The Areva T&D India stock rose as much as 7.9% in yesterday’s trading session after the break out of the news of Areva’s global Power Transmission & Distribution (Areva T&D) unit being up for sale.
Towards the second half of the day, the Indian unit of the company officially released an update stating that the Areva Group’s Supervisory Board has announced several steps to secure the Group’s long-term financial requirements and that it was deliberating various proposals, including opening of its capital to new strategic partners and its employees.
The Supervisory Board also instructed the Group’s Executive Board to put its global T&D Division up for sale. However, it stated ”depending on the interest generated, the decision to dispose of the T&D activity or not and the choice of a potential buyer will be taken before the end of year”.
Though the stock gave a knee-jerk reaction on this newsflow, we understand that this news has been doing the rounds for quite some time now along with names of potential suitors including Alstom, Siemens and Schneider, etc.
Notably, Areva T&D India was a part of Alstom India till September 2005, and was transferred to Areva as a result of Areva acquiring Alstom’s global T&D business.
As of now, we believe there is not much clarity regards the structure and timing of the deal. Adding to the complexity is the fact that it is not an India unit specific deal rather it covers the entire global T&D business of the Areva Group.
Besides, if the deal materialises, though an open offer could be triggered, pricing of the same would largely depend on the timing of the deal.
At Rs363, the stock is commanding premium valuations trading at a P/E of 33.3x and 27.3x CY2009E and CY2010E EPS, respectively.
We would closely monitor the developments but, as of now, in wake of the recent run-up in stock price, we downgrade it from Reduce to SELL, with a target price of Rs239.