2QCY2011 result Update | Capital Goods

August 11, 2011

Areva T&D India

Performance Highlights
(` cr) Revenue EBITDA EBITDA margin (%) Reported PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
% chg (yoy) 12.8 (4.0) (158)bp (18.5) 1QCY11 995 84 8.4 29 % chg (qoq) 0.4 (6.6) (58.3)bp (8.8)

`228 -

2QCY11 999 78 7.8 26

2QCY10 885 81 9.4 32

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Capital Goods 5,546 0.7 350/216 319,059 2 17,039 5,138 AREVA.BO ATD@IN

Areva T&D India (Areva) reported a weak performance for 2QCY2011. The top line grew by 12.8% yoy to `999cr (est. `1,009cr), but EBITDA margin declined by 158bp yoy to 7.8% (est. 9%). Consequently, PAT declined by 18.5% yoy to `26cr (est. `33cr). The companys profitability is strained mainly due to continuous pricing pressure in the T&D segment, which is expected to persist on account of increasing competition. We continue to remain Neutral on the stock. Modest growth; margin dented: The companys revenue grew by 12.8% yoy to `999cr (`885cr), driven by higher sales volume during the quarter. Material cost as a proportion of sales remained nearly flat on a yoy basis at 67.6%; however, higher other expenses during the current quarter (15.7% vs. 13.8% in 2QCY2010) led to a 158bp yoy decline in the EBITDA margin to 7.8%. Consequently, EBITDA declined by 4% yoy to `78cr. Interest expense rose by 33.1% yoy to `16cr (`12cr). The combination of weak operating results and higher interest expenses dragged the bottom line down by 18.5% yoy to `26cr (`32cr). Outlook and valuation: Tough operating environment has caused dismay for T&D equipment players. Order book growth has been affected by heightened competition in the T&D space. This is likely to result in moderate growth in CY2011, despite some short-cycle orders (lower execution period) adding to the order book shelf. Further, near-term outlook seems challenging ordering activity in the T&D space is likely to be muted given the overall malaise in the T&D space. We remain cautious on the above concerns and believe the stock would trade sideways until the T&D segment posts a meaningful recovery. At the CMP, the stock trades at 28.2x CY2011E EPS and 20.1x CY2012E EPS. We believe the stock is fairly valued and, given fewer triggers, upside from the current level seems limited. Hence, we continue to remain Neutral on the stock. Key financials
Y/E December (` cr) Net sales % chg Net profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 73.4 16.0 1.3 9.3

Abs. (%) Sensex Areva T&D

3m (8.3)

1yr (5.7)

3yr 9.9 (31.2)

(14.4) (22.0)

CY2009
3,566 35.0 191 (12.7) 11.3 8.0 28.5 6.3 24.0 24.1 1.7 15.1

CY2010
4,020 12.7 187 (2.2) 10.5 7.8 29.2 5.4 20.0 15.6 1.5 14.7

CY2011E
4,504 12.0 193 3.5 9.8 8.1 28.2 4.8 18.0 24.0 1.4 14.2

CY2012E
5,162 14.6 271 40.4 10.9 11.4 20.1 4.0 21.6 26.9 1.2 10.7

Hemang Thaker
+91 22 3935 7800 Ext: 6817 hemang.thaker@angelbroking.com

Please refer to important disclosures at the end of this report

Areva T&D India | 2QCY2011 Result Update

Exhibit 1: Quarterly performance

(` cr) Net Sales Other operating income Total income Stock adjustments Raw Material (% of total income) Employee Cost (% of total income) Other Expenses (% of total income) Total Expenditure EBITDA (EBITDA %) Interest Depreciation Other Income PBT (% of total income) Total Tax (% of PBT) Reported PAT (% of total income) EPS
Source: Company, Angel Research

2QCY11 991 8.2 999 (32.9) 708 67.6 88 8.8 157 15.7 921 78 7.8 16 23 0 39 3.9 13 33.4 26 2.6 1.1

2QCY10 885 885 (43.2) 638 67.2 87 9.8 122 13.8 804 81 9.4 12 23 0 49 5.5 16 33.7 32 3.6 1.3

% chg (yoy) 11.9 12.8 11.1 1.1 28.5 14.5 (4.0) 31.1 1.3 (18.9) (19.6) (18.5) (18.5)

1QCY11 995 995 (38.7) 726 69.0 90.4 9.1 134 13.5 911 84 8.4 16.0 24.6 0.0 43.1 4.3 14 33.2 29 2.9 1.2

% chg (qoq) (0.4) 0.4 (2.4) (2.8) 17.4 1.0 (7) (0.2) (7.4) (8.5) (7.9) (8.8) (8.8)

1HCY11 1,982 11.7 1,994 (72) 1,434 68.3 178 8.9 291 14.6 1,832 162 8.1 32 47 83 4.1 28 33.3 55 2.8 2.3

1HCY10 1,657 5.6 1,662 (121) 1,259 68.5 173 10.4 224 13.5 1,535 127 7.7 27 46 54 3.2 18 33.6 36 2.1 1.5

% chg (yoy) 19.6 19.9 13.9 3.2 30.1 19.3 27.0 16.3 2.7 53.4 51.9 54.1 54.1

Exhibit 2: Actual vs. estimates

(` cr) Revenue EBITDA PAT EPS (`)
Source: Company, Angel Research

Actual
999 78 26 1.1

Estimates
1,009 91 33 1.4

Var. (%)
(1.0) (13.9) (20.6) (20.6)

August 11, 2011

Areva T&D India | 2QCY2011 Result Update

Order inflows
Order intake for the quarter declined by 5.6% yoy to `963cr (`1,091cr). On a sequential basis, the intake fell by 23%. Base orders accounted for a bigger portion of order inflows. With heightened competition and muted outlook in the T&D market, we believe that order intake is likely to be muted for the next couple of quarters.

Exhibit 3: Major orders received during the quarter (` cr)

Utility segment MSETCL (220 kV Substation) Industry / Infrastructure Lanco Infratech (765 kV Vidarbha Substation) Nalco (Pot control system) Hindalco (ETC & Switchyard Package) Abhijeet Projects (400 kV Substation at Lathehar) Reliance Infrastructure (MV Package) Doosan Projects (Power Transformer and MV Package) St Gobain ( Power Distribution Package)
Source: Company, Angel Research

53 70 54 50 35 44 35 26

Exhibit 4: Order backlog

4,975 5,111 4,921 5,204 4,877 5,150 4,772 4,232 4,225

Exhibit 5: Order inflow

1,418 1,295 1,253 1,038 1,016 1,019 987

6,000 4,800
(` cr)

4,538

1,600
( (` cr)

150
963 2QCY11

770

855

1,280 960 640 320 0

110 70 (%) 30 (10) (50)

3,600 2,400 1,200 0

1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11

1QCY09

2QCY09

3QCY09

4QCY09

1QCY10

2QCY10

3QCY10

4QCY10

Order Inflows (LHS)

Growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Managements view on the T&D market

The T&D market continued to remain muted large projects were considerably delayed Pricing pressures continued Chinese and Korean suppliers remained aggressive Prices of 765kV substation in PGCILs tenders dropped due to the entry of many mid-size contractors The T&D markets revival seems challenging in the near term

August 11, 2011

1QCY11

Areva T&D India | 2QCY2011 Result Update

Investment concerns
Generation delays to impact T&D growth: Areva's fortunes are directly linked to the Indian power sectors growth. With the power sector currently troubled with a host of issues (such as land acquisitions and coal linkages), power projects are witnessing indefinite delays, which directly spiral to the transmission gateway. Hence, the malaise in the power sector will adversely affect the growth prospects of T&D equipment players. Of late, concerns have also emerged over financing power projects. We believe the challenges outlined in power clearances will remain a near-to-medium term drag for companies in the T&D equipment space. Financial health on a deteriorating note: Continuous price erosion in the products segment and increasing proportion of the low-margin projects segment have led to EBITDA margin contracting from ~17% in CY2007 to ~11% in CY2010. Operating margin in 2QCY2011 was disappointing at 7.8%, dipping by 158bp from 2QCY2010. Further, the company is incurring high cost on its new factories. In the current scenario, we believe that margin recovery will be distant and it will be challenging for the company to deliver strong earnings. Competitive pressure to pinch hard: PGCILs new norm of separate tendering of sub-station projects and circuit breakers has attracted several players. Circuit breakers constitute ~20% of sub-station components, and this paves a way for Crompton Greaves, BHEL and L&T to grab a pie from the growing high-voltage T&D segment. This will strain formidable players such as ABB, Areva and Siemens, who enjoy a dominant market share in the high-voltage T&D space. Discouraging macro headwinds: The unfavourable macro climate seems a bigger cause of worry elevated interest rates and the cascading impact on private sector capex post a major concern. Management indicated that the industry and infrastructure sectors are yet to post an uptick in capex. Outlook and valuation: Tough operating environment has caused dismay for T&D equipment players. Order book growth has been affected by heightened competition in the T&D space. This is likely to result in moderate growth in CY2011, despite some short-cycle orders (lower execution period) adding to the order book shelf. Further, near-term outlook seems challenging ordering activity in the T&D space is likely to be muted given the overall malaise in the T&D space. We remain cautious on the above concerns and believe the stock will trade sideways until the T&D segment posts a meaningful recovery. At the CMP, the stock trades at 28.2x CY2011E EPS and 20.1x CY2012E EPS. We believe the stock is fairly valued and, given fewer triggers, upside from the current level seems limited. Hence, we continue to remain Neutral on the stock.

Exhibit 6: Revised estimates

CY2011E (` cr) Revenue EBITDA PAT
Source: Company, Angel Research

CY2012E Var. (%) (1.3) (5.4) (9.3) Earlier estimates 5,320 571 284 Revised estimates 5,162 565 271 Var. (%) (3.0) (1.1) (4.4) 4,504 442 193

Earlier estimates 4,564 467 213

Revised estimates

August 11, 2011

Areva T&D India | 2QCY2011 Result Update

Exhibit 7: Key assumptions

CY07 Order inflows Growth (%) Order backlog Growth (%)
Source: Company, Angel Research

CY08 4,013 36.8 4,095 49.1

CY09 4,214 5.0 4,772 16.5

CY10 4,185 (0.7) 4,877 2.2

CY11E 4,687 12.0 4,782 (1.9)

CY12E 5,859 25.0 5,161 7.9

2,934 2,747

Exhibit 8: Angel EPS vs. Consensus

Angel forecast CY11E CY12E
Source: Company, Angel Research

Bloomberg consensus 10.7 13.6

Var (%) (24.5) (16.5)

8.1 11.4

Exhibit 9: One-year forward P/E band

800 600 400 200 0
Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

Share Price (`)

Source: Company, Angel Research

21x

30x

39x

48x

Exhibit 10: Peer valuation

Company Reco. CMP Tgt. price (`) ABB* Areva T&D* BHEL BGR Energy Crompton Greaves Jyoti Structures KEC International Thermax Sell Neutral Neutral Neutral Neutral Buy Buy Neutral 800 228 1,762 354 145 73 73 517 Upside/ P/BV(x) P/E(x) FY2011-13E RoCE (%) RoE (%) (`) (Downside) (%) FY12E FY13E FY12E FY13E 578 100 107 (27.7) 37.9 47.3 6.3 4.8 3.5 2.1 2.5 0.8 1.7 3.8 5.5 4.0 2.9 1.9 2.0 0.7 1.3 3.0 54.5 28.2 12.9 7.8 14.7 5.9 7.4 14.8 37.4 20.1 11.1 8.5 9.5 5.0 5.8 12.6 EPS CAGR FY12E FY13E FY12E FY13E 166.8 20.6 19.5 -3.7 2.8 22.7 23.1 13.1 15.0 24.0 40.0 19.7 19.6 23.7 22.0 33.6 20.6 26.9 37.3 16.1 26.7 22.9 24.1 32.7 12.2 18.0 29.4 30.6 18.1 16.6 24.8 28.3 15.7 21.6 27.3 23.4 23.7 15.0 25.6 26.7

Source: Company, Angel Research; *Note: December year ending

August 11, 2011

Areva T&D India | 2QCY2011 Result Update

Profit & Loss Statement

Y/E December (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Others Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of associate Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY2008 CY2009 CY2010 CY2011E CY2012E 2,641 2,641 31.6 2,216 1,726 281 209 425 18.8 16.1 34 391 16.8 14.8 30 14 3.7 375 9.3 28.1 347 121 34.8 226 226 219 1.2 8.3 9.2 9.2 1.2 3,566 3,566 35.0 3,164 2,493 379 292 401 (5.6) 11.3 61 340 (13.0) 9.5 58 17 5.8 300 (20.1) 6.8 293 101 34.5 192 192 191 (12.7) 5.4 8.0 8.0 (12.7) 4,020 4,020 12.7 3,596 2,753 497 346 424 5.6 10.5 94 330 (3.0) 8.2 66 17 6.0 282 (6.1) 282 95 33.7 187 187 187 (2.2) 4.6 7.8 7.8 (2.2) 4,504 4,504 12.0 4,062 3,167 482 414 442 4.3 9.8 101 341 3.3 7.6 77 22 7.7 286 1.7 286 93 32.5 193 193 193 3.5 4.3 8.1 8.1 3.5 5,162 5,162 14.6 4,597 3,562 537 498 565 27.8 10.9 107 457 34.0 8.9 78 23 5.6 402 40.4 402 131 32.5 271 271 271 40.4 5.3 11.4 11.4 40.4

August 11, 2011

Areva T&D India | 2QCY2011 Result Update

Balance Sheet
Y/E December SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 374 210 163 450 32 2,160 45 282 258 1,652 508 1,154 1,050 245 805 52 32 2,876 133 317 447 2,142 734 1,623 1,162 323 839 22 32 3,574 120 319 514 2,566 1,008 1,901 1,232 424 808 32 32 3,835 137 338 563 2,593 1,241 2,114 1,324 532 793 40 32 4,706 335 413 645 3,286 1,420 2,285 48 676 724 469 (39) 1,154 48 818 865 768 (10) 1,623 48 954 1,002 896 4 1,901 48 1,097 1,145 966 4 2,114 48 1,318 1,366 916 4 2,285 CY2008 CY2009 CY2010 CY2011E CY2012E

August 11, 2011

Areva T&D India | 2QCY2011 Result Update

Cash Flow Statement

Y/E December( ` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY2008 CY2009 CY2010 CY2011E CY2012E 347 34 (93) 14 131 143 (446) 14 (432) 368 50 (6) 318 22 23 45 293 61 (138) 17 72 127 (278) 17 (261) 298 50 (26) 248 87 45 133 282 94 (286) 17 81 (9) (82) (0.2) 17 (66) 128 50 (16) 78 (13) 133 120 286 101 (216) 22 93 56 (80) 22 (58) 70 50 20 17 120 137 402 107 19 23 131 376 (100) 23 (78) (50) 50 (100) 198 137 335

August 11, 2011

Areva T&D India | 2QCY2011 Result Update

Key Ratios
Y/E December Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 0.6 1.0 13.1 0.7 1.6 5.9 0.8 1.8 5.0 0.7 1.9 4.4 0.4 1.0 5.9 7.6 46 150 121 58 5.0 39 143 130 54 3.6 39 170 159 68 3.8 45 175 158 81 4.0 43 173 158 77 42.5 65.2 34.4 24.1 32.7 24.0 15.6 21.0 20.0 24.0 18.7 18.0 26.9 24.1 21.6 14.8 0.7 3.0 28.8 6.8 0.6 41.6 9.5 0.7 2.7 16.8 6.1 0.7 24.7 8.2 0.7 2.4 13.3 5.2 0.8 19.6 7.6 0.7 2.4 12.3 5.6 0.7 17.1 8.9 0.7 2.6 15.7 5.6 0.4 20.0 9.2 9.2 10.6 1.8 30.3 8.0 8.0 10.5 1.8 36.2 7.8 7.8 11.7 1.8 41.9 8.1 8.1 12.3 1.8 47.9 11.4 11.4 15.8 1.8 57.1 24.9 21.5 7.5 0.8 2.2 13.8 4.9 28.5 21.6 6.3 0.8 1.7 15.1 3.7 29.2 29.6 5.4 0.8 1.5 14.7 3.3 28.2 18.5 4.8 0.8 1.4 14.2 3.0 20.1 14.4 4.0 0.8 1.2 10.7 2.6 CY2008 CY2009 CY2010 CY2011E CY2012E

August 11, 2011

Areva T&D India | 2QCY2011 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Areva T&D India No No No No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 11, 2011

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