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ATD's medium-term business outlook does not look encouraging to us given a significant
increase in competition intensity, leading to lower new orders and lower price realisation on
existing and new orders. Earnings downgrades are prevalent, and we believe the risk to CY12-13
consensus forecasts is high. Sell.
Stiff competition in the Indian T&D equipment market
The fortunes of the Indian T&D equipment space (ABB, Areva, Crompton Greaves, Siemens, etc)
have been on the wane over the past three years; large domestic capacity expansion in
anticipation of significant demand coincided with an influx of Chinese and Korean players that
dumped 765 kV transformers/reactors at prices 20-25% lower than those of Indian
manufacturers, rendering them uncompetitive. Given a lack of policy support (import duty), Indian
T&D equipment players’ business fortunes will likely continue to suffer.
Analysis of PGCIL order awards presents a bleak picture
Our analysis of order awards from the Power Grid Corporation of India (PGCIL), presents a bleak
picture, with the industry’s total addressable market size being only Rs35bn-45bn pa and with 20
players vying for the small pie (Chinese/Koreans have 15% market share in FY11F versus 30% in
FY10). Industry margins have been under pressure and in our view will likely continue to be weak
given low probability of an increase in market size (at least in the medium term) and a medium to
high probability of the Chinese/Koreans continuing to sell their products aggressively within the
Indian market.
Areva’s order inflow has been weak for the past two years
Areva’s order inflows in CY09 and CY10 were 5% and negative 0.7%, respectively.
Notwithstanding weak macro and micro environments, we project 10% order inflow growth
(1HCY11 at 9%) for CY11-12, and 20% thereafter. Despite that, our CY11, CY12 and CY13
earnings forecasts are 5%, 27% and 39% lower than Bloomberg consensus, respectively. An
order inflow miss would likely lead to consensus earnings downgrades, which has been a
recurring phenomenon for the past few years.
We initiate with a Sell, target price Rs190
Our DCF-based target price is Rs190, implying a target PE multiple of 20.5x CY12F earnings and
10.4x EV/EBITDA. Risk-reward looks unfavourable. Sell.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ATD's medium-term business outlook does not look encouraging to us given a significant
increase in competition intensity, leading to lower new orders and lower price realisation on
existing and new orders. Earnings downgrades are prevalent, and we believe the risk to CY12-13
consensus forecasts is high. Sell.
Stiff competition in the Indian T&D equipment market
The fortunes of the Indian T&D equipment space (ABB, Areva, Crompton Greaves, Siemens, etc)
have been on the wane over the past three years; large domestic capacity expansion in
anticipation of significant demand coincided with an influx of Chinese and Korean players that
dumped 765 kV transformers/reactors at prices 20-25% lower than those of Indian
manufacturers, rendering them uncompetitive. Given a lack of policy support (import duty), Indian
T&D equipment players’ business fortunes will likely continue to suffer.
Analysis of PGCIL order awards presents a bleak picture
Our analysis of order awards from the Power Grid Corporation of India (PGCIL), presents a bleak
picture, with the industry’s total addressable market size being only Rs35bn-45bn pa and with 20
players vying for the small pie (Chinese/Koreans have 15% market share in FY11F versus 30% in
FY10). Industry margins have been under pressure and in our view will likely continue to be weak
given low probability of an increase in market size (at least in the medium term) and a medium to
high probability of the Chinese/Koreans continuing to sell their products aggressively within the
Indian market.
Areva’s order inflow has been weak for the past two years
Areva’s order inflows in CY09 and CY10 were 5% and negative 0.7%, respectively.
Notwithstanding weak macro and micro environments, we project 10% order inflow growth
(1HCY11 at 9%) for CY11-12, and 20% thereafter. Despite that, our CY11, CY12 and CY13
earnings forecasts are 5%, 27% and 39% lower than Bloomberg consensus, respectively. An
order inflow miss would likely lead to consensus earnings downgrades, which has been a
recurring phenomenon for the past few years.
We initiate with a Sell, target price Rs190
Our DCF-based target price is Rs190, implying a target PE multiple of 20.5x CY12F earnings and
10.4x EV/EBITDA. Risk-reward looks unfavourable. Sell.
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