Angel Broking neutral on Areva T&D India

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Angel Broking neutral on Areva T&D India

Angel Broking has maintained neutral rating on Areva T&D India in its November 17, 2011 research report.

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Angel Broking has maintained neutral rating on Areva T&D India in its November 17, 2011 research report.

"Areva T&D India (Areva) reported a mixed performance for 3QCY2011. The company's top line reported disappointing growth; however, earnings exceeded our estimates on the back to lower-than-expected margin contraction. Revenue remained nearly flat on a yoy basis at Rs 1,055cr, 8.5% lower than (below street) our expectation of Rs 1,153cr. Coupled with EBTDAM contraction (241bp yoy), PAT declined by 24.1% yoy to 47.8cr. The company's order intake grew strongly by 77.3% to Rs 1,516cr, which was the only positive highlight during the quarter. Nonetheless, this does not warrant a change in our view; in fact, we see higher stress on the company on the earnings front."

"For 3QCY2011, Areva's revenue remained nearly flat, growing by mere 0.7% yoy to Rs 1,055cr due to lower execution. The company's EBITDAM during the quarter contracted by 241bp yoy 10.3% (vs. est. 8.9%) but improved on a sequential basis by 247bp on the back of operational efficiency. Hurt by disappointing revenue, PAT declined by 24.1% yoy to Rs 47.8cr, but exceeded sharply by 35.3% from our (above street) estimate of Rs 35.3cr due to lower-than-expected EBITAM compression."

"Given the deteriorating dynamics in the T&D space (extremely competitive landscape), we believe Areva is likely to face pressures on the earnings front. Despite some improvement in the OPM during the current quarter, we believe margin recovery will not be as swift as anticipated (read concerns). Further, lack of positive news flow in the sector (read sector related) is likely to have a downward bias on the stock. Given these negatives, the stock appears expensive at the CMP (27.3x CY2011E EPS and 23.4x CY2012E EPS). Upside from the current level seems limited, in our view, until concerns dissipate. Hence, we continue to remain Neutral on the stock," says Angel Broking research report.

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