Dear All,
Forwarding you the Result Update on Areva T&D India for 1QCY2011 with a Neutral recommendation.
Areva T&D (Areva) posted good set of results for 1QCY2011 aided mainly by lower base. The top line and bottom line grew strongly, but EBITDA margin was lower than our estimates. Revenue increased by 28.1% yoy to `995cr (`777cr), while PAT grew by nearly eight-fold to `29cr (`3cr). Order inflow increased by 23.1% to `1,253cr. Going forward, the pricing pressure in the T&D segment is expected to continue due to increasing competition, which weighs heavily on the stock. Hence, we continue to remain Neutral on the stock.
Strong volumes drive growth: Higher sales volume during 1QCY2011 compared to lower volumes amid execution issues in 1QCY2010 helped Areva deliver 28.1% yoy growth in revenue to `995cr (`777cr). EBITDA margin for the quarter also expanded by 273bp to 8.4% as fixed manufacturing and production costs were spread over large volumes. Higher sales volume and margin expansion enabled Areva to post nearly eight-fold yoy growth in PAT to `29cr (`3cr).
Outlook and valuation: Central utilities have been delaying their orders on account of non-availability of land on time, resulting in lower number of 765kV projects being finalised. Ordering scenario from state utilities has also remained flat. Further, Korean and Chinese suppliers continue to quote very aggressive prices in transformers. While the growth trajectory looks promising with a decent order book of `5,204cr (1.1x CY2011E revenue), we remain cautious on the above concerns and believe the stock will trade sideways until the T&D segment revives post 2HCY2011 as guided by the management. At the CMP of `264, the stock trades at 29.6x CY2011E EPS and 22.3x CY2012E EPS. Historically, the stock has traded at an average P/E of 28x. We believe the stock is fairly valued and, hence, we continue to remain Neutral on the stock.
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If you have any further queries, feel free to call us on 022 39357600, Extn: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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