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Areva t&d india ltd.pdf (ankush1)

  1. 1. Kaycee Research India Research Initiating coverage Areva T&D India LtdApril 16th, 2008 Areva T&D India Ltd 1
  2. 2. Kaycee Research Stock information BSE 522275 Bloomberg ATD IN Reuters ALST. BO Areva T&D India Ltd Buy Mkt cap Rs 79381mn Equity Rs 478.2mn Powering profits through strategic expansions Face value Rs 10 52 Weeks High/Low Rs 3280/1119 Sensex 16153 Nifty 4880 Shareholding as on 31ST Dec 2007 (%) Promoters 72.2 Public 11.3 FIIs 2.1 Institutions 11.5 Corporate bodies 2.9 Current Market Price Rs 1660 Target price Rs 2080 Areva T&D vs Sensex Financial summary3800 27000 Particulars Sales PAT EBIDTM PATM EPS PE P/ EV/ ROCE ROE Rs mn Rs mn % % Rs. BV EBIDTA % % 210002800 FY07 20063.0 2195.5 17.8 10.9 46.0 36.1 14.5 22.5 51.3 40.0 150001800 FY08E 24054.4 2540.3 17.9 10.6 53.1 31.2 10.6 18.7 40.3 33.8 9000 FY09E 35344.6 3899.1 18.1 11.0 81.6 20.3 7.3 12.6 47.9 35.7 800 3000 FY10E 43662.5 4965.9 18.2 11.4 103.9 16.0 5.2 9.8 35.7 32.3 Areva T&D SENSEX 25-Jul 9-Nov 26-Feb Sector: Power Ancillary Analyst: Ankush Mahajan April 16th, 16th, 2008 April 2008 Areva T&D India Ltd 2
  3. 3. Table of Contents Kaycee Research Page no Investment summary ……………….……4 Company overview .……………………5 Revenue mix & order book …………………6 Business Structure ……………………8 Products & Applications …….……………9 Capacity Expansion …………………10 Industry overview .……………………11 SWOT Analysis …………………….16 Key Management ……………………….17 Earning estimates .……………………18 Investment concerns ……………………20 Consolidated financials …………………21 Valuations ……………………23 April 16th, 2008 Areva T&D India Ltd 3
  4. 4. Investment rationale Kaycee ResearchThrust on T&D in the XIth and XIIth planGovt. has planned huge capex in the Transmission & Distribution (T&D) space in the power sector. Areva T&D which isone of the leaders in the same would benefit from the investments planned. Investments planned by PGCIL andinvestments on the back of APDRP scheme would result in benefit for players like Areva T&D. Areva T&D is present inTransformers, Switchgears and EPC work for power plants.Better product mix and enhanced project management to increase the margins going forwardThe company’s operating margins has increased by 480 basis points by FY07 due to better product mix and enhancedproject management. With the focus now on reducing T&D losses, higher KV orders are being planned which wouldincrease the order inflow for players like Areva which have the capability for executing such higher KV orders. Areva isthe first player to have executed 765kv substation in the country for NTPC’s Sipat power plant in Jan, 2007. Areva hasgood execution capabilities and we expect that these turnkey high end value projects will improve the operatingmargins as well as increase the bottom line over the period of three years.Stepping up investments across product categoriesAreva is spending Rs 700cr for green field and brown field expansion. It currently has 8 facilities and is planning 3more facilities in Hosur, Chennai and Baroda. Areva is setting up a 765KV transformer facility at a cost of Rs 5bn. Thecompany is also setting up a R&D lab and an HV switchgear facility. With the commencement of these operations weexpect that company’s turnover will double in FY10 that is the target set up by the management.ValuationAreva T&D trades at 20.3x EPS of Rs 81.7 for FY09E and 16.0x EPS of Rs 103.7 for FY10E and at a substantialdiscounts to its closet comparable ABB. We are initiating our coverage on the stock with a BUY rating and a targetprice of Rs 2080 over a period of 18 months (20x its FY10E Earnings). April 16th, 2008 Areva T&D India Ltd 4
  5. 5. Company overview Kaycee ResearchAreva is France based Group has manufacturing facilities in 43 countries and a Continuous topline increase since 2005sales network in more than 100 countries, AREVA offers customers reliable Rs Mntechnological solutions for CO2 free nuclear power generation and electricity 50000transmission and distribution. 40000Arevas T&D division is an active player around the globe and Areva T&D Indiais a part of this division. The company’s products and systems serve to CAGR 30% 30000transmit and distribute electricity, as well as operate networks throughinformation management Areva T & D India Ltd is present at all stages of the 20000supply power chain, from the generator to the end user, backed by a servicesportfolio. Areva T & D India has 8 manufacturing units, 3 Project offices and 1 10000service office, 20 Sales office with 3500+ employees in India. 0Quantum jump in exports FY06 FY07 FY08E FY09E FY10EThe company’s export has grown significantly in the last financial years and Revenue10% revenue is due to export, which will touch to 14% in the coming twoyears. The company has been awarded two new projects at Qatar and Kenya 126 Million Euro Order from KAHRAMA Water & Electricity to supply sixTurnkey 66 kV GIS Substations. 26 Million Euro Order from Kenya Power & Light for turnkey substations forthe distribution networkLeaders in high end products and servicesAreva has wide presence in industries like Utilities, Metals, Processing, Oil &Gas etc. It is the technology leader in high end EHV products in India. Thecompany has leadership in Gas Insulated Switchgear (GIS) and 765 kVtransformers. The company is going to set up 1200kV substations in FY12 asper the growing demand of EHV lines of 1200kV. April 16th, 2008 Areva T&D India Ltd 5
  6. 6. Revenue mix & order book Kaycee ResearchAreva T & D India Ltd is an India-based company engaged in the Revenue Mix For FY07business of power transmission and distribution. The company’s Current Trans Bushing Others 0.80%products and systems serve to transmit and distribute electricity, 2.93% Including Sparesas well as operate networks through information management. Line Traps 2.13% 1.15% SwitchgearsRevenue mix 30.14%Areva’s revenue mix consists various products and systems forpower transmission and distribution. The largest chunk comes fromAutomation Systems Business (including services) which is growingat growth of 34%. The company’s primary focus would be Project items 35.81%expanding margins by focusing on high margins systems business. Control Panels 3.58%The company has a leading position in MV Switchgear & HV VacuumSwitchgear business in the worldwide market and recorded a Interruptors Trans & Reactorsgrowth of 23% & 76% respect. The company is expanding the 0.11% 23.35%capacity in switchgear business. Orders Intake on the riseTransformer sector recorded a very strong growth of 81% in sales Rs Mnand company has high operating margins in this business. 30000 CAGR 39% 29343 24180Order intake almost double in 2 yearsThe company currently has unexecuted order backlog of around Rs 2000029,343 mn (as of January 2008), which is project specific and 15282executable as over the next 03 to 18 months time-frame. Thisorder book grows up 39% CAGR over the last two years and will 10000pick up as the company is investing in fresh capacities which willcome in 4Q FY08. 0 2005 2006 2007 April 16th, 2008 Areva T&D India Ltd 6
  7. 7. Prestigious Projects commissioned in 2007 Kaycee ResearchAreva T & D India Ltd is a leader in high end products and servicesin terms of introduction of new projects in India. It designs,manufactures and supplies a complete range of equipment, systemsand services for all stages in the transfer of electricity, from thegenerator to the large end-user.765 kV Turnkey Substation for NTPC SipatThe first 765kV sub-station project in India was executed by ArevaT&D for NTPC’s Sipat Project. This project is a land mark event inIndia’s electrical grid as it takes India to the extra high voltage club(EHV) for Transmission System.Largest Generating TransformerAreva T&D India has successfully manufactured with in India thelargest generating transformer 370MVA/220 kV delivered toReliance Energy in the last year. The only established manufacturerin India with online linkage to world class technology and globallyconcurrent design.SCADA SystemsSupervisory Control And Data Acquisition (SCADA) is the remotecontrol of breakers and generators, also monitors loads from thecontrol centre. Areva has State of the art technology in theautomation systems business. Areva has commissioned CityDistribution SCADA Systems 9 out of 10 Circles for MSETCL. This isan exemplary model for other SEBs to emulate with APDRP 2 funds. April 16th, 2008 Areva T&D India Ltd 7
  8. 8. Business Structure Kaycee Research Areva T&D India specialists in T&D sector. Areva designs, manufacture and supply a complete range of products, systems and services Areva T&D India Systems Products Automation Systems Services HV Substations > 132kV High Voltage Energy Management Field Services • High Voltage Substation • SF6 Circuit Breaker Systems (EMS)/ (DMS) – Erection, maintenance, • Generator Circuit Breaker ‘e-terra platform’ commissioning, Testing, - Air Insulated • HV GIS EMS/ SCADA for supervision etc. High Voltage Substation - Gas Insulated • Instrument Transformer Transmission Networks • Power Transformer Relay Product services Power Electronics Substation Automation Maintenance & servicing of Converter Substations Medium Voltage Systems (SAS) – ‘PACiS’ products FACTS Products Medium & Low Voltage BCU/ RTU based Substation HVDC Switchgear SVC Automation Systems Networking Consulting Distribution Transformer Power Distribution Convention Control Planning, analysis and Lightning Arresters Supply, Testing, Erection Systems design of T&D systems MV GIS and Commissioning of Control Panel up to 765 kV RMU Distribution Systems up to Prefabricated Substations Telecommunication Training 132 kV Systems Products and systems Telecom Network Management SystemApril 16th, 2008 Areva T&D India Ltd 8
  9. 9. Product offerings Kaycee ResearchAreva T&D India is a major T&D player in India, its cutting edge technological solutions facilitate the efficient transmissionand distribution of electricity to utilities and industrial customers. It designs, manufactures and supplies a complete rangeof equipment, systems and services for all stages in the transfer of electricity, from the generator to the large end-user.Systems BusinessThe Systems Business of Areva T&D India, specializes in offering a wide range ofcomplete turnkey solutions for efficient distribution of quality power ad control ofenergy flows. The demands of the power supply networks involved and specificcustomer needs are taken into account and solutions are customized accordingly.These solutions comprise a unique combination of project management, substationmanagement, grid management and technically advanced products.ProductsAreva T&D India designs, manufactures and supplies a superior range of high andmedium voltage products for a constantly evolving power market. The range ofproducts comprises every stage in the process of electricity transfer from generatorto end user. The range includes mission – critical equipment that facilitates reliable,optimal and secure operations across power networks.Automation Systems BusinessAutomation Systems Business of Areva T&D India provides world class systemsolutions for managing energy networks of varying capacities. It ensures reliable,efficient & secures operations of infrastructure and networks. The business offerssolutions and technologies which vary from intelligent field devices tocomprehensive energy management solutions for transmission and distributionnetworks, real time power control, information management and energy marketpower trading.ServicesAreva T&D India offers a comprehensive range of services like Erection, Testing,Commissioning, Supervision, Maintenance, Repair and Emergency Support for T&Dproducts and systems. April 16th, 2008 Areva T&D India Ltd 9
  10. 10. Massive capacity expansion Kaycee ResearchAreva T&D has planned aggressive capacity addition over next 1.5 -2 years to capitalise on this opportunity. The companyis setting up a large facility (around 10,000MVA) to manufacture power transformers of upto 1,200kV and otherdistribution and medium voltage transformers at Baroda with an investment of Rs5bn. At Hosur and Chennai, thecompany is investing Rs1bn each to setup capacities for instrument transformers and circuit breakers respectively. Thecompany is also expanding the capacity of its existing facilities. Present Capacity Expected Investment Locations & Products Units capacity Expansion startup India Switchgear (Chennai+Kolkata) Nos. 166,900 - Nil Operational Control Panels (Bangalore) Nos. 2,000 - Nil Operational Transformers (Naini+Chennai) MVA 9,000 - Nil Operational Vacuum interrupter (Kolkata) Nos. 36,000 - Nil Operational Line Traps (Bangalore) Nos. 900 - Nil Operational Instrument Transformer (Bangalore) Nos. 900 - Nil Operational Bush (Bangalore) Nos. 3600 - Nil Operational Green Field Expansion Switchgear (Paddapai) Nos. Nil 155,500 Rs 1000mn Dec. 2008 Transformers (Baroda) MVA Nil 10,000 Rs 5000mn Dec. 2008 Instrument Transformer, LT (Hosur) Nos. Nil 900 Rs 1000mn Dec. 2008 Total Investment Rs 7000 mnPlanned capex of about $ 177 mn (about Rs 700cr) - for next two yearsOngoing capacity expansion in India will double turnover over next two yearsIncreasing capacity by almost 2x in India by setting up new green field plant at Baroda, Hosur & Paddapai and alsoincreased the current existing capacity of other products. With the commencement of these operations we expect thatcompany’s turnover will double in FY10 that is the target set up by the management. Increasing capacity to almost 2X in next two years April 16th, 2008 Areva T&D India Ltd 10
  11. 11. Kaycee Research Industry analysis – stronger for longer periodApril 16th, 2008 Areva T&D India Ltd 11
  12. 12. Peak and base deficits imply bigger generation target Kaycee ResearchWe believe that with in power equipment sector, Transmission & Distribution, will continue grow even beyond FY10 as thecurrent generation capex will near completion.The deficit in power supply in terms of peak availability and of total The power capex cycle will be stronger for the long periodenergy availability during the current year was 14.8 per cent and 8.4 per as the Ministry of Power’s (MoP) has set up generationcent, respectively. According to our latest estimates India added 24GW targets for the XI Plan (FY07-12E) is 79GW and for XII Planof capacity in the Xth Plan (65% achievement). Further we expect India (FY12-17E) is 87GW.This implying that the capacityto add 54GW in the XIth Plan an achievement of 78% against the addition target in the next 10 years from FY07E-FY17E istargets. Inspite addition of this capacity, India would continue to have a likely to be 166GW up 89% vis-à-vis that in FY97A-FY07E.peak load deficit of 9.7%, also have base demand deficit of 7.6% inFY12E. India Plan Wise Capacity Addition Targets and Achievements Target Actual16.0% Plan Period GW GW Achievement Growth 14.80% V (74-79) 12 10 83%14.0% 13.80% 12.30% VI (80-85) 20 14 70% 40%12.0% 12.30% 10.50% VII (85-90) 22 21 95% 50% 9.60% 9.70%10.0% 10.00% VII (92-97) 31 16 52% -24% 8.40%8.0% 7.60% 8.40% 7.00% 8.10% IX (97-02) 40 19 48% 19% 7.30%6.0% X (02-07) 37 24 65% 26%4.0% XI (07-12E) 79 62 78% 157% FY06 FY07 FY08 FY09E FY10E FY11E FY12E Base Demand Deficit Peak Shortage XII (12-17E) 87 74 85% 20% Source: CEA and Kaycee Research April 16th, 2008 Areva T&D India Ltd 12
  13. 13. Increase in National Grid Capacity in XI Plan Kaycee Research In order to optimize the utilization of generation capacity, PGCIL is The total investment in the transmission sector is forecast by executing the build out of the National Grid to enable the transfer of the CEA to reach Rs 1400bn by 2012. The table below power from surplus to deficit regions. The National Grid, when fully outlines the total transmission infrastructure (substations operational, is expected to have a total inter regional transmission and lines). capacity from 17000 MW currently to 37150 MW by 2012. Setting up a National Grid requires the gradual strengthening and improvement Transmission capacity ramp-up in 11th plan of regional grids and their progressive integration, through extra Unit X Plan, 2007 XI Plan 2012 high voltage and HVDC transmission lines. This would be entail investments of Rs 710bn, as shown below Transmission lines Investment in setting up National Grid 765 kV ckm 1,704 7,132 Rs bn XI Plan (FY08-12E) HVDC +/- 500 kV ckm 5,872 11,078 HVDC 200 kV Monopole ckm 162 162 Power Grid’s participation 500 400 kV ckm 75,722 125,000 Private Sector participation 210 230/220 kV ckm 114,629 150,000 Total Investments 710 Total transmission line ckm 198,089 293,372 Source: IEEMA and Kaycee Research Substations 40000 37150 HVDC BTB MW 3,000 3,000 35000 HVDC Bipole + Monopole MW 5,200 11,200 30000 25150 Total- HVDC Terminal 25000 Capacity MW 8,200 14,200 W 20000M 17000 765 kV MVA 2,000 53,000 15000 400 kV MVA 92,942 145,000 9450 10000 230 / 220 kV MVA 156,497 230,000 5050 5000 Total - AC substation 0 capacity MVA 251,439 428,000 FY02 (IXTh FY05 FY07 (XTh FY10E FY12E (XITh Plan Ends) Plan Ends) Plan Ends) Source: CEA, Source: Power Grid and Kaycee Research April 16th, 2008 Areva T&D India Ltd 13
  14. 14. Use of T&D equipments in the power value chain Kaycee ResearchAddition of generation capacity in India with the set up National Grid, the equipment manufactures and serviceproviders will get benefit from the entire power value chain have products like boilers, turbines, civil structures,switchgears, circuit breakers, substations, transformers, transmission towers, cables and meters. Generation, Transmission and Distribution Value Chain Source: Emco website April 16th, 2008 Areva T&D India Ltd 14
  15. 15. Accelerated Power Development & Reform Programme Kaycee ResearchTransmission & Distribution losses have been consistently on T&D Losses in India (%) 3 8higher side, and reached to the level of 32.86% in the year 3 .9 2 6 2 4 2 3 2 8 2 2 0 3 3 .8 3 .5 3 .5 3 .3 3 .1 3 .92000-01 due lack of adequate investment in this sector. 6 5 2 .4 4 3 4 9 2 .5 2 .7Government of India and States has launched the Accelerated 2 7 1 3 2 .2 1 1 2 .1 2 .4Power Development & Reform Programme (APDRP) in 2001, forthe strengthening of Sub Transmission and Distribution networkand reduction in AT&C losses with an objective of the programmewas to bring Aggregate Technical & Commercial losses below15%. 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06Extension of Accelerated Power Development Reforms Source: Ministry of powerProgramme (APDRP) rural electrification scheme (RGGVY) in the11th plan shows the government intent to improve the condition Segment of APDRP Rs Crof AT&C losses and the last mile connectivity. These two Sub-Transmission & Distribution for Urban & 197000schemes together will require an investment of Rs 3070bn which Rural Areaswill provide an impetus to all T&D equipment manufacturers. RGGVY 40000We expect a pick up in order-flow for Indian T&D equipment APDRP and Other Scheme 40000suppliers in coming quarters. Most of the projects to be Decentralized Distributed Generation 20000awarded by Power Grid over next two years, there would bestrong order flow for BHEL in FY07 and FY08 is a good lead Others 10000indicator of demand for T&D equipment going ahead. We Total 307000expect the demand for T&D equipment to remain robust even Source: Planning commissionafter FY10. April 16th, 2008 Areva T&D India Ltd 15
  16. 16. SWOT Analysis Kaycee Research Strengths Weaknesses Areva is the first player to have executed 765kv Any change in Governments policy could impact substation in the country for NTPC’s Sipat power its profitability plant in Jan., 2007 Non availability of skilled manpower for excellent Areva possesses the ‘State of the Art’ technology product development and execution of turnkey projects in T&D domain in India with local manufacturing plants and good project execution teams The upcoming increase in capacity for Transformers and High Voltage Switchgear factory would enable Areva to meet the needs of the growing market Threats Opportunities Huge challenge to execute 78 GW of generation The increasing requirement of High Voltage Substations capacity by the Government in the 11th five year plan provides major opportunities for selling Products as as compare to actual performance in the past i.e. 60% well as Turnkey Systems Projects The phenomenal rise in raw material costs especially 765kV Transmission Systems and HVDC links would metals may put strain on the margins open a large market Competitors are adding new capacities and there are Ultra Mega Power Projects that are being finalized new entrants who are trying to enter into the T&D would require products and systems of T&D market April 16th, 2008 Areva T&D India Ltd 16
  17. 17. Key Management Kaycee Research Mr. S.K. Poddar Mr. S.K. Poddar has been on the company’s Board for the past 19 years. A well Chairman known and reputed industrialist, he is also the Chairman of several other public limited companies. He was the past President of FICCI and the Indian Council of Arbitration and Vice President of International Chamber of Commerce.Mr. Rathin Basu Mr. Rathin Basu, is well known personality in the Indian Energy sector, both inManaging Director Generation and in T&D, due to his 28 years of experience and exposure in the Energy business involving NTPC, Power Grid, Utilities & SEBs, Industry and Infrastructure segments. Mr.Basu is also country’s President of AREVA T&D in India Mr. Michel Augonnet Mr. Michel Augonnet graduated as Electrical Engineer from the Ecole Superieure Director dElectricite (France). He has diversified experience of Nuclear Power Station and turnkey hydro power stations developments. He has been appointed Executive Vice President - International Sales & Service Country Organization of AREVA.Mr. Arthur de Mr. Arthur de Montalembert, graduated in Economics and Finance from the ParisMontalembert Institute. In his career, he served energy divisions of both private as well as publicDirector corporations in different countries. He is the Senior Vice President – International & Marketing, AREVA. Mr. C. M. A. Nayar Mr. C. M. A. Nayar is a B.Tech in Electrical Engineering from IIT at Madras, Director Advanced Management Training at INSEAD, Paris. He has held several key positions in different division of the company. He is working as Vice President, Quality Focus & Change Management, at High Voltage Business.April 16th, 2008 Areva T&D India Ltd 17
  18. 18. Earnings Outlook & Financials Kaycee ResearchWe expect the company to register a topline CAGR of 30% from Rs MnRs 20063mn during FY07 to Rs 43662mn by FY10E. Net revenues of 50000 90%the company to grow by 20% Y-o-Y basis to Rs 24054.4 in FY08E,further with the commissioning of new facilities in FY09 we expect 40000 75%substantial increase in net revenues of the company registering a 60%growth of 47% Y-o-Y to Rs 35345mn in FY09E and then to Rs 3000043662mn in FY010E, registering a growth of 24% Y-o-Y. 45% 20000 30%Net profit of the company is expected to grow at Rs 2540mn in 10000FY08E registering a YoY growth of 16%, Rs 3900mn in FY09E 15%registering a YoY growth of 53.7%, and then to Rs 4966mn in 0 0%FY10E with a growth of 27%, at a CAGR of 32% for the FY07 to FY06 FY07 FY08E FY09E FY10EFY10E period. Revenue % GrowthThe strong sales growth is on account of the robust order book which stood at Rs 29343mn as on December 2008. Thisorder book is more than the sales of the last year and it has 38% orders from the systems business and services whichposses higher operating profit margins.The company has secured an order worth of Rs 4180mn from Essar Constructions to provide equipments for powerproject in Gujarat and MP in the last week.Areva T&D India has successfully completed, first of its kind for T&D in India, 765 kV Sipat Substation for NTPC. PGCIL isin process to open tender in the month of Dec. to set up four to five 765kV substations. Areva is the solely master to setup these high end projects in the country and we expect that the company will get these projects. The total cost to setup one 765kV substations is Rs 150cr to Rs 300cr with the execution period of 20 to 24 months. Areva has good execution capabilities and we expect that these turnkey high end value projects will improve the operating margins as well as increase the bottom line over the period of three years. April 16th, 2008 Areva T&D India Ltd 18
  19. 19. Earnings Outlook & Financials Kaycee Research Rs MnThe company operating margins has increased by 480 basis 10000 24.0%points by FY07 due to product mix and enhanced project 18.2% 18.1%management. The contribution of systems business and 8000 17.5% 18.0%service business is expected to be higher going forward, as 17.8%high growth is envisaged in this segment. The EBITDA 6000 13.2%margins are expected to be stable in the range of 18% over 12.0% 8202.5the FY09E & FY10E as commodity prices will soften in FY09E & 4000FY10E, product mix of high ends value projects and enhanced 2127.1project management. 3570.0 6259.5 6.0% 2000 4358.5In this inflationary period the company has put a price 0 0.0%escalation clause with the clients, thus company will pass the 2006 2007 2008E 2009E 2010Erise in price of material cost to clients. EBIDTA OPM Better product mix & enhanced project management results in improved operating margins April 16th, 2008 Areva T&D India Ltd 19
  20. 20. Key concerns Kaycee ResearchSlowdown in investments in generation, transmission and distributionThe power sector in India is highly politicized given the number of employees and the poor financial situation of the StateElectricity Boards (SEBs). Sector reforms progress in fits and starts, though there is perceptible change post the awardingof the first 3 Ultra Mega Power Projects (UMPPs).Efficient implementation of APDRP and RGGVY programmeThe company’s growth is mainly dependent on the efficient implementation of APDRP & RGGVY programme by thegovernment. Thus the business as whole is sensitive to the actions of the Government which can prove to be risky.Execution and management of projectsThe execution and management of projects is the most important part of the company’s business any delay in projectsexecution lead to delay in conversion of the order book into revenues.Substantial increase in input pricesThe key inputs are steel, copper and aluminum. A substantial increase in raw material prices could affect profitability.Turnkey contracts expose Areva’s business to raw material increases. Further, though there is a raw material price pass-through on domestic orders, export orders are typically at fixed prices. April 16th, 2008 Areva T&D India Ltd 20
  21. 21. Consolidated financials Kaycee ResearchProfit and Loss Account Rs MN Balance sheet Rs MNParticulars FY07 FY08E FY09E FY10E Particulars FY07 FY08E FY09E FY10ENet sales 20063.0 24054.4 35344.6 43662.5 Share capital 478.2 478.2 478.2 478.2Net sales growth (%) 25% 20% 47% 24% Reserves 5014.8 7038.7 10444.6 14916.8Expenditure 16493.0 19748.7 28947.2 35715.9 Total Networth 5493.0 7516.9 10922.8 15395.0EBIDTA 3570.0 4305.7 6397.4 7946.6 Secured loans 0.0 0.0 0.0 0.0EBIDTA growth (%) 68% 21% 49% 24% Unsecured loans 1012.0 2012.0 1212.0 112.0Depreciation 230.5 469.9 589.9 625.9 Total debt 1012.0 2012.0 1212.0 112.0EBIT 3339.5 3835.8 5807.4 7320.7 Total Liability 6505.0 9528.9 12134.8 15507.0EBIT growth (%) 72% 15% 51% 26% Net block 2293.0 4823.1 6233.2 6207.2Interest 85.0 171.0 115.1 10.6 Capital WIP 0.0 0.0 0.0 0.0Other Income 178.0 195.8 215.4 236.9 Investments 0.0 0.0 0.0 0.0PBT 3432.5 3860.6 5907.7 7546.9 Inventories 2729.0 3295.1 5035.4 6220.4Tax 1237.0 1320.3 2008.6 2581.1 Sundry debtors 10286.0 11862.5 15493.5 19139.7Profit after tax (PAT) 2195.5 2540.3 3899.1 4965.9 Cash & bank 226.8 248.1 197.7 1682.9PAT growth (%) 60% 16% 53% 27% Loans and advances 1346.0 1458.2 2165.5 2808.2Extraordinary Items (EI) -3.2 -2.7 -1.8 -1.2 Total current assets 14587.8 16863.9 22892.1 29851.3Net profit after EI 2198.7 2543.0 3900.9 4967.1 Current liabilities 8775.0 10557.2 15389.6 18950.7Share Data Provisions 1887.0 1883.8 1883.8 1883.8 Total current liabilities 10662.0 12441.0 17273.4 20834.5EPS (diluted) (Rs) 46.0 53.2 81.6 103.9 Net current assets 3925.8 4422.9 5618.7 9016.8CEPS (Rs) 50.8 63.0 93.9 117.0 Miscellaneous exp 0.0 0.0 0.0 0.0Book Value (Rs) 114.9 157.2 228.4 321.9No of shares (mn) 47.8 47.8 47.8 47.8 Deferred tax 286.2 283.0 283.0 283.0Dividend per share (%) 90% 90% 90% 90% Total Assets 6505.0 9528.9 12134.8 15507.0 April 16th, 2008 Areva T&D India Ltd 21
  22. 22. Consolidated financials Kaycee ResearchKey Financial Ratios Cash flow Rs MNParticulars FY07 FY08E FY09E FY10P Particulars FY07 FY08 FY09E FY10EValuation Ratios Profit Before Tax 3432.5 3860.6 5907.7 7546.9 Add: Depreciation 230.5 469.9 589.9 625.9Market price (Rs) 1660.0 1660.0 1660.0 1660.0 Add: Interest 85.0 171.0 115.1 10.6P/E (X) 36.1 31.2 20.3 16.0 CF from operations 3927.5 4501.5 6612.7 8183.5P/CEPS (X) 32.7 26.4 17.7 14.2 Change in WC 2404.0 472.6 1246.2 1912.8P/BV (X) 14.5 10.6 7.3 5.2 Taxes 1114.0 1320.3 2008.6 2581.1M cap/Sales (X) 4.0 3.3 2.2 1.8EV/EBIDTA (X) 22.5 18.7 12.6 9.8 Miscellaneous exp. 0.0 -2.7 -1.8 -1.2 1.8 Cash from operation 409.5 2711.4 3359.7 3690.8EV/Sales (X) 4.0 3.4 2.3Profitability RatiosEBIDTA margin % 17.8 17.9 18.1 18.2 Capital expenditure -1375.5 -3000.0 -2000.0 -600.0PAT margin % 10.9 10.6 11.0 11.4 Investments 112.0 0.0 0.0 0.0ROE % 40.0 33.8 35.7 32.3 Cash from investing -1263.5 -3000.0 -2000.0 -600.0ROCE % 51.3 40.3 47.9 47.2Efficiency Ratios Inc/Dec in debt 978.8 1000.0 -800.0 -1100.0Asset turnover 3.1 2.5 2.9 2.8 Dividends -332.0 -494.9 -494.9 -494.9Av collections period-days 187 180 160 160 Interest -91.0 -171.0 -115.1 -10.6Av payment period-days 253 250 250 250 Others 0.0 -24.1 0.0 0.0Inventory turnover-days 50 50 52 52 Cash from financing 555.8 309.9 -1410.1 -1605.6Liquidity ratiosCurrent ratio 1.4 1.4 1.3 1.4 Inc./(Dec) in Cash -298.2 21.3 -50.4 1485.2Interest coverage 42.0 25.2 55.6 746.9 Opening cash balance 525.0 226.8 248.1 197.7Debt/equity 0.2 0.3 0.1 0.0 Closing cash balance 226.8 248.1 197.7 1682.9 April 16th, 2008 Areva T&D India Ltd 22
  23. 23. Valuations and recommendations Kaycee ResearchComparative Valuation Areva ABB BHELMarket Cap (Rs Mn) 79381.0 246291.0 899334.0FY07 PE(x) 36.1 50.1 37.3FY08 PE(x) 31.2 33.9 28.5FY09 PE(x) 20.3 26.0 22.2FY10 PE(x) 16.0 20.0 17.0FY07 P/B(x) 14.5 20.6 10.2FY08 P/B(x) 10.6 15.1 8.1FY09 P/B(x) 7.3 11.2 6.4FY10 P/B(x) 5.2 8.2 4.9FY07 RoE(%) 40.0 32.0 30.0FY08 RoE(%) 33.8 34.6 29.3FY09 RoE(%) 35.7 35.3 32.6FY10 RoE(%) 32.3 35.7 33.4At the current market price of Rs 1660, the stock is available at 20.3x and 16.0x its FY09E andFY10E estimated earnings of Rs 81.6 and Rs 103.9 respectively. The company has been showingstupendous growth over the last 3 years and we expect the company to continue the growthmomentum in the coming years as the Government’s drive to lower the T & D losses picks pace.Areva is trading at a substantial discounts to its closet comparable ABB. We are initiatingour coverage on the stock with a BUY rating and a target price of Rs 2080 over a period of18 months (20x its FY10E Earnings).April 16th, 2008 Areva T&D India Ltd 23
  24. 24. Kaycee ResearchInstitutional Research Team Name Designation Email ID Contact No. Ramachandran R. Iyer Head -Institutions 022-22642057 (Research, Dealing & Sales) Rahul Sanghvi Institutional Sales 022-22642059 Name Of Analyst Sector Coverage Email ID Contact No. Jigisha Jaini Engg. & Capital Goods, Metals & Mining 022-22642058 Shailesh Kumar Tele comm, Banking, Shipping & Logistics 022-22642029 Naini Thakore Oil & Gas, Textiles 022-66366697 Ankush Mahajan Power, Fertilizers, Packaging 022-22642029 Harshad Gujrathi Media, Logistics 022-66366697Strictly for Private Circulation only. All rights reserved. © Kantilal Chhaganlal Securities Pvt. Ltd.DISCLAIMER & DISCLOSURE: This information & opinions in this report have been prepared by Kantilal Chhaganlal Securities Pvt. Ltd. The report & theinformation contained herein are strictly confidential and meant solely for the authorized recipient and may be restricted by law or regulation in certaincountries. This report is for information purposes only for the authorized reader and does not construe to be any investment, legal or taxation advice. Thisreport is based on the information obtained from public sources and sources believed to be reliable, however, no warranty, express or implied, are givenfor the accuracy or correctness of the same and it should not be construed as such. It is also not intended as an offer or solicitation for the purchase andsale of any financial instrument.Kantilal Chhaganlal Securities Pvt. Ltd. and/or its subsidiaries and/or directors, employees, officers or associates – including the persons involved in thepreparation/issuance of this report may have (a) from time to time, any interest or positions (buy/sell etc.) – financial (including inderivatives/commodities market) or otherwise in the companies/securities covered/mentioned in this report and may have acted upon the information&/or (b) been engaged in any other transaction, commercial or otherwise, in respect of the companies/securities covered in this report, like earningbrokerage, commission or act as a market maker &/or (c) performed or may seek to perform any merchant/investment banking services for suchcompanies or act as advisor or lender/borrower to such companies &/or (d) have other possible conflict of interest with respect to any recommendation orany information/opinions that could affect the objectivity of this report. As a result, the authorized recipients of this report should rely on their owninvestigations and analysis & seek professional advice. Any action taken by any one solely on the basis of the information contained herein is their ownresponsibility alone and Kantilal Chhaganlal Securities Pvt. Ltd. and its subsidiaries or its directors, employees or associates will not be liable in anymanner whatsoever for the consequences of such action taken.No data/information contained in this report shall be copied, forwarded, transmitted or distributed, in part or in whole, in any form or in any media,without the previous written consent of Kantilal Chhaganlal Securities Pvt. Ltd.April 16th, 2008 Areva T&D India Ltd 24