DELTA Team

Research
D. Ushakou, I. Gavrysh, L. Murzaieva, M. Oliinyk, Z. Podilchuk
December 28, 2012


JSC Motor Sich
Ticker: MSICH
Current Price: UAH 2 150
Recommendation: BUY
12-month target price: UAH 5 317

Highlights
We initiate the coverage of Motor Sich with BUY recommendation and a 12- month
target price of UAH 5 317 per share, implying 147% upside to the current stock price. The
estimation is based on the combination of the DCF approach and relative valuation with
equal weights 50% and 50%
Company profile. Motor Sich is a monopolist producer of aircraft engines on Ukrainian
market. The Company supplies engines for helicopters, jets, military and civil cargo planes
and civil aviation planes. Approximately 25% of turboprop planes existing in the world are
equipped with engines produced by Motor Sich which corresponds to 10% share of world
rotorcraft engine market. Four big plants, numerous subdivisions and developed service
network ensure the Companys strong competitive position in the world. In fact, export
deliveries account for more than 90% in total sales; they go to more than 120 countries
worldwide.
Solid track record. Over the last five years Motor Sich demonstrated considerable revenue
growth and it is expected to follow the same trend in the future. Maintaining sound liquid
and solvent position, the Company also has been increasing its profitability. It is expected
that future investment strategy will be heavily financed through reinvestments rather than
loan attraction due to strong self-financing potential.
Positive outlook. Strong demand growth in the helicopter engine segment in Russia together
with expansion in the lightweight segment will provide Motor Sich a dominant position in
the helicopter production. High rates of economic growth in large developing countries, like
China and India, will open new horizons for the future expansion. There are already
considerable orders for Motor Sich engines from China and Pakistan. Growing demand for
turboprop engines together with Motor Sich second largest share in this market will even
further support the Companys growth. Also the need for modernization of the fleet in CIS
will stimulate Motor Sich development.
Risks of Russian market decline with the parallel Motor Sich expansion into developing
markets. Since 2005, Russia has been trying to substitute Motor Sich engines, who currently
produces the majority of engines for helicopters produced in the country. The latest attempt
is the construction of the new plant in Russia with a full capacity of production of 450
engines per year by the end of 2013. This will cause 25% loss of Russian market.
Nevertheless, Motor Sich actively expands into new markets to hedge the risk. Moreover,
due to uniqueness of productions most engines can not be easily substituted in the short-
term.

Market profile
52 Week Price Range UAH 1887-2150
30 Day Average Vol.
UAH 770 276.8
Beta 0.87
Shares Outstanding 1 980 394
Market Capitalization UAH 4 257 mln
Free-float 20%
Key Financial Data, 2012
Earnings per Share UAH 357.75
Dividends per Share $0.00
Net Debt to Equity 0.003x
Return on Equity 36%
Return on Assets 22%
EV/EBITDA 4x
EV/Sales 1.3x
DELTA-Team D. Ushakou, I. Gavrysh, L. Murzaieva, M. Oliinyk, Z. Podilchuk


Figure 1. Shareholders structure















Source: Motor Sich, Delta calculations


Figure 2. Breakdown by Product
Segments in 2011














Note: Revenue Break-down
Source: Motor Sich


Figure 3. Helicopter Engine Market
Breakdown, 2011













Source: Turbomeca, GE data



Business Overview
Monopolist producer of aircraft engines on Ukrainian market. The product line of
the Company is unique not only for Ukraine as much as 80-90% of all helicopters
made in Russia are using engines of Companys production. Moreover, Motor Sich is
also one of few Ukrainian firms whose owners aim to make their business transparent
and coherent for investors and shareholders. Besides effective management
Companys success and prosperity are insured by strong reputation and monopolistic
position.
Founded in 1907, incorporated in 1994, the majority of stocks (62%) is now
being held by the management of the Company. Officially, 15% of shares belong
to Companys CEO Vjacheslav Boguslaev, but many sources indicate a higher share
of Mr. Boguslaev of about 62%. Notably, Motor Sich free float (around 20%) is the
largest within the Ukrainian stock market.
More than 93% of Companys total revenue of about UAH 5.9 bln for year 2011
is generated from aircraft engineering. Particularly, 65% is generated from
production of aircraft engines. Motor Sich produces engines for helicopters (bestseller
TV3-117VM accounts for 63% of total helicopter engines production), jets (AI-222
family for Russian Yak-130 and Chinas L-15), military and civil cargo planes
(including An-124 Ruslan, one of the largest planes in the world), civil aviation
planes. Besides engines the Company manufactures industrial installations, mainly
gas turbines and power generating sets, and consumer goods. Companys full product
range in details is represented in Attachment A with examples in Attachment B .
Currently Companys full-cycle production process takes place at four plants
situated in Zaporizhzhia, Snizhne and Volochisk. Besides, Motor Sich runs its own
airplane Company Motor Sich Airlines, has three subsidiary companies, 14 structural
subdivisions in different regions of Ukraine and almost 200 service centers around the
world. Specializations of business units are shown in Attachment C .
Motor Sich occupies 80% share of engines for helicopters production on Russian
market which is equivalent to around 10% share of world rotorcraft engine
market. Approximately 25% of turboprop planes existing in the world are equipped
with engines produced by Motor Sich, while in general segment of engines for planes
the Company holds 4% share on the global market.
Export deliveries account for more than 90% in total sales. Main consumers are
aircraft manufacturers located in more than 120 countries all over the globe.
Particularly, Russian buyers generate 60-70% of Companys revenues. Recently,
Company started intensive expansion to India, China and Middle East. A new plant
for re-manufacturing of used engines was opened in OAE just a month ago.
The supplies of Motor Sich are delivered by about 300 suppliers with a total of
51.1 thousand components. These mainly include producers of metal products,
carbonic composites and aviation electronic aggregates. (Attachment D). Around 50%
of materials come from Russia, including special types of metal alloys not available
in Ukraine.




65.6%
16.0%
12.1%
4.4%
1.9%
Aircraft engines
Engine service
Other aircraft equipment
Industrial installations
Consumer goods
UAH 5.9 bn
62.0%
9.4%
4.7%
1.3%
22.6%
V. Boguslaev
Mckenzie Financial
Treasury Shares
Global Depositary Receipts
Others (free float, management)
38.0%
16.0%
14.0%
13.0%
11.0%
8.0%
Turbomeca Pratt&Whitney
Rolls-Royce Motor Sich
General Electric Other
DELTA-Team D. Ushakou, I. Gavrysh, L. Murzaieva, M. Oliinyk, Z. Podilchuk

Figure 4. Helicopter Production in
Russia












Source: Oboronprom



Figure 5. Turboprop planes
distribution by producers, 2011











Source: Motor Sich


Figure 6. 30-70 seats planes engines













Source: Motor Sich, Delta calculations










Industry Overview and Competitive Positioning
Strong double-digit demand growth is likely to proceed in the helicopter engine
segment. The production of helicopters in Russia will continue to grow with the same
high rate of about 20%, mostly due to the rising demand of military orders in the
country and orders from different governmental ministries (of civil defense,
emergencies, health, etc.) .
Expansion in light helicopters category. Development of new MS-500V engine and
the contract with Kazan KMPO will provide an annual production of 20 helicopters
for the period up to 2016, increasing the share in the lightweight segment to 40%.
Expansion in this category can provide a foundation for future growth, with Motor
Sich becoming a dominant player in one more category of helicopters.
Prospects for growth in the segment for plane engines are also positive. Orders
from Chinese Military Forces for 250 engines for L-15 combat trainer will help to
sustain the growth. Some other modern machines, which are only starting to be
popular, are using engines of Motor Sich: Yak-130 in Russia, K8-J in Pakistan and
China. The demand for these planes in the developing countries will be only
increasing in the nearest years.
Production of engines for An-148 (158) will be increasing, but still wont capture
a large share in the business. The demand for these planes will be increasing, but
Ukrainian/Russian joint production An-148 (158) planes didnt appear as superstars
in their segment and enjoy only a small part of the market. A slight increase in the
segment is still feasible.
Turboprop engines share in the segment of 30-70 seats planes is going to
increase. The number of planes with turboprop engines is going to increase in the
future in this segment, while the share of jets is likely to go down. Since Motor Sich is
the second producer in the tubroprop segment, the market structure change is likely to
positively influence Companys growth.
The demand for modernization will be high. About half of helicopters in Russia
should be replaced by 2020, resulting in high demand for both helicopter
service/repair and for orders of new engines. Thus, the share in the CIS market for
engine repair is not likely to fall below the current 20%.
High rates of economic growth in large developing countries (India and China)
and the growing availability of helicopters will enlarge consumer base in these
countries, which are the core markets for Russian helicopters. Due to the increasing
production of L-15, K-8J and Yak-130 the position of the Company on the Asian
market would be strengthened, opening new horizon for future expansion.
The level of competition on international market of aircraft engines is extremely
high. There is strong rivalry between four main players: Snecma/Turbomeca (France),
BMW Rolls-Royce (Germany/England), General Electric and Pratt & Whitney
(USA). The competitive advantage of Motor Sich amid fierce competition is that the
Company is unique producer of engines for Mi- and Ka-type helicopters and An-type
airplanes. Moreover, every owner of the aircraft fitted with Motor Sich engine is
largely dependent on Companys service since there is no other firm that provides a
full specter of maintenance and repair services for engines produced in Ukraine.



85
93
108
120
169
183
214
262
0
50
100
150
200
250
300
23.0%
77.0%
Motor Sich Pratt&Whitney
2010 2028 forecast
0
1000
2000
3000
4000
Turboprop Jet
DELTA-Team D. Ushakou, I. Gavrysh, L. Murzaieva, M. Oliinyk, Z. Podilchuk

Figure 7. Chinese helicopter market
forecasts, units












Source: AVIC (Aviation Industry
Corporation of China)


Figure 8. Chinese plane market,
units












Source: Boeing Co.


Figure 9. EBITDA and Net Revenue
dynamics (2007-2011)























Persistent development of new products as well as search for new distribution
channels and expansion possibilities. For instance, Motor Sich plans to produce
engines for the new model of helicopter MSB-2MO that will be adopted for domestic
military fleet in 2015. Another example is Companys intension to sale licenses and
license agreements to other firms in various countries of Central Asia and the Middle
East.
Russia has some intentions to diversify, but it wont be possible in the short and
medium-run. Over the last decade Russian consumers which bring more than half of
Motor Sich revenues indicated their intention to substitute services of maintenance
and repair which Motor Sich provides with equivalent services provided by native
companies. This intention became even more evident when Russian corporation
Russian Helicopters in 2010 substituted Motor Sich-designed engine with engine
produced by the US company Pratt & Whitney. Yet, long development cycle of new
products will not make the substitution possible in the nearest future.
The diversification of the Company is vital in the long-run. In late 2013, a new
Russian helicopter engine plant is planned for launch. If the construction will succeed,
the full production capacity of 450 engines per year will be reached in 2014. This is
likely to result in a dramatic drop of 25% in the Russian market, making search for
new markets and partners a vital task for the Company.
As a hole, the prospects of the industry are positive. The demand for engines will
be only increasing in the nearest future mainly due to growth of developing countries,
mainly China and India, and the increasing need of world fleet modernization. Motor
Sich is currently expanding on these markets, trying to diversify its production from
Russia and trying to seize a part of these new markets. And overall the world situation
on world markets has a positive influence on Companys sales.

Financial Analysis
Income statement. Over the last 5 years the revenues of Motor Sich demonstrated
rapid growth with CAGR of 23% y-o-y (an increase from UAH1750bln in FY2007 to
UAH 5792bln in FY2011). Profitability followed the same trend with net income
CAGR of 60% y-o-y, which implies that the Company is constantly improving
profitability without significant expense increase.
Company generates enough revenue to cover all interest on long-term and short term
loans. As of FY 2012 interest coverage constituted 49 signifying solvent financial
position of Motor Sich. Successful performance of the Company in FY2010 resulted
in ROE of 49% that slightly decreased to 36% in FY 2011(mostly due to equity
enlargement). In the future we expect the Company to maintain the same level of
profitability.(see Attachment E for details)
Balance Sheet. Accompanying income growth the assets of Motor Sich followed the
upward trend over the last 5 years and reached UAH 8182 bln. in FY2011.
Historically, the Company preferred equity asset financing with the leverage of 60%.
In the debt structure, short-term loans stand for around 80% of total debt. Besides, the
absolute amount of attracted loans is constantly decreasing with CAGR -18% y-o-y. It
can signify that the Company plans to reinvest significantly in the future in order to
enlarge production.



206
706
1250
1700
2010 2016 2021 2026
1750
5260
27000
28740
2011 2031
Civil Other
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0
1000
2000
3000
4000
5000
6000
7000
2007 2008 2009 2010 2011
ths. UAH
EBITDA Net revenue
EBITDA margin, %
DELTA-Team D. Ushakou, I. Gavrysh, L. Murzaieva, M. Oliinyk, Z. Podilchuk

Figure 10. CAPEX, EBITDA and
FCF dynamics, 2007-2011

























































Motor Sich enjoys sound liquid position. Particularly, current ratio has been steadily
increasing and reached 2,29 in FY2011. Most liquid assets can cover almost 90% of
short-term liabilities ( quick ratio is 88%). In FY2011 inventories accounted for about
60% of current assets, which together with increasing property and equipment
investments is necessary to fulfill the growing demand for Motor Sich production.
Cash Flow Statement. Company closed 2011 financial year with Operational Cash
Flow of UAH 867,7 mln. Investment Cash Flow decreased compared to the previous
year and constituted UAH -540,5 mln. This significant negative amount implies that
Company actively invests into business enlargement. For the last three years Financial
Cash Flow was negative mostly due to intensive debt and dividend repayment. Free
Cash Flow has been improving considerably.
Valuation
Motor Sich is valuated using both DCF Model and Multiple Analysis approaches.
DCF Modeling
FCFF approach is used to determine fair enterprise value. Assumptions made in the
process of modeling are listed below.
Revenues. We expect continuing growth in revenue from sales of new engines in next
years. We base our estimation on two main drivers of growth: firstly, increasing
demand for products from existing consumers (mainly Russian aircraft producers)
amid pressing need in replacement of obsolete aircraft fleet; secondly, Companys
policy of expansion in China, the Middle East and North Africa aimed at further
geographic diversification, especially in the sector of plane engines. Substantial rise in
net working capital, observed in 2012 (+35% during first 9 months), confirms the
suggestion about formed order book for the next year. Constantly increasing capital
expenditures that have reached 13% of net sales in 2011, the highest over last five
years, indicate intension not to slow down in the coming decade.
Combining Companys production plans and demand estimates with the assumption
of relatively constant share of revenues from aircraft engineering in total sales (around
90%) we expect net revenue of Motor Sich to reach UAH 12.4 bn till 2016. Estimates
for 2012 are heavily based on actual results for three quarters of 2012 in line with
historical performance during last quarter relative to the rest of the year.
Starting from 2014 we reduce growth rate in revenues substantially in order to
account for possible reduction in demand from Russian helicopter producers, major
sales drivers in recent years. Yet we question the ability of Russian producers of
rotorcrafts to replace Ukrainian engines with engines of own production completely in
the mid-term. We base our suggestion on the fact that despite numerous claims
Russian engine producers did not managed to replicate Motor Sichs full production
cycle during last decade. Nevertheless, such scenario that is very likely to occur in the
long-run is taken into account through growth rate of cash flows in perpetuity. We
impose the rate of 2% considering it as fairly conservative for a local monopolist in
the industry with inexhaustible demand and extremely high barriers to entry.
(se Attachment G1 for details)




-1,000
-500
0
500
1,000
1,500
2,000
2,500
UAH ths
CAPEX EBITDA FCF
DELTA-Team D. Ushakou, I. Gavrysh, L. Murzaieva, M. Oliinyk, Z. Podilchuk
































Expenses. We rely on gross profit margins in COGS forecasting. We expect that
gross margins will be maintained at average historical level of 43% in 2012-2013 with
further gradual decrease to 40% in 2016. Making this forecast we assume that Motor
Sich will not be able to transfer increasing metal prices in engines prices completely
in the light of planned expansion on markets outside CIS where tuff competition from
world producers is present.
Similarly, other operating expenses are forecasted using historical average ratio of
such expenses to net revenue that had been proved not very significantly from period
to period.
Financial expenses are modeled in view of Companys financing strategy. During last
7 quarters Motor Sich has reduced its interest bearing debt by UAH 190 mln (or
35%). As a result Companys D/E ratio (in book value terms) declined from 14% to
5%. We relate this reduction to discussed earlier special tax regime that came into
force exactly in 2011. Receiving access to additional funds (i.e. income tax payments
redirected back into the firm) the Company has less need in borrowed funds. Taking
into account 10-year duration of special tax regime we assume that Motor Sich will
follow similar financing strategy keeping debt burden at the same low level resulting
in low (relatively negligible) interest expenses.
Tax expenses are calculated using marginal tax rates imposed by the Tax
Code of Ukraine. These expenses are accrued on the income statement but ignored in
FCFF calculation since they should not be paid due to special tax regime.

Capital Expenditures. We believe that recent boost in capex related mainly to
renovation of existing production lines and investment in new equipment will be
followed by slight decrease in capital expenditures during next few years. In the light
of planned increase in design and production of plane engines, however, we do not
expect capital expenditures to be below their historical average levels (relative to sales
volume) that ensure fixed assets maintenance and new models of engine development.

Net Working Capital. Making forecast for NWC changes we assume that average
turnover ratios for accounts receivables, inventories and accounts payables observed
in the past, will be maintained during upcoming years.
We came to UAH 4909 price per share in our DCF valuation.

Discounted Cash Flow Model








2012F 2013E 2014E 2015E 2016E
EBIT 2 109 2 489 2 760 2 923 3 092
Plus D&A 309 364 419 461 507
Less CapEx 588 694 798 878 965
Less Change in NWC 1 589 664 653 500 550
Free Cash Flow 241 1 496 1 728 2 006 2 083
WACC, % 18.4% 18.4% 18.4% 18.4% 18.4%
Discounted FCF 204 1 067 1 040 1 019 894
Sum of DCFs 4 223 Growth in perpetuity 2%
Terminal value 12 922 Terminal WACC 18.4%
Present value of TV 5 543 TV share 57%
Firm value 9 767
Less net debt 46
Implied equity value 9 721
Value per share, UAH 4 909
Shares outstanding, mln 1 .98
DELTA-Team D. Ushakou, I. Gavrysh, L. Murzaieva, M. Oliinyk, Z. Podilchuk


























Source: Delta calculations






Target Price











Source: Delta estimation


Relative Valuation
Motor Sich peers are grouped based on the products/services produced and markets
occupied into three categories: jet engine producers, Russian jet engine producers
and commercial aerospace industry. Since it almost impossible to find companies
with the same business structure the selection is based on companies specialization.
Russian jet engine producers were separated into distinct category since Russian
companies are similar to Motor Sich. Almost all of them were founded in USSR and
have product lines similar to Motor Sich lines. Also every company from Russian
jet engine producers category is ruled by managers that were appointed by Party
during Soviet Union times which is also true for Motor Sich.
Motor Sich trades with 74 % discount on EV/EBITDA and 74% discount on P/E in
comparison with Russian jet engine producers. Moreover Motor Sich trades with a
slight discount of 0.12 % on EV/S when comparing with Russian engine producers.
Comparing Motor Sich multiples with multiples of other two groups (Jet engine
producers and Commercial aerospace industry), it is easily seen that they do not
differ a lot, yielding aprox. 68% discount on EV/EBITDA multiple and 74-75%
discount on P/E multiple. However discounts on EV/S multiple differ a lot between
these categories. (16% disc. in comparison with Jet engine producers and just 0.09%
discount comparing with Commercial aerospace industry) ( see Attachment K).
According to the relative valuation approach the target price is 5 724 UAH per
share.

Investment Summary
We initiate the coverage of Motor Sich with a BUY recommendation and a target
price of UAH 5 317 with 147% upside. The price is a weighted average of the
prices, estimated by DCF approach (50%) and relative valuation method (50%).
Motor Sich is the monopolist on the market of aircraft engines in Ukraine and one of
the biggest producers in the world.
We believe that the Company is worth investing because of the following reasons.
Strong demand and positive future growth prospects. Motor Sich is one of few
Ukrainian firms whose owners aim to make their business transparent and coherent
for investors and shareholders. The Company produces wide range of products,
among which the largest share belongs to aircraft engines. Motor Sich covers 80%
of Russian helicopter engine demand and supplies engines for the worlds largest
cargo airplanes. The Company intensively realizes the strategy of expansion into the
developing countries. In the future we expect demand for the Motor Sich products to
grow as considerable modernization of Russian fleet is planed, increasing demand
from Chinese military forces is observed and the number of planes with turboprop
engine is likely to increase in the future.





Weight Price
DCF 50%
UAH4909

Relative 50%
UAH5724

Target Price UAH5317
Upside 147%
Relative valuation results

EV/EBITDA P/E EV/S
Motor Sich 2.27 3.00 0.86
Jet engine producers
Weighted avg.
median
7.28 13.60 1.03
Premium, % -68.79 -77.95 -16.58
Max
15.83 14.48 2.91
Min 6.16 12.21 0.95
Russian jet engine producers
Weighted avg.
median
8.74 11.70
0.98
Premium, % -74.00 -74.38 -0.12
Max 16.60 35.80 1.48
Min 6.08 -5.16 0.42
Commercial aerospace industry
Weighted avg.
median
7.12 14.09
0.94
Premium, % -68.08 -78.72 -0.09
Max 11.68 20.73 5.37
Min 3.44 5.83 0.31
DELTA-Team D. Ushakou, I. Gavrysh, L. Murzaieva, M. Oliinyk, Z. Podilchuk
































Strong financial performance. Increasing revenues together with constantly
growing EBITDA margin signify companys successful performance. High profits
and large reinvestments allow reducing debt significantly and switching to self-
financing in the future. Also, profitability of the company is reflected in ROE of
36%.
Motor Sich stocks drive the index up. The stocks of Motor Sich are traded on the
UX stock exchange. Share of the company are among the most liquid on the
exchange and drive the index up. Stocks of Motor Sich hold the largest share (16%)
in the index.







Source: UX, Delta calculations
No substantial risks to the Companys growth are predicted. More than 90% of
production is currently exported abroad. Therefore, depreciation of local currency is
likely to benefit Motor Sich with cheaper labor force and domestic material.
Moreover, the Company has a political lobbying since its owner is a member of
major party. On the global market, the threat of decreasing demand from Russia is
displaced by consumer base enlargement in China, India, Pakistan and other
developing countries.


0
500
1000
1500
2000
2500
3000
3500
4000
4500
23.04.2009 19.10.2009 13.04.2010 06.10.2010 29.03.2011 22.09.2011 15.03.2012 10.09.2012
Motor Sich and relative UX Index stock prices
MSICH Price UX Relative Price
DELTA-Team D. Ushakou, I. Gavrysh, L. Murzaieva, M. Oliinyk, Z. Podilchuk































Downside Risks
Russian push for own helicopter engine production. Since 2005, Russia had
several attempts to substitute Motor Sich engines, who currently produces the
majority of engines for helicopters produced in the country. None of this attempts
was successful up to date, both because of reliability of Motor Sich engines and
financing problems in Russian substitution program. Next attempt is the
construction of the new plant in Russia with a full capacity of production of 450
engines per year. Planned to be completed in late-2013, the full production capacity
should be reached in 2014. If the plan succeeds, the positions of Motor Sich in
Russian market could be hurt, with a loss of about 25% in Russia in the segment of
helicopter engines. Thus, the company is now actively searching for the possible
substitutions of Russian market, trying to expand into Chinese and markets of other
Asian countries with both new contracts for previous products and new products
development.
Strong competitive environment. While the competition on the markets, where
Motor Sich operates, is very strong and divers, the Company has the advantages that
allow it to prosper on the markets of operation. Affordable price and high reliability
of Motor Sich products results in a strong market position and good reputation.
Growth of developing countries will still provide a stable increase of companys
sales in the nearest future.
Chinese plans to substitute the engine for L-15. While Chinese producer of L-15
planes already announced plans for substituting engines with a local production,
previous attempts of Chinese companies to substitute Motor Sich engines were not
successful at all. In particular, a previous attempt to make engines for K-8J was
unsuccessful, with local engines being not as reliable or durable. Moreover, the
current contract provides a secure market for the few upcoming years.
Hryvnia depreciation will result in a competitive advantage for Motor Sich.
Since more than 90% of production is currently exported abroad, depreciation of
local currency is likely to benefit Motor Sich with cheaper labor force, domestic
material, etc. Since about 42% of revenues the company receives from operational
activities is in Russian rubles, we should also assume the stability of this currency,
to have a large benefit from local currency drop.
Political risks are currently low. Mr. Boguslaev, the chairman of Motor Sich, is a
deputy of currently ruling Partiya Regioniv. His strong lobbying has provided a 10
years tax-free operation for aviation industry in Ukraine, providing a strong
competitive advantage for the company. There are no major reason for a change in
this law before 2015, when new elections are to be held.
Attachments
Attachment A. The Motor Sich JSC full product range
1. Products

1.1. Aircraft engines
(More than 60 types and modifications for more
than 80 types of aircraft and helicopters for various
purposes)
Turboprop
TVZ-117VMA-SBM1, AI-20, AI-24, VK-1500

Turbofan Engine
AI-25 series 2E, AI-25TL, 25TLK AI-, AI-25TLSh, AI-22, AI-
222, D-436-148; D-436T1/T2, D-18, D-36 Series 1, 2A,
3A, D-36 Series 4A, D-436TP

MS400, MS400P

Turbopropfan engines
D-27

Turboshaft engines
MS-500-TV3-117VMA SBM1V; 117VMA-TV3, TV3-
117VM, VK-2500, VK-1500VM, VK-1500VK; D-136/D-
136 Series 1, AI-450

Auxiliary engines
Gas turbine engines AI-8, AI-9, AI-9V; AI9-BZ
Onboard power plant AI-24UBE
Turbine auxiliary engine AI-450-MS

1.2. Industrial plants
1.2.1. Gas turbine drives
D-336 6.3 MW; AI-336-1/-2-10, AI-336 8 MW

1.2.2. Gas turbine power plant
"Motor Sich EG-1000"; PAES-2500 and EG-2500T
capacity of 2.5 MW, "Motor Sich EH-6000, EH-8000"

1.2.3. Gas compressor unit
GPA-K / 5,5-GTP / 6,3 SC

1.2.4. Wind power
VES-5-500/5-96

1.3. Industrial products and consumer goods
Internal combustion engines, components
Engines "Motor Sich MS-10," "Motor Sich D-250",
"Motor Sich D-70D", KM-17

Agrotechnics
Tillers "Motor Sich MB-4, 05," "Motor Sich MB-8",
"Motor Sich MB-8E", a walk-behind tractor
attachments, tiller "Motor Sich MC-5C";

"Motor Sich CD-1" and "Motor Sich-2 CD"

Boats, boats, power plants
Column Swing-out "Motor Sich PAC-60", M Otori boat
outboard "Motor Sich PLA-40E" (MC-40E), "Motor Sich
MC-40", for outboard motors "Whirlwind"
Saws gasoline and electromotive
Saws gasoline "Motor Sich - 270", "Motor Sich - 370", n
silt hand electromotive chain "Motor Sich EP-2000-1"
Saw, with tanks sharpening chain saw "Motor Sich SW-
150", " Motor Sich SW-150-1 "H abortion tools for
sharpening and repair of saw chains
Separators
Separator cream separator manual "Motor Sich STSMR
80", with separator "Motor Sich cms 80", "Motor Sich -
500"
Equipment for Public Utilities
Lawnmowers "Motor Sich SC-500-2" and "Motor Sich
GK-500-3" ,"Motor Sich GK-500-4"
Technique for motorists
Socket wrench for motorist NC-3 to the Special
assembly spanner CCM-1, H keys for abortion motorist
NK-1
Homeware
Meat grinder, juicer, Blow lamps, and home heating
NSA-1C; of infrared home "Motor Sich OIB-2C", n
Remus tourist "Motor Sich PT-2", with Anky baby
Industrial equipment
ADB - 1C; Power cutters "Motor Sich ILL-300 '; vibrator
WB-1 in " Motor Sich VP-18P "and" Motor Sich VP-30-
01 "d omkrat hydraulic" Motor Sich DT-20 "; steam-to-
door P-0 ,5-0, 8
Construction - renovation Tool (key "Motor Sich 7813-0001")
Medical products Implants, and Instrument
Shops 12 stores and sections
Service centers chainsaws and separators 4 centers
Service
2. Services
2.1. Service of aircraft engines Technical publications (documentation), training, spare parts, and special offers; centers Inform. Support
2.2. Modernization and repair of CNC (computer
numerical control)

2.3. Transport and communications
2.3. Other services Sports; medicine; hotel
TV3-117VM-x Engines Family Helicopters Equipped
Attachment B. Examples of products
AI-222-25F Engine
L-15 jet
AI-222 Engine
Yak-130
An-225 ( Mrija) D-18T Engine


An-124 Ruslan

Attachment C. The Motor Sich JSC business units
Attachment D. Major suppliers of the Motor Sich JSC
Major suppliers Materials and components
VSMPO-AVISMA (Russia) Titanium and alloys thereof titanium
ZAP JSC (Russia) Aviation bearing
FED Corp. CJSK (Ukraine) Aerospace aggregates
Uglekompozit JSC (Ukraine) Carbonic composites
EMSZ Lepse JSC (Russia) Aviation aggregates
Electropribor (Russia) Aviation and special production
2007 2008 2009 2010 2011 9M2011 9M2012
Net sales, UAH mln 1 750 2 047 3 740 5 002 5 793 3 936 5 031
Change, % YoY 41% 17% 83% 34% 16% 22% 28%
EBITDA, UAH mln 399 365 1 223 1 745 2 284 1 491 2 163
EBITDA margin, % 23% 18% 33% 35% 39% 38% 43%
Net income, UAH mln 207 4 741 1 248 1 344 871 1 422
Net margin, % 12% 0.2% 20% 25% 23% 22% 28%
EPS, UAH 111 2 374 630 679 440 718
Total assets, UAH mln 2 915 3 539 4 211 6 154 8 182 7 527 10 317
Change, % YoY 28% 21% 19% 46% 33% 40% 37%
Debt share, % 39% 49% 40% 38% 38% 38% 35%
FCFF, UAH mln -56 5 258 589 n/a n/a n/a
CROIC, % -3% 0.3% 10% 15% n/a n/a n/a
Attachment E. Key Financials
Attachment F. SWOT analysis
Strengths
Well-diversified line of products unique for
Ukrainian and Russian markets
Full-cycle production
Long and sustainable relations with suppliers
and consumers
Effective management which able to influence
government policy in aerospace industry
Weaknesses
Lack of internal demand
High dependence on Russian customers
Uncertainty about companys strategy after
Boguslaevs retirement

Opportunities
High level of deterioration of the aircraft fleet
in CIS countries
Increasing demand for airplanes worldwide
New products development

Threats
Implementation of Russian program on
replacement of helicopters engineers
imported from Ukraine by home production
Volatility of prices on imported parts and
components
High level of competition on global markets
Attachment G1. DCF valuation. Weighted Average Cost of Capital

2012 2013 2014 2015 2016
Risk-free rate (government bond yield) 10.0% 10.0% 10.0% 10.0% 10.0%
Equity risk premium 10.0% 10.0% 10.0% 10.0% 10.0%
Beta 0.87 0.87 0.87 0.87 0.87
Cost of equity 18.7% 18.7% 18.7% 18.7% 18.7%
Cost of debt (after tax) 14.2% 14.6% 15.1% 15.1% 15.1%
Target D/E ratio 8% 8% 8% 8% 8%
WACC 18.4% 18.4% 18.4% 18.4% 18.4%
WACC in perpetuity 18.4%
Perpetuity growth 2%
FCF Perpetual Growth
1%
1,5% 2% 2,5% 3%
W
A
C
C

i
n

t
e
r
m
i
n
a
l

p
e
r
i
o
d

17.4% 5020.7 5126.2 5238.4 5358.2 5486.3
17.9% 4866.5
4964.1 5067.7 5178.1 5295.9
18.4% 4722.2 4812.7 4908.6 5010.5 5119.0
18.9% 4587.1 4671.0 4760.0 4854.3 4954.5
19.4% 4460.3 4538.4 4620.9 4708.3 4801.1
Attachment G2. DCF valuation. Sensitivity analysis

Attachment K. Relative Valuation

Market Cap. $ M
EV/EBITDA P/E EV/S
2012 2013E 2012 2013E 2012 2013E
Motor Sich Ukraine 560 2.22 2.35 2.93 3.1 0.8658 0.846
Russian jet
engine
producers
Irkut Russia 391.30 9.2 8.7 7.7 7.5 1.0 0.8
Kazan
Helicopter
Plant Russia 148.50 8.5 9.1 13.5 9.0 1.2 1.0
Ufimskiye
Motors-Cls Russia 212.90 7.9 9.9 14.0 12.1 1.6 1.3
Kazanskoe
Motorost Brd Russia 44.50 6.2 5.9 37.0 34.0 0.5 0.3
Saturn
Research &
Prod Russia 79.70 20.4 10.9 -3.6 -7.5 1.1 0.7
Mean 10.4 8.9 13.7 11.0 1.1 0.8
Median 8.5 9.1 13.5 9.0 1.1 0.8

Jet engine
producers
General
Electric United States 207,604 16.5 14.8 12.8 11.4 3.0 2.8
United
Technologies United States 73,845 8.4 7.1 14.5 12.2 1.3 1.2
Rolls-Royes Britan 25,211 7.7 6.7 14.5 13.2 1.1 0.9
Safran France 15,776 6.5 5.7 14.5 12.2 1.0 0.9
MTU Aero
Engines Germany 4,391 7.2 6.4 15.3 13.3 1.1 1.0
Mean 9.3 8.1 14.3 12.4 1.5 1.4
Median 7.7 6.7 14.5 12.2 1.1 1.0

Commercial
aerospace
industry
Boeing United States 57,669 7.6 6.1 16.6 13.4 0.8 0.6
EADS Netherlands 32,907 4.1 3.3 16.6 12.2 0.3 0.3
Bombardier Canada 7,405 5.5 4.5 9.0 7.3 0.4 0.4
Embraer Brazil 6,387 7.4 6.4 15.4 13.9 1.0 0.9
Textron United States 7,512 6.9 5.6 13.0 10.9 0.8 0.7
Goodrich United States 15,790 9.4 8.2 17.7 16.1 1.9 1.6
Rockwell
Collin United States 8,068 7.7 7.1 13.4 11.5 1.8 1.6
Transdigm United States 6,353 12.5 10.5 19.8 16.5 5.8 4.8
BE Aerospace United States 4,923 9.6 7.8 17.0 13.8 1.9 1.6
Zodiac France 6,274 9.9 8.6 15.6 13.4 1.7 1.5
Spirit United States 3,864 7.3 6.1 12.3 10.2 1.0 0.8
Triumph United States 3,082 7.7 6.7 12.6 11.0 1.3 1.1
Finmeccanica Italy 2,480 3.6 3.2 6.4 5.0 0.3 0.3
Heico United States 1,869 10.2 8.7 22.1 18.7 2.1 1.9
Heroux-
Devtek Canada 267 5.2 4.5 10.5 9.9 0.9 0.8
Mean 7.6 6.5 14.5 12.2 1.5 1.3
Median 7.6 6.4 15.4 12.2 1.0 0.9