1. 1QCY2010 Result Update I Capital Goods
April 26, 2010
Areva T&D India SELL
CMP Rs277
Performance Highlights Target Price Rs218
Areva T&D India reported a dismal 1QCY2010 performance, which was well Investment Period 12 Months
below our estimates, both on the top-line and bottom-line fronts. The
company reported a 10.7% and 93.2% yoy de-growth in revenues and net Stock Info
profit, respectively. Currently, the stock trades at rich valuations of 28.0x
Sector Capital Goods
CY2011E EPS. We downgrade the stock to Sell, with a Target Price of Rs218.
Market Cap (Rs cr) 6,619
Margin Erosion plays a spoilsport: Areva T&D India posted a top-line de-
Beta 1.2
growth of 10.7% yoy to Rs777cr (Rs870cr) for 1QCY2010, on the back of
slower-than-expected execution of the outstanding order book. Management 52 WK High / Low 386/199
stated that several large projects could not be billed during the quarter and
were delayed on account of customer site related issues. Avg. Daily Volume 276,141
Face Value (Rs) 2
On the operating front, the company extended its weak performance in
1QCY2010, reporting a sharp dip in its EBITDA margin by 707bp to 5.4% BSE Sensex 17,745
(12.5%). This was primarily driven by a combination of factors, including Nifty 5,322
increased competitive pressures in the last year-and-a-half, ramp us costs
associated with new factories, higher provisioning of a few systems projects, Reuters Code AREV.BO
and a derivatives-related mark-to-market adjustment (~Rs9cr). The raw
Bloomberg Code ATD@IN
material cost increased by 145bp to 73.1% (71.6%) of net sales.
Shareholding Pattern (%)
The depreciation expense almost tripled to Rs24cr on account of newer
capacities. Consequently, the net profit for the quarter plunged by 93.2% yoy Promoters 72.2
to Rs3cr (Rs51cr), which was well below our estimates. MF/Banks/Indian FIs 14.4
Outlook and Valuation FII/NRIs/OCBs 1.3
Indian Public 12.1
Uncertainty with regards to the possible reorganisation of Areva T&D India’s
business (after the acquisition of Areva T&D at the global level by the Abs. (%) 3m 1yr 3yr
Consortium of Alstom-Schneider) continues to weigh heavily on the stock.
Sensex 5.7 56.6 24.7
Besides, competitive pressures are expected to continue to keep a check on
the company’s margins, with several domestic and overseas players bidding Areva T&D (2.2) 28.0 17.1
aggressively. At the CMP, the stock trades at 28.0x CY2011E EPS. We
downgrade the stock to Sell.
Key Financials
Y/E Dec (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
Adj EPS (Rs) 9.2 8.0 5.6 9.9
P/E (x) 30.3 34.7 49.0 28.0
P/BV (x) 9.1 7.6 6.8 5.7
RoE (%) 34.4 24.0 14.7 22.2
RoCE (%) 29.2 17.0 11.7 17.6
Puneet Bambha
EV/Sales (x) 2.7 2.0 1.8 1.5
Tel: 022 – 4040 3800 Ext: 347
EV/EBITDA (x) 16.6 18.1 20.5 14.3 E-mail: puneet.bambha@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. Areva T&D I 1QCY2010 Result Update
Order Book
The order backlog came in at Rs4,975cr, up 17.5% yoy. The order inflows for the
quarter were up 2.9% yoy to Rs1,016cr (Rs987cr). Among the significant orders
received by the company during the quarter include an Rs400cr order from the Uttar
Pradesh Power Transmission Corporation, for a 765kV EHV substation at the Anpara
“D” thermal power plant.
Exhibit 1: Order Backlog Trend
6,000
5,000
4,000
(Rs cr)
3,000
2,000
1,000
0
Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110
Source: Company, Angel Research
Sale process update
With regards to the sale process of Global Areva T&D, the management updated
that on March 26, the European Commission antitrust authorities gave their the
clearance for the joint acquisition by Alstom-Schneider. The closing of transaction is
however, subject to approvals of competent authorities in some countries.
Exhibit 2: 1QCY2010 Performance
Y/E Dec (Rs cr) 1QCY10 1QCY09 % chg CY09 CY08 % chg
Net Sales 776.8 869.9 (10.7) 3,583.2 2,655.1 35.0
Raw Material 567.5 622.8 (8.9) 2,492.6 1,725.8 44.4
(% of Net Sales) 73.1 71.6 69.6 65.0
Employee Cost 85.8 65.1 31.8 292.4 209.1 39.8
(% of Net Sales) 11.0 7.5 8.2 7.9
Other Expenses 81.3 73.2 11.1 379.4 281.2 34.9
(% of Net Sales) 10.5 8.4 10.6 10.6
Total Expenditure 734.6 761.1 (3.5) 3,164.4 2,216.1 42.8
EBITDA 42.3 108.8 (61.1) 418.8 439.0 (4.6)
EBITDA (%) 5.4 12.5 11.7 16.5
Interest 13.4 12.3 9.6 57.9 30.2 91.9
Depreciation 23.7 8.0 194.8 61.1 34.0 79.6
Others 0.0 (8.3) (100.0) (8.3) (39.3) (79.0)
Profit before Tax 5.2 80.3 (93.6) 291.5 335.5 (13.1)
(% of Net Sales) 0.7 9.2 8.1 12.6
Total Tax 1.7 28.9 (94.1) 101.0 120.7 (16.3)
(% of PBT) 32.9 36.0 34.7 36.0
Adjusted PAT 3.5 51.4 (93.2) 190.5 214.8 (11.3)
(% of Net Sales) 0.4 5.9 5.3 8.1
Extraordinary Items 1.6 11.5 (86.5)
Reported PAT 3.5 51.4 (93.2) 192.0 226.3 (15.2)
Source: Company, Angel Research
April 26, 2010 2
3. Areva T&D I 1QCY2010 Result Update
Outlook and Valuation
Uncertainty with regards to the possible reorganisation of Areva T&D India’s
business (after the acquisition of Areva T&D at the global level by the Consortium of
Alstom-Schneider) continues to weigh heavily on the stock. Besides, competitive
pressures are expected to continue to keep a check on the company’s margins, with
several domestic and overseas players bidding aggressively. The management
stated that the price fall is still continuing and contrary to earlier expectations the
hopes of early revival in the sector have not been met.
During CY2009-11E, we expect the company to register top-line and bottom-line
CAGR of 14.2% and 11.3%, respectively. At the CMP, the stock trades at 28.0x
CY2011E EPS. We expect the stock to underperform and downgrade the stock to
Sell, with a Target Price of Rs218.
Exhibit 3: 12-month Forward Rolling P/E Band
700
600
500
Share Price (Rs)
38x
400
30x
300
22x
200
14x
100
6x
0
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Oct-04
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Source: C-line, Angel Research
April 26, 2010 3
4. Areva T&D I 1QCY2010 Result Update
Profit & Loss Statement (Rs cr)
Y/E December CY2007 CY2008 CY2009 CY2010E CY2011E
Net Sales 2,006 2,641 3,566 3,887 4,650
Other operating income - - - - -
Total operating income 2,006 2,641 3,566 3,887 4,650
% chg 24.9 31.6 35.0 9.0 19.6
Total Expenditure 1,648 2,216 3,164 3,540 4,160
Net Raw Materials 1,267 1,726 2,493 2,780 3,278
Other Mfg costs 227.5 281.2 379.4 408.2 465.0
Personnel 153.7 209.1 292.4 352.5 416.5
Other - - - - -
EBITDA 357.9 425.1 401.5 347.3 490.3
% 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 23.1 34.0 61.1 96.4 103.9
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 6.6 29.8 57.9 69.3 57.0
Other Income 15.0 13.9 17.3 19.9 23.7
(% of PBT) 4.4 3.7 5.8 9.9 6.7
Others - - - - -
Recurring PBT 343.2 375.1 299.8 201.6 353.1
% chg 70.1 9.3 (20.1) (32.8) 75.2
Extraordinary Expense/(Inc.) - 28.1 6.8 - -
PBT (reported) 343.2 347.0 293.0 201.6 353.1
Tax 126.9 120.7 101.0 66.5 116.5
(% of PBT) 37.0 34.8 34.5 33.0 33.0
PAT (reported) 216.3 226.3 192.0 135.0 236.6
Add: Share of earnings of associate - - - - -
Less: Minority interest (MI) - - - - -
Prior period items - - - - -
PAT after MI (reported) 216.3 226.3 192.0 135.0 236.6
ADJ. PAT 216.3 218.8 191.0 135.0 236.6
% 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
April 26, 2010 4
5. Areva T&D I 1QCY2010 Result Update
Balance Sheet (Rs cr)
Y/E December CY2007 CY2008 CY2009 CY2010E CY2011E
SOURCES OF FUNDS
Equity Share Capital 47.8 47.8 47.8 47.8 47.8
Preference Capital - - - - -
Reserves& Surplus 499.9 675.9 817.5 924.6 1,110.8
Shareholders Funds 547.7 723.7 865.4 972.4 1,158.7
Minority Interest - - - - -
Total Loans 101.2 469.2 767.6 617.6 467.6
Deferred Tax Liability (28.3) (38.7) (10.0) (10.0) (10.0)
Total Liabilities 620.7 1,154.2 1,623.0 1,580.0 1,616.3
APPLICATION OF FUNDS
Gross Block 319.4 373.9 1,050.3 1,152.2 1,227.2
Less: Acc. Depreciation 182.7 210.4 245.5 341.8 445.7
Net Block 136.7 163.4 804.8 810.3 781.5
Capital Work-in-Progress 58.6 450.0 51.9 50.0 25.0
Goodwill 32.4 32.4 32.4 32.4 32.4
Investments 0.0 0.0 0.0 0.0 0.0
Current Assets 1,459.1 2,160.1 2,875.9 2,676.7 3,620.5
Cash 23.0 45.1 132.5 101.8 80.6
Loans & Advances 134.7 281.6 317.4 330.4 395.3
Other 40.8 258.3 447.5 388.7 465.0
Current liabilities 1,066.2 1,651.6 2,142.0 1,989.4 2,843.0
Net Current Assets 393.0 508.5 733.9 687.3 777.4
Mis. Exp. not written off - - - - -
Total Assets 620.7 1,154.2 1,623.0 1,580.0 1,616.3
Cash Flow Statement (Rs cr)
Y/E December CY2007 CY2008 CY2009 CY2010E CY2011E
Profit before tax 343.2 347.0 293.0 201.6 353.1
Depreciation 23.1 34.0 61.1 96.4 103.9
(Inc)/Dec in Working Capital (183.7) (93.4) (138.0) 15.9 (111.4)
Less: Other income 15.0 13.9 17.3 19.9 23.7
Direct taxes paid 130.0 131.2 72.3 66.5 116.5
Cash Flow from Operations 37.5 142.6 126.5 227.4 205.4
(Inc.)/Dec.in Fixed Assets (127.8) (445.8) (278.3) (100.0) (50.0)
(Inc.)/Dec. in Investments 9.7 - - - -
Other income 15.0 13.9 17.3 19.9 23.7
Cash Flow from Investing (103.1) (431.9) (261.0) (80.1) (26.3)
Issue of Equity - - - - -
Inc./(Dec.) in loans 97.9 368.0 298.4 (150.0) (150.0)
Dividend Paid (Incl. Tax) 50.4 50.4 50.4 28.0 50.4
Others (11.3) (6.3) (26.1) - -
Cash Flow from Financing 47.5 317.7 248.0 (178.0) (200.4)
Inc./(Dec.) in Cash (29.4) 22.1 87.4 (30.7) (21.3)
Opening Cash balances 52.5 23.0 45.1 132.5 101.8
Closing Cash balances 23.0 45.1 132.5 101.8 80.6
April 26, 2010 5
7. Areva T&D I 1QCY2010 Result Update
Research Team Tel: 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this
document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to
arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved),
and should consult their own advisors to determine the merits and risks of such an investment.
Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are
inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company
may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as
opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true,
and is for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we
cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel
Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other
reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on,
directly or indirectly.
Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services
in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.
Neither Angel Securities Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the
use of this information.
Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).
Disclosure of Interest Statement Areva T&D
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
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 and its Group companies.
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM /
CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
April 26, 2010 7
