>Areva T & D (ANGEL BROKING)

* Strong Top-line growth: Areva T&D India posted a strong Top-line growth of 66.9% to Rs845cr (Rs506cr) for 1QCY2009, which was ahead of our expectations. Primary reason for the phenomenal growth was the accounting policy change with regards to recognition of Revenues from long-term contracts in Systems and Power Transformer business on the basis of certain internal milestones as compared to invoicing on dispatches being followed earlier. In addition, better than expected execution of the healthy outstanding Order book aided the Top-line growth as well.

* Sharp dent in the Margins: On the Operating front, Areva T&D reported a sharp decline in EBITDA Margins by 390bp to 12.9% (16.8%). This was primarily due to the high raw material costs, which increased by a substantial 880bp to 72.1% (63.3%) of Net Sales. The changing product mix with increasing contribution from the Systems Segment (which entails higher
bought-out items and hence comparatively lower Margins) was a major reason behind the same. Though the company benefited from the Operating leverage with reduction in Employee cost (170bp) and Other expenses (320bp) as a % of Sales, it could only partially offset the Margin dip due to the high raw material costs. Going ahead as well, we expect the company’s Margins to decline gradually on the back of the changing Product mix and increasing competitive pressure in the market.

* Disappointing Bottom-line: Owing to the fall in Margins, EBITDA grew by a moderate 28.2% to Rs109cr (Rs85cr) during the quarter. Interest cost increased by more than three times to Rs12cr (Rs3cr) along with the increase in Depreciation. This coupled with higher restructuring and relocation costs and a slightly higher Tax rate led to reported Net Profit declining by 5.0% to Rs51cr (Rs54cr) during the quarter. However, after adjusting for the extraordinary item of profit on sale of property, adjusted Net Profit for the quarter managed to grow 5.8% to Rs51cr (Rs49cr).

To see full report: AREVA T&D