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AREVA T&D INDIA LTD
PRICE: RS.194 RECOMMENDATION: REDUCE
TARGET PRICE: RS.228 CY12E P/E: 25.7X
q The company has presented separate numbers for the continuing part of
the business (Transmission) and discontinuing operations (distribution).
q The T&D industry continues to witness low market growth but PGCIL
spending has remained healthy. A silver lining has been that decline in
product prices appears to be closer to bottoming out, which is a positive
signal for the margins.
q In the near-term, the T&D equipment industry would continue to face demand
and cost pressures. Hence we remain negative on the sector.
q We maintain Reduce on the stock with a target price of Rs 228 per share
(Rs 245 earlier).
Result Highlights for "Transmission Business"
n For the third quarter, the company has provided separate numbers for continuing
operations (Transmission) and discontinuing operations (Distribution). We restrict
our discussion to the continuing operations only. As per the understanding between
Alstom and Schneider, the transmission business will be retained under
Areva T&D while the distribution business will be demerged into a separate company
wef April 1st, 2011.
n Revenue growth has been healthy aided by higher throughput by its new factories.
The company has created significant capacity in transformer over the past
two years thus enabling the company to speed up deliveries.
n However, market slowdown for T&D equipment continues in this year as well.
Several large projects have been delayed due to issues relating to fuel availability
and land acquisition. Recent increases in interest rates are also dampening the
outlook for industrial investment.
n For the quarter, EBITDA margins rose to 12.0% compared to 8.8% in Q3 CY10
due to productivity improvement measures.
n The management sounded cautious on margin outlook highlighting that price
competition has been very severe especially from Korean players.
Business environment remains tough. Traction in PGCIL spending
is the only silver lining.
n Industry & Infrastructure sectors are yet to show positive growth in Capex. However,
there has been positive traction on the PGCIL spending. BOOT is now
emerging as a new market trend in the transmission domain
n Chinese & Koreans suppliers continue to quote very aggressive prices in 765 kV
tenders of PGCIL. However, their presence is currently restricted to 765 KV only.
n Several mid and small size EPC contractors, who were bidding very aggressively
in 2009 & 2010 seem to be reviewing their bidding strategy. Decline in equipment
prices appear to have bottomed out or atleast somewhere close to that.
n During the quarter, order intake was up 77% to Rs 15.1 bn. For 9MCY11 basis,
the order intake is up 29% yoy to Rs 37.3 bn. Order intake has been driven by
large orders from RRUVNL (756 KV substation package for Rs 4.0 bn), Sterlite
Tech (765 KV Rs 2.2 bn) and PGCIL (765 KV Transformer valued at Rs 850 mn).
n Order backlog at Rs 57.6 bn (78% of that is transmission orders) is up 17% yoy
and provides visibility of 17 months. However, it must be noted that the order
backlog includes Rs 12.7 bn of orders pertaining to the "Distribution segment"
which is to be discontinued and transferred to Scheneider Electric.
Maintain Reduce
Valuations are rich at 30.7 and 25.2x CY11 and CY12E earnings respectively. We
value the company at 30x CY12 earnings in line with the trading multiples for Siemens
and ABB. We maintain Reduce on the company with a target price of Rs228
(Rs 245 earlier).
Following the global acquisition of Areva T&D by consortium of Schneider and
Alstom AG, the new acquirers came out with the mandatory open offer for 20%
stake for minority shareholders. On completion of the open offer, the promoter stake
in the company stands at 73.4%. With a view to further raise its share in the company,
the new management may come up with another open offer. This possibility
is likely to keep the stock price resilient despite deteriorating profitability and rich
valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AREVA T&D INDIA LTD
PRICE: RS.194 RECOMMENDATION: REDUCE
TARGET PRICE: RS.228 CY12E P/E: 25.7X
q The company has presented separate numbers for the continuing part of
the business (Transmission) and discontinuing operations (distribution).
q The T&D industry continues to witness low market growth but PGCIL
spending has remained healthy. A silver lining has been that decline in
product prices appears to be closer to bottoming out, which is a positive
signal for the margins.
q In the near-term, the T&D equipment industry would continue to face demand
and cost pressures. Hence we remain negative on the sector.
q We maintain Reduce on the stock with a target price of Rs 228 per share
(Rs 245 earlier).
Result Highlights for "Transmission Business"
n For the third quarter, the company has provided separate numbers for continuing
operations (Transmission) and discontinuing operations (Distribution). We restrict
our discussion to the continuing operations only. As per the understanding between
Alstom and Schneider, the transmission business will be retained under
Areva T&D while the distribution business will be demerged into a separate company
wef April 1st, 2011.
n Revenue growth has been healthy aided by higher throughput by its new factories.
The company has created significant capacity in transformer over the past
two years thus enabling the company to speed up deliveries.
n However, market slowdown for T&D equipment continues in this year as well.
Several large projects have been delayed due to issues relating to fuel availability
and land acquisition. Recent increases in interest rates are also dampening the
outlook for industrial investment.
n For the quarter, EBITDA margins rose to 12.0% compared to 8.8% in Q3 CY10
due to productivity improvement measures.
n The management sounded cautious on margin outlook highlighting that price
competition has been very severe especially from Korean players.
Business environment remains tough. Traction in PGCIL spending
is the only silver lining.
n Industry & Infrastructure sectors are yet to show positive growth in Capex. However,
there has been positive traction on the PGCIL spending. BOOT is now
emerging as a new market trend in the transmission domain
n Chinese & Koreans suppliers continue to quote very aggressive prices in 765 kV
tenders of PGCIL. However, their presence is currently restricted to 765 KV only.
n Several mid and small size EPC contractors, who were bidding very aggressively
in 2009 & 2010 seem to be reviewing their bidding strategy. Decline in equipment
prices appear to have bottomed out or atleast somewhere close to that.
n During the quarter, order intake was up 77% to Rs 15.1 bn. For 9MCY11 basis,
the order intake is up 29% yoy to Rs 37.3 bn. Order intake has been driven by
large orders from RRUVNL (756 KV substation package for Rs 4.0 bn), Sterlite
Tech (765 KV Rs 2.2 bn) and PGCIL (765 KV Transformer valued at Rs 850 mn).
n Order backlog at Rs 57.6 bn (78% of that is transmission orders) is up 17% yoy
and provides visibility of 17 months. However, it must be noted that the order
backlog includes Rs 12.7 bn of orders pertaining to the "Distribution segment"
which is to be discontinued and transferred to Scheneider Electric.
Maintain Reduce
Valuations are rich at 30.7 and 25.2x CY11 and CY12E earnings respectively. We
value the company at 30x CY12 earnings in line with the trading multiples for Siemens
and ABB. We maintain Reduce on the company with a target price of Rs228
(Rs 245 earlier).
Following the global acquisition of Areva T&D by consortium of Schneider and
Alstom AG, the new acquirers came out with the mandatory open offer for 20%
stake for minority shareholders. On completion of the open offer, the promoter stake
in the company stands at 73.4%. With a view to further raise its share in the company,
the new management may come up with another open offer. This possibility
is likely to keep the stock price resilient despite deteriorating profitability and rich
valuations.
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