to the reduction potential of the shares within the nearest 12 months by 15% or more.
In some cases the deviations from the evaluation scale given above, based on which the recommendations are assigned, are possible. That fact relates to the
high volatility of some securities in particular, and market in the whole, and also to the individual characteristics of one or another issuer.
In order to get additional information and specifications please contact the Research Department of the Investment Company Veles Capital.

April 16, 2008 page 17