Areva t&d india ltd.pdf (ankush1)

April 16th, 2008 Areva T&D India Ltd 1

Kaycee ResearchIndia Research

Initiating coverage Areva T&D India Ltd


Kaycee Research

Areva T&D India Ltd BuyPowering profits through strategic expansions

Current Market Price Rs 1660

Target price Rs 2080

Stock information

BSE 522275

Bloomberg ATD IN

Reuters ALST. BO

Mkt cap Rs 79381mn

Equity Rs 478.2mn

Face value Rs 10

52 Weeks High/Low Rs 3280/1119

Sensex 16153

Nifty 4880

Shareholding as on 31ST Dec

2007 (%)

Promoters 72.2

Public 11.3

FIIs 2.1

Institutions 11.5

Corporate bodies 2.9

Areva T&D vs Sensex

Particulars Sales Rs mn

PATRs mn

EBIDTM%

PATM%

P/BV

10.9 14.5

10.6

7.3

5.2

10.6

11.0

11.4

17.8

17.9

18.1

18.2

2195.5

2540.3

3899.1

4965.9

20063.0

24054.4

35344.6

43662.5

EPSRs.

PE EV/EBIDTA

ROCE%

ROE%

FY07 46.0 36.1 22.5 51.3 40.0

FY08E 53.1 31.2 18.7 40.3 33.8

FY09E 81.6 20.3 12.6 47.9 35.7

FY10E 103.9 16.0 9.8 35.7 32.3

Financial summary

Sector: Power Ancillary Analyst: Ankush Mahajan April 16th, 2008 [email protected]

(+91 22 2264 2029)

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25-Jul 9-Nov 26-Feb3000

9000

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Areva T&D SENSEX

mailto:[email protected]


Kaycee ResearchTable of Contents

Page no

Investment summary ……………….……4

Company overview .……………………5

Revenue mix & order book …………………6

Business Structure ……………………8

Products & Applications …….……………9

Capacity Expansion …………………10

Industry overview .……………………11

SWOT Analysis …………………….16

Key Management ……………………….17

Earning estimates .……………………18

Investment concerns ……………………20

Consolidated financials …………………21

Valuations ……………………23


Kaycee ResearchInvestment rationale Thrust on T&D in the XIth and XIIth planGovt. has planned huge capex in the Transmission & Distribution (T&D) space in the power sector. Areva T&D which is one of the leaders in the same would benefit from the investments planned. Investments planned by PGCIL and investments on the back of APDRP scheme would result in benefit for players like Areva T&D. Areva T&D is present in Transformers, Switchgears and EPC work for power plants.

Better product mix and enhanced project management to increase the margins going forwardThe company’s operating margins has increased by 480 basis points by FY07 due to better product mix and enhanced project management. With the focus now on reducing T&D losses, higher KV orders are being planned which would increase the order inflow for players like Areva which have the capability for executing such higher KV orders. Areva is the first player to have executed 765kv substation in the country for NTPC’s Sipat power plant in Jan, 2007. Areva has good execution capabilities and we expect that these turnkey high end value projects will improve the operating margins as well as increase the bottom line over the period of three years.

Stepping up investments across product categoriesAreva is spending Rs 700cr for green field and brown field expansion. It currently has 8 facilities and is planning 3 more facilities in Hosur, Chennai and Baroda. Areva is setting up a 765KV transformer facility at a cost of Rs 5bn. The company is also setting up a R&D lab and an HV switchgear facility. With the commencement of these operations we expect that company’s turnover will double in FY10 that is the target set up by the management.

ValuationAreva T&D trades at 20.3x EPS of Rs 81.7 for FY09E and 16.0x EPS of Rs 103.7 for FY10E and at a substantial discounts to its closet comparable ABB. We are initiating our coverage on the stock with a BUY rating and a target price of Rs 2080 over a period of 18 months (20x its FY10E Earnings).


Kaycee ResearchCompany overview

Areva is France based Group has manufacturing facilities in 43 countries and a sales network in more than 100 countries, AREVA offers customers reliable technological solutions for CO2 free nuclear power generation and electricity transmission and distribution.

Areva's T&D division is an active player around the globe and Areva T&D India is a part of this division. The company’s products and systems serve to transmit and distribute electricity, as well as operate networks through information management Areva T & D India Ltd is present at all stages of the supply power chain, from the generator to the end user, backed by a services portfolio. Areva T & D India has 8 manufacturing units, 3 Project offices and 1 service office, 20 Sales office with 3500+ employees in India.

Quantum jump in exportsThe company’s export has grown significantly in the last financial years and10% revenue is due to export, which will touch to 14% in the coming two years. The company has been awarded two new projects at Qatar and Kenya

126 Million Euro Order from KAHRAMA Water & Electricity to supply six Turnkey 66 kV GIS Substations.

26 Million Euro Order from Kenya Power & Light for turnkey substations for the distribution network

Leaders in high end products and servicesAreva has wide presence in industries like Utilities, Metals, Processing, Oil & Gas etc. It is the technology leader in high end EHV products in India. The company has leadership in Gas Insulated Switchgear (GIS) and 765 kV transformers. The company is going to set up 1200kV substations in FY12 as per the growing demand of EHV lines of 1200kV.

0

10000

20000

30000

40000

50000

FY06 FY07 FY08E FY09E FY10E

Revenue

Rs Mn

CAGR 30%

Continuous topline increase since 2005


Kaycee ResearchRevenue mix & order bookRevenue Mix For FY07

Orders Intake on the rise

Areva T & D India Ltd is an India-based company engaged in the business of power transmission and distribution. The company’s products and systems serve to transmit and distribute electricity, as well as operate networks through information management.

Revenue mixAreva’s revenue mix consists various products and systems for power transmission and distribution. The largest chunk comes from Automation Systems Business (including services) which is growing at growth of 34%. The company’s primary focus would be expanding margins by focusing on high margins systems business.

The company has a leading position in MV Switchgear & HV Switchgear business in the worldwide market and recorded a growth of 23% & 76% respect. The company is expanding the capacity in switchgear business.

Transformer sector recorded a very strong growth of 81% in salesand company has high operating margins in this business.

Order intake almost double in 2 yearsThe company currently has unexecuted order backlog of around Rs 29,343 mn (as of January 2008), which is project specific and executable as over the next 03 to 18 months time-frame. This order book grows up 39% CAGR over the last two years and will pick up as the company is investing in fresh capacities which will come in 4Q FY08.

15282

24180

29343

0

10000

20000

30000

2005 2006 2007

CAGR 39%

Rs Mn

Switchgears30.14%

Control Panels3.58%

Vacuum Interruptors

0.11%

Project items35.81%

Others Including Spares2.13%

Bushing 0.80%

Current Trans2.93%

Line Traps 1.15%

Trans & Reactors 23.35%


Kaycee ResearchPrestigious Projects commissioned in 2007

Areva T & D India Ltd is a leader in high end products and services in terms of introduction of new projects in India. It designs, manufactures and supplies a complete range of equipment, systemsand services for all stages in the transfer of electricity, from the generator to the large end-user.

765 kV Turnkey Substation for NTPC SipatThe first 765kV sub-station project in India was executed by Areva T&D for NTPC’s Sipat Project. This project is a land mark event in India’s electrical grid as it takes India to the extra high voltage club (EHV) for Transmission System.

Largest Generating TransformerAreva T&D India has successfully manufactured with in India the largest generating transformer 370MVA/220 kV delivered to Reliance Energy in the last year. The only established manufacturer in India with online linkage to world class technology and globally concurrent design.

SCADA SystemsSupervisory Control And Data Acquisition (SCADA) is the remote control of breakers and generators, also monitors loads from thecontrol centre. Areva has State of the art technology in the automation systems business. Areva has commissioned City Distribution SCADA Systems 9 out of 10 Circles for MSETCL. This is an exemplary model for other SEBs to emulate with APDRP 2 funds.


Kaycee Research

Areva T&D India

Systems

HV Substations > 132kV

• High Voltage Substation

- Air Insulated

High Voltage Substation- Gas Insulated

Power ElectronicsConverter SubstationsFACTS ProductsHVDCSVC

Power DistributionSupply, Testing, Erection

and Commissioning of Distribution Systems up to 132 kV

Business Structure

Field Services

Erection, maintenance, commissioning, Testing, supervision etc.

Product services

Maintenance & servicing of products

Networking Consulting

Planning, analysis and design of T&D systems

Training

Products and systems

High Voltage

• SF6 Circuit Breaker

• Generator Circuit Breaker

• HV GIS

• Instrument Transformer

• Power Transformer

Medium Voltage

Medium & Low Voltage Switchgear

Distribution Transformer

Lightning Arresters

MV GIS

RMU

Prefabricated Substations

Energy Management Systems (EMS)/ (DMS) –‘e-terra platform’

EMS/ SCADA for Transmission Networks

Relay

Substation Automation Systems (SAS) – ‘PACiS’

BCU/ RTU based Substation Automation Systems

Convention Control Systems

Control Panel up to 765 kV

Telecommunication Systems

Telecom Network Management System

Products Automation Systems Services

Areva T&D India specialists in T&D sector. Areva designs, manufacture and supply a complete range of products, systems and services


Kaycee ResearchProduct offerings

Areva T&D India is a major T&D player in India, its cutting edge technological solutions facilitate the efficient transmission and distribution of electricity to utilities and industrial customers. It designs, manufactures and supplies a complete range of equipment, systems and services for all stages in the transfer of electricity, from the generator to the large end-user.

Systems BusinessThe Systems Business of Areva T&D India, specializes in offering a wide range of complete turnkey solutions for efficient distribution of quality power ad control of energy flows. The demands of the power supply networks involved and specific customer needs are taken into account and solutions are customized accordingly. These solutions comprise a unique combination of project management, substation management, grid management and technically advanced products.ProductsAreva T&D India designs, manufactures and supplies a superior range of high and medium voltage products for a constantly evolving power market. The range of products comprises every stage in the process of electricity transfer from generator to end user. The range includes mission – critical equipment that facilitates reliable, optimal and secure operations across power networks.Automation Systems Business Automation Systems Business of Areva T&D India provides world class system solutions for managing energy networks of varying capacities. It ensures reliable, efficient & secures operations of infrastructure and networks. The business offers solutions and technologies which vary from intelligent field devices to comprehensive energy management solutions for transmission and distribution networks, real time power control, information management and energy market power trading.ServicesAreva T&D India offers a comprehensive range of services like Erection, Testing, Commissioning, Supervision, Maintenance, Repair and Emergency Support for T&D products and systems.


Kaycee ResearchMassive capacity expansion

Increasing capacity to almost 2X in next two years

Planned capex of about $ 177 mn (about Rs 700cr) - for next two years

Ongoing capacity expansion in India will double turnover over next two yearsIncreasing capacity by almost 2x in India by setting up new green field plant at Baroda, Hosur & Paddapai and also increased the current existing capacity of other products. With the commencement of these operations we expect that company’s turnover will double in FY10 that is the target set up by the management.

Areva T&D has planned aggressive capacity addition over next 1.5 -2 years to capitalise on this opportunity. The company is setting up a large facility (around 10,000MVA) to manufacture power transformers of upto 1,200kV and other distribution and medium voltage transformers at Baroda with an investment of Rs5bn. At Hosur and Chennai, the company is investing Rs1bn each to setup capacities for instrument transformers and circuit breakers respectively. The company is also expanding the capacity of its existing facilities.

Locations & Products UnitsPresent capacity

Capacity Expansion Investment Expected

startup

India

Nos.

Nos.

MVA

Nos.

Nos.

Instrument Transformer (Bangalore) Nos. 900 - Nil Operational

Instrument Transformer, LT (Hosur) Nos. Nil 900 Rs 1000mn Dec. 2008

Total Investment Rs 7000 mn

Bush (Bangalore) Nos. 3600 - Nil Operational

Nos.

MVA

Switchgear (Chennai+Kolkata) 166,900 - Nil Operational

Control Panels (Bangalore) 2,000 - Nil Operational

Transformers (Naini+Chennai) 9,000 - Nil Operational

Vacuum interrupter (Kolkata) 36,000 - Nil Operational

Line Traps (Bangalore) 900 - Nil Operational

Green Field Expansion

Switchgear (Paddapai) Nil 155,500 Rs 1000mn Dec. 2008

Transformers (Baroda) Nil 10,000 Rs 5000mn Dec. 2008


Kaycee Research

Industry analysis – stronger for longer period


Kaycee ResearchPeak and base deficits imply bigger generation target

We believe that with in power equipment sector, Transmission & Distribution, will continue grow even beyond FY10 as the current generation capex will near completion.

9.70%

10.00%

10.50%12.30%

14.80%

13.80%12.30%

7.60%

8.10%7.00%

7.30%

8.40%

9.60%

8.40%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

FY06 FY07 FY08 FY09E FY10E FY11E FY12E

Base Demand Deficit Peak Shortage

India Plan Wise Capacity Addition Targets and Achievements

Plan PeriodTarget

GWActual

GW Achievement Growth

V (74-79) 12 10 83%

VI (80-85) 20 14 70% 40%

VII (85-90) 22 21 95% 50%

VII (92-97) 31 16 52% -24%

IX (97-02) 40 19 48% 19%

X (02-07) 37 24 65% 26%

XI (07-12E) 79 62 78% 157%

XII (12-17E) 87 74 85% 20%

Source: CEA and Kaycee Research

The deficit in power supply in terms of peak availability and of total energy availability during the current year was 14.8 per cent and 8.4 per cent, respectively. According to our latest estimates India added 24GW of capacity in the Xth Plan (65% achievement). Further we expect India to add 54GW in the XIth Plan an achievement of 78% against the targets. Inspite addition of this capacity, India would continue to have a peak load deficit of 9.7%, also have base demand deficit of 7.6% in FY12E.

The power capex cycle will be stronger for the long period as the Ministry of Power’s (MoP) has set up generation targets for the XI Plan (FY07-12E) is 79GW and for XII Plan (FY12-17E) is 87GW.This implying that the capacity addition target in the next 10 years from FY07E-FY17E is likely to be 166GW up 89% vis-à-vis that in FY97A-FY07E.


Kaycee Research

In order to optimize the utilization of generation capacity, PGCIL is executing the build out of the National Grid to enable the transfer of power from surplus to deficit regions. The National Grid, when fully operational, is expected to have a total inter regional transmission capacity from 17000 MW currently to 37150 MW by 2012. Setting upa National Grid requires the gradual strengthening and improvement of regional grids and their progressive integration, through extra high voltage and HVDC transmission lines. This would be entail investments of Rs 710bn, as shown below

Investment in setting up National Grid

Rs bn XI Plan (FY08-12E)

Power Grid’s participation 500

Private Sector participation 210

Total Investments 710

Source: IEEMA and Kaycee Research

5050

9450

17000

25150

37150

0

5000

10000

15000

20000

25000

30000

35000

40000

FY02 (IXThPlan Ends)

FY05 FY07 (XThPlan Ends)

FY10E FY12E (XIThPlan Ends)

MW

XI Plan 2012X Plan, 2007Unit

Source: CEA, http://powermin.nic.in

428,000251,439MVATotal - AC substation capacity

230,000156,497MVA230 / 220 kV

145,00092,942MVA400 kV

53,0002,000MVA765 kV

14,2008,200MWTotal- HVDC Terminal Capacity

11,2005,200MWHVDC Bipole + Monopole

3,0003,000MWHVDC BTB

Substations

293,372198,089ckm Total transmission line

150,000114,629ckm 230/220 kV

125,00075,722ckm 400 kV

162162ckm HVDC 200 kV Monopole

11,0785,872ckm HVDC +/- 500 kV

7,1321,704ckm 765 kV

Transmission lines

Transmission capacity ramp-up in 11th plan

The total investment in the transmission sector is forecast by the CEA to reach Rs 1400bn by 2012. The table below outlines the total transmission infrastructure (substations and lines).

Source: Power Grid and Kaycee Research

Increase in National Grid Capacity in XI Plan


Kaycee Research

Addition of generation capacity in India with the set up National Grid, the equipment manufactures and service providers will get benefit from the entire power value chain have products like boilers, turbines, civil structures, switchgears, circuit breakers, substations, transformers, transmission towers, cables and meters.

Source: Emco website

Generation, Transmission and Distribution Value Chain

Use of T&D equipments in the power value chain


Kaycee ResearchAccelerated Power Development & Reform Programme

Transmission & Distribution losses have been consistently on higher side, and reached to the level of 32.86% in the year 2000-01 due lack of adequate investment in this sector. Government of India and States has launched the Accelerated Power Development & Reform Programme (APDRP) in 2001, for the strengthening of Sub Transmission and Distribution network and reduction in AT&C losses with an objective of the programme was to bring Aggregate Technical & Commercial losses below 15%.

Extension of Accelerated Power Development Reforms Programme (APDRP) rural electrification scheme (RGGVY) in the 11th plan shows the government intent to improve the condition of AT&C losses and the last mile connectivity. These two schemes together will require an investment of Rs 3070bn which will provide an impetus to all T&D equipment manufacturers.

32.1

2

32.3

8

32.5

3

32.5

4

33.9

8

32.8

6

30.9

3

26.4

5

24.7

9

24.5

3

22.2

7

21.1

3

21.4

193

-94

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

00-0

1

01-0

2

02-0

3

03-0

4

04-0

5

05-0

6

T&D Losses in India (%)

Source: Ministry of power

Segment of APDRP Rs Cr

Sub-Transmission & Distribution for Urban & Rural Areas

197000

RGGVY 40000

APDRP and Other Scheme 40000

Decentralized Distributed Generation 20000

Others 10000

Total 307000

Source: Planning commission

We expect a pick up in order-flow for Indian T&D equipment suppliers in coming quarters. Most of the projects to be awarded by Power Grid over next two years, there would be strong order flow for BHEL in FY07 and FY08 is a good lead indicator of demand for T&D equipment going ahead. We expect the demand for T&D equipment to remain robust even after FY10.


Kaycee Research

Strengths

Areva is the first player to have executed 765kvsubstation in the country for NTPC’s Sipat powerplant in Jan., 2007

Areva possesses the ‘State of the Art’ technology in T&D domain in India with local manufacturingplants and good project execution teams

The upcoming increase in capacity for Transformersand High Voltage Switchgear factory would enableAreva to meet the needs of the growing market

Weaknesses

Any change in Government's policy could impact its profitability

Non availability of skilled manpower for excellentproduct development and execution of turnkey projects

Opportunities

The increasing requirement of High Voltage Substationsprovides major opportunities for selling Products aswell as Turnkey Systems Projects

765kV Transmission Systems and HVDC links would open a large market

Ultra Mega Power Projects that are being finalized would require products and systems of T&D

Threats

Huge challenge to execute 78 GW of generationcapacity by the Government in the 11th five year planas compare to actual performance in the past i.e. 60%

The phenomenal rise in raw material costs especiallymetals may put strain on the margins

Competitors are adding new capacities and there arenew entrants who are trying to enter into the T&D market

SWOT Analysis


Kaycee ResearchKey Management

Mr. Rathin Basu, is well known personality in the Indian Energy sector, both in Generation and in T&D, due to his 28 years of experience and exposure in the Energy business involving NTPC, Power Grid, Utilities & SEBs, Industry and Infrastructure segments. Mr.Basu is also country’s President of AREVA T&D in India

Mr. Rathin BasuManaging Director

Mr. Michel Augonnet graduated as Electrical Engineer from the Ecole Superieure d'Electricite (France). He has diversified experience of Nuclear Power Station and turnkey hydro power stations developments. He has been appointed Executive Vice President - International Sales & Service Country Organization of AREVA.

Mr. Michel AugonnetDirector

Mr. Arthur de Montalembert, graduated in Economics and Finance from the Paris Institute. In his career, he served energy divisions of both private as well as public corporations in different countries. He is the Senior Vice President – International & Marketing, AREVA.

Mr. Arthur de MontalembertDirector

Mr. S.K. Poddar has been on the company’s Board for the past 19 years. A well known and reputed industrialist, he is also the Chairman of several other public limited companies. He was the past President of FICCI and the Indian Council of Arbitration and Vice President of International Chamber of Commerce.

Mr. S.K. PoddarChairman

Mr. C. M. A. Nayar is a B.Tech in Electrical Engineering from IIT at Madras, Advanced Management Training at INSEAD, Paris. He has held several key positions in different division of the company. He is working as Vice President, Quality Focus & Change Management, at High Voltage Business.

Mr. C. M. A. NayarDirector


Kaycee ResearchEarnings Outlook & Financials

We expect the company to register a topline CAGR of 30% from Rs 20063mn during FY07 to Rs 43662mn by FY10E. Net revenues of the company to grow by 20% Y-o-Y basis to Rs 24054.4 in FY08E, further with the commissioning of new facilities in FY09 we expect substantial increase in net revenues of the company registering a growth of 47% Y-o-Y to Rs 35345mn in FY09E and then to Rs 43662mn in FY010E, registering a growth of 24% Y-o-Y.

Net profit of the company is expected to grow at Rs 2540mn in FY08E registering a YoY growth of 16%, Rs 3900mn in FY09E registering a YoY growth of 53.7%, and then to Rs 4966mn in FY10E with a growth of 27%, at a CAGR of 32% for the FY07 to FY10E period.

Rs Mn

0

10000

20000

30000

40000

50000

FY06 FY07 FY08E FY09E FY10E0%

15%

30%

45%

60%

75%

90%

Revenue % Growth

The strong sales growth is on account of the robust order book which stood at Rs 29343mn as on December 2008. This order book is more than the sales of the last year and it has 38% orders from the systems business and services which posses higher operating profit margins.

The company has secured an order worth of Rs 4180mn from Essar Constructions to provide equipments for power project in Gujarat and MP in the last week.

Areva T&D India has successfully completed, first of its kind for T&D in India, 765 kV Sipat Substation for NTPC. PGCIL is in process to open tender in the month of Dec. to set up four to five 765kV substations. Areva is the solely master to set up these high end projects in the country and we expect that the company will get these projects. The total cost to set up one 765kV substations is Rs 150cr to Rs 300cr with the execution period of 20 to 24 months.

Areva has good execution capabilities and we expect that these turnkey high end value projects will improve the operating margins as well as increase the bottom line over the period of three years.


Kaycee Research

8202.5

6259.54358.5

3570.02127.1

18.2%

17.5%

13.2%

18.1%

17.8%

0

2000

4000

6000

8000

10000

2006 2007 2008E 2009E 2010E0.0%

6.0%

12.0%

18.0%

24.0%

EBIDTA OPM

The company operating margins has increased by 480 basis points by FY07 due to product mix and enhanced project management. The contribution of systems business and service business is expected to be higher going forward, as high growth is envisaged in this segment. The EBITDA margins are expected to be stable in the range of 18% over the FY09E & FY10E as commodity prices will soften in FY09E & FY10E, product mix of high ends value projects and enhanced project management.

In this inflationary period the company has put a price escalation clause with the clients, thus company will pass the rise in price of material cost to clients.

Better product mix & enhanced project management results in improved operating margins

Earnings Outlook & FinancialsRs Mn


Kaycee ResearchKey concerns

Slowdown in investments in generation, transmission and distributionThe power sector in India is highly politicized given the number of employees and the poor financial situation of the State Electricity Boards (SEBs). Sector reforms progress in fits and starts, though there is perceptible change post the awarding of the first 3 Ultra Mega Power Projects (UMPPs).

Efficient implementation of APDRP and RGGVY programmeThe company’s growth is mainly dependent on the efficient implementation of APDRP & RGGVY programme by the government. Thus the business as whole is sensitive to the actions of the Government which can prove to be risky.

Execution and management of projectsThe execution and management of projects is the most important part of the company’s business any delay in projects execution lead to delay in conversion of the order book into revenues.

Substantial increase in input pricesThe key inputs are steel, copper and aluminum. A substantial increase in raw material prices could affect profitability. Turnkey contracts expose Areva’s business to raw material increases. Further, though there is a raw material price pass-through on domestic orders, export orders are typically at fixed prices.


Kaycee ResearchConsolidated financials

Particulars FY07 FY08E FY09E FY10E

Share capital 478.2

5014.8

5493.0

0.0

1012.0

1012.0

6505.0

2293.0

0.0

0.0

2729.0

10286.0

226.8

1346.0

14587.8

8775.0

1887.0

10662.0

3925.8

0.0

Deferred tax 286.2 283.0 283.0 283.0

Total Assets 6505.0 9528.9 12134.8 15507.0

478.2 478.2 478.2

Reserves 7038.7 10444.6 14916.8

Total Networth 7516.9 10922.8 15395.0

Secured loans 0.0 0.0 0.0

Unsecured loans 2012.0 1212.0 112.0

Total debt 2012.0 1212.0 112.0

Total Liability 9528.9 12134.8 15507.0

Net block 4823.1 6233.2 6207.2

Capital WIP 0.0 0.0 0.0

Investments 0.0 0.0 0.0

Inventories 3295.1 5035.4 6220.4

Sundry debtors 11862.5 15493.5 19139.7

Current liabilities 10557.2 15389.6 18950.7

Provisions 1883.8 1883.8 1883.8

Total current liabilities 12441.0 17273.4 20834.5

Net current assets 4422.9 5618.7 9016.8

Miscellaneous exp 0.0 0.0 0.0

Cash & bank 248.1 197.7 1682.9

Loans and advances 1458.2 2165.5 2808.2

Total current assets 16863.9 22892.1 29851.3

Particulars FY07 FY08E FY09E FY10E

Net sales 20063.0

25%

16493.0

3570.0

68%

230.5

3339.5

72%

85.0

178.0

3432.5

1237.0

2195.5

60%

-3.2

2198.7

46.0

50.8

114.9

47.8

90%

24054.4 35344.6 43662.5

Net sales growth (%) 20% 47% 24%

Expenditure 19748.7 28947.2 35715.9

EBIDTA 4305.7 6397.4 7946.6

EBIDTA growth (%) 21% 49% 24%

Depreciation 469.9 589.9 625.9

EBIT 3835.8 5807.4 7320.7

EBIT growth (%) 15% 51% 26%

Interest 171.0 115.1 10.6

Other Income 195.8 215.4 236.9

PBT 3860.6 5907.7 7546.9

Tax 1320.3 2008.6 2581.1

Profit after tax (PAT) 2540.3 3899.1 4965.9

Share Data

EPS (diluted) (Rs) 53.2 81.6 103.9

CEPS (Rs) 63.0 93.9 117.0

Book Value (Rs) 157.2 228.4 321.9

No of shares (mn) 47.8 47.8 47.8

Dividend per share (%) 90% 90% 90%

PAT growth (%) 16% 53% 27%

Extraordinary Items (EI) -2.7 -1.8 -1.2

Net profit after EI 2543.0 3900.9 4967.1

Profit and Loss Account Rs MN Balance sheet Rs MN


Kaycee ResearchConsolidated financials

Particulars FY07 FY08 FY09E FY10E

Profit Before Tax 3432.5

230.5

85.0

3927.5

2404.0

1114.0

0.0

409.5

-1375.5

112.0

-1263.5

978.8

-332.0

-91.0

0.0

555.8

-298.2

525.0

226.8

3860.6 5907.7 7546.9

Add: Depreciation 469.9 589.9 625.9

Add: Interest 171.0 115.1 10.6

CF from operations 4501.5 6612.7 8183.5

Change in WC 472.6 1246.2 1912.8

Taxes 1320.3 2008.6 2581.1

Miscellaneous exp. -2.7 -1.8 -1.2

Cash from operation 2711.4 3359.7 3690.8

Capital expenditure -3000.0 -2000.0 -600.0

Investments 0.0 0.0 0.0

Cash from investing -3000.0 -2000.0 -600.0

Interest -171.0 -115.1 -10.6

Others -24.1 0.0 0.0

Cash from financing 309.9 -1410.1 -1605.6

Inc./(Dec) in Cash 21.3 -50.4 1485.2

Opening cash balance 226.8 248.1 197.7

Inc/Dec in debt 1000.0 -800.0 -1100.0

Dividends -494.9 -494.9 -494.9

Closing cash balance 248.1 197.7 1682.9

Particulars FY07 FY08E FY09E FY10P

Valuation Ratios

1660.0

36.1

32.7

14.5

4.0

22.5

4.0

17.8

10.9

40.0

51.3

3.1

187

253

50

1.4

42.0

Debt/equity 0.2 0.3 0.1 0.0

Market price (Rs) 1660.0 1660.0 1660.0

P/E (X) 31.2 20.3 16.0

P/CEPS (X) 26.4 17.7 14.2

P/BV (X) 10.6 7.3 5.2

M cap/Sales (X) 3.3 2.2 1.8

EV/EBIDTA (X) 18.7 12.6 9.8

EV/Sales (X) 3.4 2.3 1.8

Profitability Ratios

ROE % 33.8 35.7 32.3

Inventory turnover-days 50 52 52

Current ratio 1.4 1.3 1.4

Interest coverage 25.2 55.6 746.9

Liquidity ratios

ROCE % 40.3 47.9 47.2

Efficiency Ratios

Asset turnover 2.5 2.9 2.8

Av collections period-days 180 160 160

Av payment period-days 250 250 250

EBIDTA margin % 17.9 18.1 18.2

PAT margin % 10.6 11.0 11.4

Key Financial Ratios Cash flow Rs MN


Kaycee ResearchValuations and recommendations

At the current market price of Rs 1660, the stock is available at 20.3x and 16.0x its FY09E and FY10E estimated earnings of Rs 81.6 and Rs 103.9 respectively. The company has been showing stupendous growth over the last 3 years and we expect the company to continue the growth momentum in the coming years as the Government’s drive to lower the T & D losses picks pace. Areva is trading at a substantial discounts to its closet comparable ABB. We are initiating our coverage on the stock with a BUY rating and a target price of Rs 2080 over a period of 18 months (20x its FY10E Earnings).

Comparative Valuation

Areva ABB BHEL

Market Cap (Rs Mn) 79381.0 246291.0 899334.0

FY07 PE(x) 36.1 50.1 37.3

FY08 PE(x) 31.2 33.9 28.5

FY09 PE(x) 20.3 26.0 22.2

FY10 PE(x) 16.0 20.0 17.0

FY07 P/B(x) 14.5 20.6 10.2

FY08 P/B(x) 10.6 15.1 8.1

FY09 P/B(x) 7.3 11.2 6.4

FY10 P/B(x) 5.2 8.2 4.9

FY07 RoE(%) 40.0 32.0 30.0

FY08 RoE(%) 33.8 34.6 29.3

FY09 RoE(%) 35.7 35.3 32.6

FY10 RoE(%) 32.3 35.7 33.4


Kaycee Research

Institutional Research Team

Strictly for Private Circulation only. All rights reserved. © Kantilal Chhaganlal Securities Pvt. Ltd.

DISCLAIMER & DISCLOSURE: This information & opinions in this report have been prepared by Kantilal Chhaganlal Securities Pvt. Ltd. The report & the information contained herein are strictly confidential and meant solely for the authorized recipient and may be restricted by law or regulation in certain countries. This report is for information purposes only for the authorized reader and does not construe to be any investment, legal or taxation advice. This report is based on the information obtained from public sources and sources believed to be reliable, however, no warranty, express or implied, are given for the accuracy or correctness of the same and it should not be construed as such. It is also not intended as an offer or solicitation for the purchase and sale of any financial instrument. Kantilal Chhaganlal Securities Pvt. Ltd. and/or its subsidiaries and/or directors, employees, officers or associates – including the persons involved in the preparation/issuance of this report may have (a) from time to time, any interest or positions (buy/sell etc.) – financial (including in derivatives/commodities market) or otherwise in the companies/securities covered/mentioned in this report and may have acted upon the information &/or (b) been engaged in any other transaction, commercial or otherwise, in respect of the companies/securities covered in this report, like earning brokerage, commission or act as a market maker &/or (c) performed or may seek to perform any merchant/investment banking services for such companies or act as advisor or lender/borrower to such companies &/or (d) have other possible conflict of interest with respect to any recommendation or any information/opinions that could affect the objectivity of this report. As a result, the authorized recipients of this report should rely on their own investigations and analysis & seek professional advice. Any action taken by any one solely on the basis of the information contained herein is their own responsibility alone and Kantilal Chhaganlal Securities Pvt. Ltd. and its subsidiaries or its directors, employees or associates will not be liable in any manner whatsoever for the consequences of such action taken.No data/information contained in this report shall be copied, forwarded, transmitted or distributed, in part or in whole, in any form or in any media, without the previous written consent of Kantilal Chhaganlal Securities Pvt. Ltd.

Name Designation Email ID Contact No.

Ramachandran R. Iyer Head -Institutions(Research, Dealing & Sales)

[email protected] 022-22642057

Name Of Analyst Sector Coverage Email ID Contact No.

Rahul Sanghvi Institutional Sales [email protected] 022-22642059

Jigisha Jaini Engg. & Capital Goods, Metals & Mining [email protected] 022-22642058

Shailesh Kumar Tele comm, Banking, Shipping & Logistics [email protected] 022-22642029

Naini Thakore Oil & Gas, Textiles [email protected] 022-66366697

Ankush Mahajan Power, Fertilizers, Packaging [email protected] 022-22642029

Harshad Gujrathi Media, Logistics [email protected] 022-66366697

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