Areva T&D India- Profitability improving, but recovery still distant; retain Sell : Anand Rathi

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Areva T&D India
Profitability improving, but recovery still distant; retain Sell
We expect Areva to see a muted CY10, given recovery to CY05-08
growth & profitability levels still distant, even though early signs
of revival are visible. We maintain Sell on weak sector outlook,
expectation of recovery deferred to 2HCY11 and rich valuation.

 Improving profitability. Despite recovery in 3QCY10,
profitability in CY10e is likely to be muted. Higher volume on the
back of greenfield capacity expansion, higher share of the
products business, and cost-control measures would improve
profitability ahead, although falling short of CY06-08 growth and
profitability.
 T&D business still in the woods. Continued pricing pressure
due to keener competition and fewer orders continue to mute
sector dynamics. Management believes that recovery is still a little
away and only likely to happen post 1QCY11.
 Higher open offer price. As the previous open offer price of
`295/share could garner only 1.22% shares against the proposed
20%, a follow up offer with a higher price may be in the offing.
 Estimates change. We raise our profit estimates 7% each for
CY11-12 on operating margin assumption increase of 50bps.
 Valuation and risks. We value Areva at `273/share (from `227)
based on 28x CY11e EPS. Key risks: price recovery; favorable
procurement policy; higher offer price.