>Areva T&D (Anand Rathi)

● Raising estimates and target price. We marginally increase our sales and earnings estimates for CY09 and CY10 on the back of higher-than-expected execution and improvement in operating margins going forward. Our new target price of Rs159 is based on
13x CY09e earnings. Maintain Sell.

● CY08 results, margins under pressure. Operating margin slipped 200bps to 16.5% in CY08 mainly due to raw material prices which climbed 140bps. Change in product mix and the outsourcing of components resulted in higher material costs. PAT margin declined 220bps to 8.5% due to higher interest expense and restructuring cost. High leverage (debt/equity ~0.6 CY08) and lower ‘other income’ would keep PAT margins under pressure.

● Order backlog 1.5x CY08 sales. The company received orders worth Rs40.1bn in CY08, up 37% over CY07. The order backlog rose 35% to Rs40.9bn at end-Dec ’08 (from Rs30.4bn a year ago). Quarterly the order backlog has declined 4% from Rs42bn at end Sep’09.

● Change in estimates. We raise CY09 and CY10 sales estimates by 2.5% and 0.8%, respectively, and PAT estimates by 2.5% and 2.7%.

● Valuation. We arrive at a target price of Rs158 (earlier Rs155) for Areva T&D based on 13x CY09e EPS of Rs12.2.

To see full report: AREVA T&D