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Areva T&D: Maintaining the momentum - Views on News from Equitymaster

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Areva T&D: Maintaining the momentum

Apr 29, 2008

Performance summary
  • Net sales grow by 23% YoY during 1QCY08.

  • Operating margins expand by 0.4%, owing to lower other expenditure (as percentage of sales).

  • Net profits grow by 43% YoY during the quarter. Excluding the extraordinary adjustment, net profit growth stands at 19% YoY.

(Rs m) 1QCY07 1QCY08 Change
Net Sales 4,104 5,029 22.5%
Expenditure 3,475 4,237 21.9%
Operating profit (EBITDA) 629 792 25.9%
Operating profit margin (%) 15.3% 15.7%  
Other income 21 35 66.7%
Depreciation 51 59 15.7%
Interest 9 29 222.2%
Extraordinary income/(expense) (6) 83  
Profit before tax 584 822 40.8%
Tax 205 281 37.1%
Profit after tax/(loss) 379 541 42.7%
Net profit margin (%) 9.2% 10.8%  
No. of shares (m) 39.9 47.8  
Diluted earnings per share (Rs)*   46.8  
P/E ratio (x)*   37.0  
* On a trailing 12 months basis

What has driven performance in 1QCY08?
  • The growth in sales was led primarily by an increase in volumes of Areva’s transmission and distribution (T&D) products such as transformers (up to 765 kV), switchgears and circuit breakers as also its turnkey projects (power and industrial).Investments flowing in from central and state utilities and industries have helped Areva rake in the 23% YoY growth in sales during 1QCY08.

    As a matter of fact, the company’s French parent won its largest contract ever in January 2008 worth over Euro 500 m from Qatar General Electricity’s and Water Corporation. This contract is part of the Qatar power transmission system expansion program and includes installation of 14 gas-insulated sub-stations to develop and improve the network in the Doha region. This contract will have a significant impact on Areva T&D India, as orders worth Euro 86 m will be sourced from the company from its Chennai factory, which should enter into production this year. The equipment is planned for delivery by early 2010.

  • Areva’s operating margins expanded by 0.4% YoY during 1QCY08. This was led by lower other expenditure (as percentage of sales). As indicated by the management in its press release, several cost optimisation initiatives together with execution in the project management field have led to the improvement in profitability during the quarter.

  • On the back of expansion in operating margins and higher extraordinary income (on account of sale of property), Areva’s net profits recorded a growth of 43% YoY during the quarter.

What to expect?
At the current price of Rs 1,730, the stock is trading at a multiple of 37 times its trailing 12 months earnings. The company is currently undergoing green field expansion and is building a facility at Padappai near Chennai for circuit breakers of upto 1,200 kV and high voltage GIS and disconnectors. Also two facilities, one at Baroda, for large power transformers of upto 1,200 kV, HVDC & rectifier transformers, distribution transformers, medium voltage and secondary distribution and the other at Hosur, for instrument transformers of upto 1,200 kV along with a R&D centre are also under construction. The company is expecting strong investments in the power T&D system over the next few years to propel its growth.

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