Areva T&D, a subsidiary of Areva T&D France, reported a healthy performance for Q2CY2008. Net Sales grew at 44.5% to Rs621.75 crore. OPM% improved marginally to 17.7% as sharp spurt in other expenses to offset saving in raw material cost to 58.4% of net sales.
However, lower other income of, 145% jump in finance cost of and higher depreciation (in view of massive capacity expansion) restricted growth in PBT (before extra ordinary items) of Rs98.21 to 38.6%.
After accounting for profit on sale of property of Rs1.2 crore, PAT surged by 39.1% to Rs64.66 crore.
To take advantage of growing opportunities, Areva is investing Rs700 crore in setting up three green-field factories in India, expected to commission by December 2008. Its plant at Hosur at capex of Rs100 crore, is expected to be a world class competency centre for high voltage instrument transformers up to 800 kV and medium voltage ranging from 145-245 kV.
It will also manufacture line traps up to 800 Kv and condenser bushings for power transformers up to 400 kV. At Vadodara, company is setting up high voltage transformer manufacturing unit at capex of ~Rs.200 crore. Chennai GIS factory (Gas Insulated Switchgear) at capex of Rs100 crore will become flagship of Areva T&D in India and will enable company to respond to booming demand for electricity & increase product exports. Accordingly, Areva plans to double turnover by CY2010 at CAGR of 26%.
At the current price, the share is trading at 27.4 times CY2008 expected EPS of Rs60 and 21.9 times CY 2009 expected EPS of Rs75. Capacity expansion, outsourcing from parent and strong order-book position lend visibility to the company’s earnings. We recommend BUY from a long-term perspective.