1. 2QCY2010 Result update| Capital Goods
July 30, 2010
Areva T&D India Sell
CMP Rs288
Performance highlights Target Price Rs218
Y/E March (Rs cr) 2QCY10 2QCY09 %chg (yoy) 1QCY10 %chg (qoq) Investment Period 12 Months
Net Sales 885 802 10.0 777 14
Stock Info
EBITDA 81 107 (24) 42 92
Sector Capital Goods
EBITDA (%) 9.2 13.3 5.4
Market Cap (Rs cr) 6,905
PAT 32 50 (36) 3 849
Source: Company, Angel Research Beta 0.8
52 Week High / Low 340/232
Areva T&D India 2QCY2010 results were below our estimates on account of the
delayed project executions and margin pressures. While revenues registered Avg. Daily Volume 222,359
muted growth of 10% yoy, EBIDTA and PAT fell by 24% yoy and 36% yoy, Face Value (Rs) 2
respectively. Lower pricing due to increasing foreign competition coupled with BSE Sensex 17,868
delayed executions of major projects were the highlights for both 2QCY2010 and
Nifty 5,368
1HCY2010. During 1HCY2010, revenues remained flat yoy, while EBIDTA and
PAT reported declines of 43% yoy and 65% yoy, respectively. We maintain a Sell Reuters Code AREV.BO
on the stock. Bloomberg Code ATD@IN
Margin Erosion hurts the bottom-line: Pricing in the T&D segments have been
under pressure for the past few quarters on account of the aggressive quotes by
newer EPC contractors. This coupled with increasing foreign competition in the Shareholding Pattern (%)
equipment space has resulted in the steep contraction of the EBITDA margins. Promoters 72.2
Delays in the execution of existing projects on account site related problems also MF / Banks / Indian Fls 15.2
contributed to the sedate growth in top-line leading to the dip in profitability. For
2QCY2010, the company posted a modest 10% yoy growth in revenues to FII / NRIs / OCBs 1.0
Rs885cr (Rs802cr). On the operating front, the company extended its weak Indian Public / Others 11.6
performance in 2QCY2010, reporting a 24% yoy dip EBITDA to Rs81cr (Rs107cr),
with margins contracting sharply by 410bp to 9.2% (13.1%). Consequently, net
profit fell 36% yoy to Rs32cr (Rs50cr) for 2QCY2010. Abs. (%) 3m 1yr 3yr
Outlook and Valuation: Acquisition of Areva’s global T&D business by Alstom Sensex 1.8 16.1 17.1
and Scheidner continues to play on the stock. Management is positive on this
Areva 6.0 (7.9) 8.2
front and feels it will bring in additional technological and industrial expertise in
the T&D business. On the T&D market, management cited concerns over pricing
pressures and fears of increased competition from Chinese and Korean imports.
With several domestic and overseas players bidding aggressively, the company
could be pressured on the margins front. At the CMP of Rs288, the stock trades
at 29.1x CY2011E EPS. We maintain a Sell on the stock.
Key Financials
Y/E March (Rs cr) CY2008 CY2009 CY2010E CY2011E
Net Sales 2,641 3,566 3,887 4,650
% chg 31.6 35.0 9.0 19.6
Adj Net Profit 219 191 135 237
% chg 1.2 12.7) (29.3) 75.2
EBITDA (%) 16.1 11.3 8.9 10.5
EPS (Rs) 9.2 8.0 5.6 9.9
P/E (x) 30.3 34.7 51.4 29.1
P/BV (x) 9.1 7.6 7.1 5.9
RoE (%) 34.4 24.0 14.7 22.2
RoCE (%) 29.2 17.0 11.7 17.6
EV/Sales (x) 2.7 2.0 1.9 1.6 Hemang Thaker
022 - 4040 3800; Ext: 342
EV/EBITDA (x) 16.6 18.1 21.4 14.9
hemang.thaker@angeltrade.com
Source: Company, Angel Research
Please refer to important disclosures at the end of this report 1

2. Areva T&D India | 2QCY2010 Result update
Exhibit 1: 2QCY2010 Performance
Y/E March (Rs cr) 2QCY2010 2QCY2009 % chg(yoy) 1QCY2010 % chg (qoq) CY2009 CY2008 %chg (yoy)
Net Sales 885 802 10 777 14 3,583 2,655 35.0
Raw Material 595 529 12 568 5 2,493 1,726 44.4
(% of Net Sales) 67.2 65.9 73.1 70 65
Employee Cost 87 70 24 86 1 292 209 39.8
(% of Net Sales) 9.8 8.7 11.0% 8.2 7.9
Other Expenses 122 96 27 81 51 379 281 34.9
(% of Net Sales) 13.8 12.0 10.5 10.6 10.6
Total Expenditure 804 695 16 735 9 3,164 2,216 42.8
EBITDA 81 107 (24) 42 93 419 439 (4.6)
EBITDA (%) 9.2 13.3 5.4 11.7 16.5
Interest 10 16 (37) 13.4 (23) 57.9 30.2 91.7
Depreciation 23 11 96 23.7 (5) 61.1 34 79.7
Others (4) - (8) (39) (79.5)
Profit before Tax 49 76 (36) 5.1 854 292 336 (13.1)
(% of Net Sales) 5.5 9.4 8.1 12.6
Total Tax 16 26 (36) 1.7 865 101 121 (16.3)
(% of PBT) 33.7 33.9 33.3 34.6 35.9
Adjusted PAT 32 50 (36) 3 849 191 215 (11.3)
(% of Net Sales) 3.6 6.2 5.3 8.1
Extraordinary items - - 1.5 11.5 (85.5)
Reported PAT 32 50 (36) 3 192 226 (14.9)
Source: Company, Angel Research
Pricing pressures – key cause for the sharp dent in margins: On the Operating
front, Areva T&D reported a sharp dent in EBITDA margin, by 410bp yoy to 9.2%
(13.3%) for 2QCY2011, which was below our estimate. This was partially due to
high raw material costs, which increased by 130bp to 67.2% (65.9%) of net sales.
Notably, the increased competitive pressures prevalent in the market have put a
severe strain on margins, with prices on an average falling by about 30% (25% for
transmission and 32-35% for distribution) for the company’s products. Employee
cost also rose sharply by 24% yoy to Rs87cr (Rs70cr). Besides, increased other
expenses including ramp up cost in the new factories, higher provisioning for
certain projects and mark-to-market losses (Rs12cr) further compounded the
margin fall for 2QCY2010. Consequently, net profit dropped by 36% yoy to
Rs32cr (Rs50cr). For 1HCY2010, net profit dropped sharply by 65% yoy to Rs35cr
(Rs101cr).
Management’s view on the T&D market: Management indicated uncertainty in the
revival of T&D market in 2HCY2010 mainly due to concerns on industry and
infrastructure sector that did not look positive. Pricing pressures were witnessed due
to many players entering the T&D space. Furthermore, the company faces threat
from Chinese and Korean players that have expertise in T&D products, which will
lead to competitive pressures. Price erosion remained a concern; the T&D segment
has witnessed price erosions of 25% and 32%, respectively. Management also
reasoned the low order intake, which was mainly on account of muted pace of
investments in the infrastructure space and high deficit between planned and
actual investments by the government.
July 30, 2010 2

3. Areva T&D India | 2QCY2010 Result update
Order inflows: The order backlog came in at Rs5,112cr, up 21% yoy. The order
inflow for the quarter was Rs1,019.2cr. Among the significant orders received by
the company during the quarter includes an electrical Balance of Plant (eBOP)
contract for the Warora thermal power plant, which is being set by the GMR Group
in Maharashtra. The contract, valued at ~Rs130cr, is for the supply and
installation of eBOP solutions for 2x300 MW thermal power plants in Warora
taluka in the district of Chandrapur, Maharashtra. The power project is coming up
in two phases of 300MW each in Warora.
Exhibit 2: Quarterly order backlog
6,000
4,975 5,112
5,000 4,600 4,775
3,932 4,097 4,232 4,225
4,000
3,230
(Rs cr)
3,000
2,000
1,000
-
2CY08 3CY08 4CY08 1CY09 2CY09 3CY09 4CY09 1CY10 2CY10
Source: Company, Angel Research
Sale process update – Chronology of events
In CY2009, Areva, the ultimate holding company decided to exit global T&D
business and consequent to the decision, Areva’s Executive Board has begun
negotiations with the Alstom-Schneider Consortium.
On January 2010, the Indian management was informed about the share
purchase agreement that was signed between the Areva Group and Alstom-
Schneider Electric (subject to clearances from the EU Commission and other
authorities).
On May 28, 2010, an open offer was launched by Alstom & Schneider to
acquire up to 4.78cr shares constituting 20% of issued share capital of Areva
T&D India at Rs295.4 per share.
On June 7, 2010, the global sale process was closed after
Alstom-Schneider Electric obtained required clearances from all the
authorities.
On July 20, 2010, the open offer was postponed till further notice due to
pending clearance of the open offer document from SEBI till date.
July 30, 2010 3

4. Areva T&D India | 2QCY2010 Result update
Investment Concerns
Generation delays to impact T&D growth: Areva T&D's fortunes are directly linked
to the growth of the Indian power sector. In the present macro environment,
though the power sector capex is relatively resilient with majority of the projects
being envisaged by the central and state sector utilities, major worry for the T&D
sector is generation capacity addition delays. This is likely to adversely impact
growth prospects for the T&D equipment suppliers as the sector has a high degree
of correlation with power capacity addition. Notably, around 60% of the planned
transmission expenditure for the Eleventh Plan is directly associated with the
concurrent addition in generation capacity. Historically, India has had a poor track
record with only 50-60% of planned capacity added during several previous plans
and even for the current Plan period, the execution rate has been pretty dismal
with around 54% of the projects already running behind schedule.
Margins to contract: During CY2010E -11E, we expect EBITDA margin to sedate to
10.5%, compared to historic margins of 15% (3-yr avg from CY2007 to CY2009).
This is mainly on account of:
(1) Increasing contribution of systems segment, which entails higher bought-out
items and hence comparatively lower margins.
(2) Increasing competitive pressure in the market; management has also admitted
to price undercutting by some players to win orders.
(3) The company's contracts have a price variation clause (PVC); hence, resultant
benefits from lower commodity prices would be passed on to customers.
Lower margins will spiral down to lesser profitability; Net profit margins are
estimated to come in at 5.1% by CY2011E, which has averaged around 8% (3-yr
avg. from CY2007 to CY2009).
Return ratios to decline: Areva T&D's return ratios seem to have peaked out and
are on a declining trend. During CY2010-11E, we expect company to clock 14.7%
and 22.2% RoE respectively, owing to contraction in the net profit margin coupled
with the fall in the asset turnover ratio. The asset turnover ratio is expected to
decline on the huge capex (Rs100cr) guided by the company for 2010E, while the
utilisation of the assets would improve gradually.
Outlook and Valuation: Acquisition of Areva’s global T&D business by Alstom and
Scheidner continues to play on the stock. Management is positive on this front and
feels it will bring in additional technological and industrial expertise in the
transmission and distribution business. However, management cited concerns over
pricing pressures and fear of increased competition from Chinese and Korean
imports. With several domestic and overseas players bidding aggressively, the
company could be pressured on the margins front. At the CMP of Rs288, the stock
trades at 29.1x CY2011E EPS. We maintain a Sell on the stock.
July 30, 2010 4

5. Areva T&D India | 2QCY2010 Result update
Exhibit 3: Actual v/s Angel estimates
Particulars (Rs cr) Actual Estimates Var. (%)
Revenues 885 918 3.7
Operating Profit 81 74 (8.8)
PAT 32 22 (31.3)
EPS (Rs) 1.3 0.9 (30.8)
Source: Company, Angel Research
Exhibit 4: Key Assumptions
Particulars (%) CY10E CY11E
Order Inflow Growth 20.0 15.0
Order Backlog Growth 12.6 13.8
Order Book to Sales 45.0 45.0
Source: Company, Angel Research
Exhibit 5: Angel EPS forecast
Year (%) Angel forecast Bloomberg consensus Var
CY2010E 5.6 7.0 (1.4)
CY2011E 9.9 9.9 -
Source: Company, Angel Research
Exhibit 6: One-year forward P/E band
800
600
400
200
0
Jun-07
Jun-10
Apr-05
Sep-06
Mar-08
Sep-09
Dec-05
Dec-08
Share Price (Rs) 8x 16x 24x 32x
Source: Company, Angel Research
July 30, 2010 5

6. Areva T&D India | 2QCY2010 Result update
Exhibit 7: Peer valuation
CMP Tgt Price Upside FY2012E FY2012E FY2010-12E FY2012E FY2012E
Company Reco
(Rs) (Rs) (%) P/BV (x) P/E(x) EPS CAGR (%) RoCE (%) RoE (%)
ABB* Neutral 812 - - 5.0 26.5 35.3 22.3 20.8
Areva T&D* Sell 288 - - 5.9 29.1 11.3 17.6 22.2
BHEL Neutral 2,439 - - 4.8 18.8 21.5 30.4 28.6
Crompton Greaves Accumulate 276 307 8.1 4.4 17.9 7.2 27.1 27.3
Jyoti Structures Buy 155 215 38.7 1.8 9.4 21.4 19.3 20.6
KEC International Buy 507 648 27.8 2.4 10.2 22.3 18.9 26.2
Thermax Neutral 756 - - 5.4 20.2 30.9 31.0 29.5
Source: Company, Angel Research; Note: *December year ending
July 30, 2010 6

7. Areva T&D India | 2QCY2010 Result update
Profit & Loss statement
Y/E December (Rs cr) CY2007 CY2008 CY2009 CY2010E CY2011E
Net Sales 2,006 2,641 3,566 3,887 4,650
% chg 24.9 31.6 35.0 9.0 19.6
Net Raw Materials 1,267 1,726 2,493 2,780 3,278
Other Mfg costs 228 281 379 408 465
Personnel 154 209 292 352 417
Other - - - - -
Total Expenditure 1,648 2,216 3,164 3,540 4,160
EBITDA 358 425 401 347 490
% chg 70.6 18.8 (5.6) (13.5) 41.2
(% of Net Sales) 17.8 16.1 11.3 8.9 10.5
Depreciation& Amortisation 23 34 61 96 104
EBIT 334.8 391.1 340.4 250.9 386.4
% chg 75.2 16.8 (13.0) (26.3) 54.0
(% of Net Sales) 16.7 14.8 9.5 6.5 8.3
Interest & other Charges 7 30 58 69 57
Other Income 15 14 17 20 24
(% of PBT) 4.4 3.7 5.8 9.9 6.7
Others - - - - -
Recurring PBT 343 375 300 202 353
% chg 70.1 9.3 (20.1) (32.8) 75.2
Extraordinary Expense/(Inc.) - 28.1 6.8 - -
PBT (reported) 343 347 293 202 353
Tax 127 121 101 67 117
(% of PBT) 37.0 34.8 34.5 33.0 33.0
PAT (reported) 216 226 192 135 237
Add: Share of earnings of associate - - - - -
Less: Minority interest (MI) - - - - -
Prior period items - - - - -
PAT after MI (reported) 216 226 192 135 237
ADJ. PAT 216 219 191 135 237
% chg 70.0 1.2 (12.7) (29.3) 75.2
(% of Net Sales) 10.8 8.3 5.4 3.5 5.1
Basic EPS (Rs) 45.2 9.2 8.0 5.6 9.9
Fully Diluted EPS (Rs) 9.0 9.2 8.0 5.6 9.9
% chg 70.0 1.2 (12.7) (29.3) 75.2
July 30, 2010 7

8. Areva T&D India | 2QCY2010 Result update
Balance Sheet
Y/E December (Rs cr) CY2007 CY2008 CY2009 CY2010E CY2011E
SOURCES OF FUNDS
Equity Share Capital 48 48 48 48 48
Preference Capital - - - - -
Reserves& Surplus 500 676 818 925 1,111
Shareholders Funds 548 724 865 972 1,159
Minority Interest - - - - -
Total Loans 101 469 768 618 468
Deferred Tax Liability (28) (39) (10) (10) (10)
Total Liabilities 621 1,154 1,623 1,580 1,616
APPLICATION OF FUNDS
Gross Block 319 374 1,050 1,152 1,227
Less: Acc. Depreciation 183 210 245 342 446
Net Block 137 163 805 810 781
Capital Work-in-Progress 59 450 52 50 25
Goodwill 32 32 32 32 32
Investments - - - - -
Current Assets 1,459 2,160 2,876 2,677 3,620
Cash 23 45 133 102 81
Loans & Advances 135 282 317 330 395
Other 41 258 447 389 465
Current liabilities 1,066 1,652 2,142 1,989 2,843
Net Current Assets 393 508 734 687 777
Mis. Exp. not written off - - - - -
Total Assets 621 1,154 1,623 1,580 1,616
July 30, 2010 8

9. Areva T&D India | 2QCY2010 Result update
Cash Flows
Y/E December (Rs cr) CY2007 CY2008 CY2009 CY2010E CY2011E
Profit before tax 343 347 293 202 353
Depreciation 23 34 61 96 104
(Inc)/Dec in Working Capital (184) (93) (138) 16 (111)
Less: Other income 15 14 17 20 24
Direct taxes paid 130 131 72 67 117
Cash Flow from Operations 38 143 127 227 205
(Inc.)/Dec.in Fixed Assets (128) (446) (278) (100) (50)
(Inc.)/Dec. in Investments 10 - - - -
Other income 15 14 17 20 24
Cash Flow from Investing (103) (432) (261) (80) (26)
Issue of Equity - - - - -
Inc./(Dec.) in loans 98 368 298 (150) (150)
Dividend Paid (Incl. Tax) 50 50 50 28 50
Others (11) (6) (26) - -
Cash Flow from Financing 48 318 248 (178) (200)
Inc./(Dec.) in Cash (29) 22 87 (31) (21)
Opening Cash balances 52 23 45 133 102
Closing Cash balances 23 45 133 102 81
July 30, 2010 9

10. Areva T&D India | 2QCY2010 Result update
Key Ratios
Y/E December CY2007 CY2008 CY2009 CY2010E CY2011E
Valuation Ratio (x)
P/E (on FDEPS) 31.9 31.5 36.1 51.0 29.1
P/CEPS 28.8 27.3 27.3 29.6 20.2
P/BV 12.6 9.5 8.0 7.1 5.9
Dividend yield (%) 3.1 0.6 0.6 0.3 0.6
EV/Sales 3.5 2.8 2.1 1.9 1.6
EV/EBITDA 19.5 17.2 18.7 21.3 14.8
EV / Total Assets 10.7 6.1 4.6 4.7 4.5
Per Share Data (Rs)
EPS (Basic) 45.2 9.2 8.0 5.6 9.9
EPS (fully diluted) 9.0 9.2 8.0 5.6 9.9
Cash EPS 10.0 10.6 10.5 9.7 14.2
DPS 9.0 1.8 1.8 1.0 1.8
Book Value 22.9 30.3 36.2 40.7 48.5
Dupont Analysis
EBIT margin 16.7 14.8 9.5 6.5 8.3
Tax retention ratio 0.6 0.7 0.7 0.7 0.7
Asset turnover (x) 4.2 3.0 2.7 2.6 3.1
ROIC (Post-tax) 44.5 28.8 16.8 11.2 17.1
Cost of Debt (Post Tax) 8.0 6.8 6.1 6.7 7.0
Leverage (x) 0.1 0.6 0.7 0.5 0.3
Operating ROE 49.7 41.6 24.7 13.7 20.4
Returns (%)
ROCE (Pre-tax) 64.8 42.5 24.1 15.6 24.0
Angel ROIC (Pre-tax) 82.1 65.2 32.7 17.8 26.7
ROE 46.5 34.4 24.0 14.7 22.2
Turnover ratios (x)
Asset Turnover (Gross Block) 7.2 7.6 5.0 3.5 3.9
Inventory / Sales (days) 47 46 39 40 40
Receivables (days) 147 150 143 140 138
Payables (days) 115 121 130 130 125
WC cycle (ex-cash) (days) 67 64 62 55 55
Solvency ratios (x)
Net debt to equity 0.1 0.6 0.7 0.5 0.3
Net debt to EBITDA 0.2 1.0 1.6 1.5 0.8
Interest Coverage (EBIT / Interest) 50.5 13.1 5.9 3.6 6.8
July 30, 2010 10

11. Areva T&D India | 2QCY2010 Result update
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Areva T&D
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
July 30, 2010 11