Areva T&D India is the subsidiary of the France-based Areva Group, which is a world-wide leader in the nuclear power business and the third largest player in the global Transmission & Distribution (T&D) space.
The Indian subsidiary has been gradually gaining market share over the last few years and has now edged past ABB to achieve the Number 1 position in the Indian T&D market in 2008.
However, in the current challenging scenario, several headwinds emerging due to the unfavourable macro-economic environment are taking its toll on the entire capital goods sector.
Areva T&D too, with around 35-40% private sector orders cannot remain completely immune from the slowdown.
In terms of end customer classification as well, the mix for the company stands at 50:50 for utility and industrial. Again, the industrial clients are expected to be hit the hardest in wake of the ongoing slowdown.
In the present macro environment, though the power sector capex is relatively resilient with majority of projects being envisaged by the Central and State sector utilities, major worry for the T&D Sector is delays in the generation capacity addition.
The execution rate even for the current Plan period is pretty dismal with around 54% of projects already running behind schedule.
At Rs214, the stock is quoting at 19.2x and 15.7x CY2009E and CY2010E EPS respectively, which we believe is expensive.
Against this backdrop, we initiate coverage on the stock, with a REDUCE rating and target price of Rs177.