Tuesday, March 24, 2009

>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