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Article / 25 September 2015 at 9:00 GMT

Russia's bloated head belies gems in the chain

Russia oil and gas expert
United Kingdom
  • Extraction still dominates Russia's economy, but strength lies elsewhere
  • The average EBITDA margin of the top 10 in 2014 was 30.5%
  • Outside the top 10 companies earnings are still generally robust 
  • Just 17% of the top 500 firms are state-owned but produce 44% of revenue

With all that money, maybe Gazprom might consider an upgrade to its HQ? Photo: iStock

By Nadia Kazakova

RosBusinessConsulting ( has just released its annual ranking of the Russian top 500 companies by revenues. As one would expect, it is dominated by the oil and gas and the mining sector, with the top three (Gazprom, Lukoil and Rosneft) accounting for a quarter of the total top 500 revenues (RUB 56 trillion or $1.46 trillion at the 2014 USDRUB rate).

Breakdown of Russia's top 500 companies by sector and ownership

Only about 17% of the top 500 companies are state-owned or controlled, but they account for almost 44% of total revenues. The state is very much in control of the largest companies and corporations, and it dominates the oil and gas sector as well as the banking sector. 

Seen from a different angle, most companies in Russia (by number) are privately owned and outside the oil and gas extraction sector. There are hundreds of companies that could potentially grow and thrive in various sectors of the economy, under the right conditions.

 Like many Russian companies, Russian Railways gets a report
card for efficiency that says 'can do much better'. Photo: iStock

The "head of the fish" (the largest companies) is outsized, might be a bit stale and comes with a whiff of decay about it, but the rest of the fish is not in a too bad a condition.

Top 10 companies by revenues and EBITDA, billion roubles
Source: Note: Sberbank is shown as pre-tax profit, SurgutNG is not ranked by EBITDA - the estimate is from its IFRS accounts 

The current top 10 companies are corporate giants, with massive annual revenues. They dominate their respective sectors.

Gazprom is a near-monopoly in the Russian gas sector. Lukoil, Rosneft and SurgutNG, taken together, produced 67% of the Russian oil in 2014. Sberbank controls 29% of total assets in the banking industry (as at the end of 2014) and 45% of retail deposits.

The size and dominance of the top 10 companies by revenue is matched by their rankings by profitability. It is very interesting that the average EBITDA (earnings before interest, tax, depreciation and amortisation) margin of the top 10 in 2014 was 30.5%. The rankings varied from 50% for Transneft to 13% for Lukoil. 

Novatek, which is just outside the top 10 by profitability, reported 45% EBITDA margin in 2014. Gazprom, for all its perceived inefficiencies, had an EBITDA margin of 36% in 2014.

Another point on profitability. The margins outside the top 10 companies are also relatively robust. For the next 20 to 30 companies in the EBITDA ranking, the EBITDA margins are firmly in double-digits. Actually, the average is around 30%. Only retailers are showing single-digit EBITDA of 7% (X5 Retail Group) and 11% (Magnit). 

One last point. The top 500 companies employ 7.3 million people, according to See here. It is a relatively small share of the total working population of 67.9 million (data relevant as at end of 2013). 

Number of employees and their 'efficiency' in 2014
 Source:, author's estimates 

Even within this highly production part of the workforce, there is a significant variation in their efficiency. There is a sense that even without an increase (or most likely a reduction) in the working population, there is room for deploying human capital with much greater efficiency. 

While Novatek is probably a bit an of an outlier (a gas upstream company with a low regulated cost of deliveries of gas to consumers), there must be some hope for Russian Railways with over one million employed and a relatively low EBITDA per employee, compared to its top 10 peers.

One of the comments on the publication of the Top 500 was that it shows that the Russian economy is much more stable than it seems. See here for comment.  It also shows that it has a bit more potential than many believe.

Moscow's third ring road can expect a lot more traffic if the economy picks up. Photo: iStock

-- Edited by Adam Courtenay

Nadia Kazakova
is a specialist on Russia, particularly the oil and gas sector. Follow Nadia or post your comment below to engage with Saxo Bank's social trading platform.


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