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Eugene Gerden

Expert Opinion

26th October 2018, Moscow

Russian nonwovens growth leads to consolidation

The Russian nonwovens is on the verge of consolidation, mainly due the recent acquisition of Regent NM, one of Russia’s major nonwovens producers, by its rival Moscow-based Netkanika company. The deal, worth US$ 25 million, is one of the largest to be concluded in the industry in recent years.

To date, Regent NM was operated by Russian billionaires the Ananiev brothers, through their subsidiary Promsvyazbank. As a result of the deal, Netkanika aims to control up to 20% of the Russian market for nonwoven materials.

Ananiev brothers, Russian billionairies and former owners of Regent NM.

Under the terms of the agreement, in addition to the production assets, the Moscow company also became the owner of the buildings, land and equipment of Regent NM in the Novaya Moscow region, on the border with Kaluga.

Netkanika

Netkanika is controlled by well-known Russian businessman Valery Androsov and other top managers of the investment fund Invasta Capital. The company specialises in the production of spunbond and spunmelt materials in the Troitsky administrative district of Moscow.

The majority of the company’s products are supplied to the Russian agricultural industry, the hygiene, disposable and medical clothing, mattresses, and protective membranes sectors, as well as other products. In total, the company’s production capacity is around 8,000 tonnes per year. Regent NM also operates production facilities with the capacity to produce up to 20,000 tonnes per year.

After integration of the newly acquired asset, Netkanika plans to invest around US$ 10 million in modernisation and increase its capacity by 40%. This should help the company achieve its recently announced plans to capture 20% of the nonwovens market in Russia.

Market potential

According to Anna Orozova, director of the information and analytical agency Anitax, last year, the consumption of nonwovens in Russia amounted to about 225,000 tonnes. According to Orozova, in recent years, the demand for nonwovens among local customers has significantly increased and continues to grow.

At the same time, the domestic market has big potential for further growth. According to Orozova, Russia annually imports about 20,000 tonnes of spunbond nonwovens, which “shows the existing potential for import substitution”.

Inside Netkanika.

Export numbers for the domestic production of spunbond materials are also growing. According to Orozova, from 2013-2017, it has increased from 2,100 to 11,000 tonnes.

Overall, the domestic nonwovens industry is steadily growing this year, amid the ongoing recovery of the national economy from the financial crisis. According to Denis Manturov, Russia’s Minister of Industry and Trade, since the beginning of the current year the industry has already grown by 35% to US$ 600 million in value terms, compared to the same period of last year, a record high in the last 36 months.

According to the Russian Ministry of Industry and Trade, if the same growth rates are achieved in the second half of the current year, the total value of the market could reach US$ 1,2 billion, a historical record for the nonwovens industry in Russia.

Growth drivers

The ongoing industry growth can be mainly explained by the recovery of the major nonwovens’ consuming industries in Russia and by a significant growth in the demand for nonwovens from the country’s military and defence industries.

There has also been an increase in state support. Last year, nonwovens and technical textiles were included by the Russian government in the list of the prioritised industries for the state until 2025. This also resulted in the provision of a number of grants to some leading domestic nonwovens producers, for the expansion of their production volumes and the support of their R&D efforts.

The government has also worked on attracting foreign investment. Russia’s President Vladimir Putin has recently promised leading western nonwovens’ producers to provide tax, customs and other benefits in the case of their decision to establish their production capacities in Russia.

According to Dmitry Peskov, Putin’s press-secretary, localisation of production within Russia will be beneficial to foreigners, taking into account the resuming devaluation of the Russian currency, which makes local production more profitable than further imports from abroad. This also provides an opportunity to local producers to start export expansion of their Russian-made products to some neighbouring countries in Eastern Europe and the CIS region.

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