3QCY2011 Result Update | Capital Goods

November 17, 2011

Areva T&D India

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

NEUTRAL
CMP Target Price
% chg (yoy) 0.7 (18.4) (241)bp (24.1) 2QCY11 998.9 78.2 7.8 26.3 % chg (qoq) 5.6 38.9 247bp 82.0

`199 -

3QCY11 1,055 108.6 10.3 47.8

3QCY10 1,048 133.2 12.7 63.0

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 4,751 0.7 349/192 244,345 2 16,462 4,935 AREVA.BO ATD@IN

For 3QCY2011, Areva T&D India (Areva) reported a mixed performance. The companys 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 `1,055cr, 8.5% lower than (below street) our expectation of `1,153cr. Coupled with EBTDAM contraction (241bp yoy), PAT declined by 24.1% yoy to 47.8cr. The companys order intake grew strongly by 77.3% to `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. We remain Neutral on the stock. Flat revenue, owing to execution delays: For 3QCY2011, Arevas revenue remained nearly flat, growing by mere 0.7% yoy to `1,055cr due to lower execution. The companys 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 `47.8cr, but exceeded sharply by 35.3% from our (above street) estimate of `35.3cr due to lower-than-expected EBITAM compression. Outlook and valuation: 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. 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 16.1 1.3 9.2

Abs. (%) Sensex Areva T&D

3m

1yr

3yr 77.2 27.9

(2.3) (17.1) (10.7) (31.9)

CY2009 3,566 35.0 191 (12.7) 11.3 8.0 24.9 5.5 24.0 24.1 1.5 13.4

CY2010 4,020 12.7 187 (2.2) 10.5 7.8 25.4 4.7 20.0 15.6 1.4 13.0

CY2011E 4,459 10.9 174 (6.8) 9.0 7.3 27.3 4.2 16.4 24.0 1.3 13.9

CY2012E 5,064 13.6 203 16.7 9.0 8.5 23.4 3.7 16.9 26.9 1.1 12.1

Shailesh Kanani
+91 22 3935 7800 Ext: 6829 Shailesh.kanani@angelbroking.com

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 | 3QCY2011 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

3QCY11 1,044 10.7 1,055 (8.1) 718.2 67.3 88.4 8.4 147.7 14.0 946.2 109 10.3 14.9 23.6 0.0 70.2 6.7 22.4 31.9 47.8 4.5 2.0

3QCY10 1,048 0.0 1,048 (7) 717.5 67.9 81.0 7.7 122.5 11.7 914.5 133.2 12.7 14.4 24.5 0.0 94.3 9.0 31.3 33.2 63.0 6.0 2.6

% chg (yoy) (0.3) 0.7 0.1 9.1 20.5 3.5 (18.4) 2.8 (3.3) (25.6) (28.6) (24.1) (24.1)

2QCY11 990.6 8.2 998.9 (33) 708.4 67.6 87.8 8.8 157.3 15.7 920.6 78.2 7.8 16.0 22.8 0.0 39.5 3.9 13.2 33.4 26.3 2.6 1.1

% chg (qoq) 5.4 5.6 1.4 0.7 (6.1) 2.8 38.9 (7.0) 3.6 77.8 69.5 82.0 82.0

9MCY11 3,030 18.9 3,049 (79.7) 2,152 68.0 266.7 11.0 439.0 20.4 2,778 270.6 8.9 46.8 71.1 0.0 152.7 5.0 49.9 32.7 102.8 3.4 4.3

9MCY10 2,710 0.0 2,710 (127.1) 1,978 68.3 253.7 11.9 346.4 17.5 2,451 258.8 9.5 40.0 70.6 0.0 148.1 5.5 49.4 33.4 98.7 3.6 4.9

% chg (yoy) 11.8 12.5

5.1 26.7 13.3 4.6 16.9 0.6 3.1 0.9 4.2 2.0

Exhibit 2: Actual vs. estimates

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

Actual
1,055 108.6 47.8 2.0

Estimates
1,153 92.3 35.3 1.5

Var. (%)
(8.5) 17.7 35.3 35.3

November 17, 2011

Areva T&D India | 3QCY2011 Result Update

Disappointing show on the top line

The companys top line for the quarter posted flat growth of 0.7% yoy to `1,055cr, owing to lower-than-expected execution. The execution was mainly affected by delays at the customer end. Poor show during the quarter resulted in modest growth of 12.5% yoy for 9MCY2011.

Exhibit 3: Sales growth trend

1,500 1,200 900 600 300 0 3QCY08 4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 35.6 41.6 26.9 28.7 26.1 23.5 10.3 (10.7) 28.1 14.4 12.8 0.7 71.8 90.0 75.0 60.0 45.0 30.0 15.0 (15.0)

Sales (` cr, LHS)

Growth (yoy %, RHS)

Source: Company, Angel Research

Margins contract yoy, but improve sequentially

EBITDAM for the quarter contracted by 241bp yoy to 10.3% (vs. est. 8.9%) but improved on a sequential basis by 247bp on the back of operational efficiency. Management attributed this improvement to better cost-efficiency measures adapted during the quarter (reflective through lower other expenses at 14.0%, which declined by 170bp qoq as a percentage of sales). Management also indicated that price undercutting has slowed down to some extent, which in our view could stabilize the margins at 9-10% going ahead. Nonetheless, it warrants similar profitability levels on current orders in the coming quarters, with sustained level of cost efficiency.

November 17, 2011

Areva T&D India | 3QCY2011 Result Update

Exhibit 4: EBITDAM showing signs of recovery...

200 160 120 80 40 0 3QCY08 4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 12.1 11.6 16.3 12.9 8.6 5.7 12.0 9.2 12.7 13.4 10.3 8.4 7.8 8.0 4.0 20.0 16.0 12.0

EBITDA (` cr, LHS)

EBITDAM (%, RHS)

Source: Company, Angel Research

Strong order book, owing to robust order intake

Order intake for the quarter grew by 77.3% yoy to `1,516cr, which in our view is impressive given the tough business environment where orders are hard to come in. Orders during the quarter constituted a balanced mix of base/large orders. This led to order book growing healthily by 16.9% yoy to `5,753cr (vs. flat order book of ~`5,000cr since the past several quarters). Management commentary has indicated strong ordering pipeline in the coming quarters on the back of increased spending by PGCIL. (Notably, PGCILs ordering has gathered pace since 2HFY2012 with ~50 tenders released during October 2011, including sub-stations and transformer orders).

Exhibit 5: Major orders received during the quarter (` cr)

Utility segment RRVPNL (765 kV Substation Package) Power Grid (765 kV Transformer at Bareilly) Industry / Infrastructure Sterlite Technologies (765 kV Substation Package) BHEL (GIS Package for SJVNL Rampur)) Reliance Infra (220 kV Substation for Rajasthan Solar) OPTCL (63 MVA Power Transformer Package) Aditya Aluminium (ETC Package) NEEPCO (132 kV Switchyard) Indu Projects
Source: Company, Angel Research

400 85 220 58 40 34 30 25 18

November 17, 2011

Areva T&D India | 3QCY2011 Result Update

Exhibit 6: Strong order inflow...

1,800 1,500 1,200 900 600 300 3QCY08 4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 (44.7) (48.0) 16.7 14.9 2.9 86.3 81.2 32.3 77.3 23.4 (5.6) 100.0 80.0 60.0 40.0 20.0 0.0 -20.0 -40.0 -60.0

Exhibit 7: ...leading to the highest-ever order backlog

7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 3QCY08 4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 49.1 41.1 7.5 7.0 16.517.521.0 8.4 2.2 4.6 0.8 16.9 103.8 120.0 100.0 80.0 60.0 40.0 20.0 0.0

(8.7) (17.7)

Order inflow (` cr, LHS)

Growth (yoy %, RHS)

Order backlog (` cr, LHS)

Growth (yoy %, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Key highlights of the conference call

Management indicated that domestic markets are captured by negative sentiments due to interest rate hikes, land acquisition challenges and deepening fuel crisis. Industrial capex is yet to show positive growth. During the quarter, pricing pressures continued Chinese and Korean suppliers continued to quote aggressive prices in 765 kV tenders of PGCIL. Management expects the transmission leg in the T&D segment to pick up shortly with increased ordering expected from PGCIL, SEBs and BOOT projects.

November 17, 2011

Areva T&D India | 3QCY2011 Result Update

Investment concern
Earnings to remain under pressure: Continuous price erosion in the products segment (25-30% in the transmission as well as distribution segment) and increasing proportion of the low-margin projects segment led to EBITDAM contracting from ~17% in CY2007 to ~11% in CY2010. Consequently, the companys earnings CAGR was dismal at (6%), despite a 26% revenue CAGR over from CY2007-10. Despite measures adapted to improve profitability (cost optimization, localization and exit from underperforming distribution projects), margin recovery still seems distant. The downward pressure on margins exacerbated by factors such as intensified competition from domestic and Chinese/Korean players, pricing pressure, rising input costs and high interest rates will most likely offset any benefit arising from restructuring initiatives. All in all, Areva will find it extremely challenging to regain its previous profitability levels, given the current shape of the T&D industry.

Outlook and valuation:

Given the deteriorating dynamics in the T&D space (extremely competitive landscape), we believe Areva is likely face pressures on the earnings front. Despite some improvement in OPM during the current quarter, we believe margin recovery will not be as swift as anticipated (read concerns). Further, the 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.

November 17, 2011

Areva T&D India | 3QCY2011 Result Update

Exhibit 8: Revised estimates

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

CY2012E Var. (%) (1.0) (9.0) (9.8) Earlier estimates 5,162 565 271 Revised estimates 5,064 454 203 Var. (%) (1.9) (19.6) (25.0) 4,459 402 174

Earlier estimates 4,504 442 193

Revised estimates

Exhibit 9: Angel EPS vs. Consensus

Angel forecast CY2011E CY2012E
Source: Company, Angel Research

Bloomberg consensus 8.0 10.1

Var. (%) (9.3) (15.9)

7.3 8.5

Exhibit 10: One-year forward P/E band

800 600 400 200 0 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Mar-11 Nov-11
13.6 16.9 27.2 23.4 19.6 17.2 27.4 24.2

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Share Price (`) Source: Company, Angel Research

21x

30x

39x

48x

Exhibit 11: Peer valuation

Company Reco. CMP Tgt. price (`) ABB* Areva* BHEL BGR Energy Crompton Greaves Jyoti Structures KEC International Thermax Sell Neutral Neutral Sell Buy Buy Neutral Neutral 621 199 285 280 121 52 45 429 Upside/ P/BV(x) P/E(x) FY2011-13E RoCE (%) RoE (%) (`) (Downside) (%) FY12E FY13E FY12E FY13E 469 229 153 78 (24.6) (18.2) 27.3 48.0 5.2 4.2 2.7 1.8 2.1 0.6 1.1 3.2 4.6 3.7 2.2 1.6 1.8 0.5 0.9 2.6 75.3 27.3 9.9 7.7 14.3 3.8 6.5 12.7 35.8 23.4 9.0 8.6 9.4 3.4 4.8 11.8 EPS CAGR FY12E FY13E FY12E FY13E 140.5 4.3 12.9 (14.5) (5.9) 13.0 7.7 6.6 10.6 24.0 40.1 15.7 16.6 23.0 17.7 32.6 19.9 26.9 35.6 10.5 21.6 22.4 18.8 30.4 7.0 16.4 30.8 25.1 15.6 18.3 25.3 27.5

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

November 17, 2011

Jul-11

Areva T&D India | 3QCY2011 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) 4,459 4,459 10.9 4,057 3,122 522 414 402 (5.1) 9.0 98 304 (7.9) 6.8 64 18 7.0 258 (8.5) 258 84 32.5 174 174 174 (6.8) 3.9 7.3 7.3 (6.8) 5,064 5,064 13.6 4,610 3,545 582 483 454 12.9 9.0 105 350 15.0 6.9 68 19 6.3 301 16.7 301 98 32.5 203 203 203 16.7 4.0 8.5 8.5 16.7

November 17, 2011

Areva T&D India | 3QCY2011 Result Update

Balance Sheet
Y/E December ( ` cr) 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 1,232 422 811 32 32 3,768 134 334 557 2,548 1,220 2,095 1,324 527 798 40 32 4,605 232 405 633 3,227 1,377 2,248 48 676 724 469 (39) 1,154 48 818 865 768 (10) 1,623 48 954 1,002 896 4 1,901 48 1,078 1,126 966 4 2,095 48 1,231 1,278 966 4 2,248 CY2008 CY2009 CY2010 CY2011E CY2012E

November 17, 2011

Areva T&D India | 3QCY2011 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) 133 120 258 98 (198) 18 84 56 (80) 18 (62) 70 50 20 14 120 134 301 105 (59) 19 98 230 (100) 19 (81) 50 (50) 98 134 232

November 17, 2011

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Areva T&D India | 3QCY2011 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 OB / Sales 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 2.1 4.7 0.6 1.6 5.2 7.6 46 150 121 58 5.0 39 143 130 54 3.6 39 170 159 68 3.7 45 175 158 81 4.0 44 175 158 80 42.5 65.2 34.4 24.1 32.7 24.0 15.6 21.0 20.0 24.0 16.8 16.4 26.9 18.2 16.9 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 6.8 0.7 2.4 11.0 4.7 0.7 15.6 6.9 0.7 2.5 11.9 4.7 0.6 16.0 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 7.3 7.3 11.4 1.8 47.1 8.5 8.5 12.9 1.8 53.5 21.7 18.8 6.6 0.9 2.0 12.2 4.3 1.6 24.9 18.8 5.5 0.9 1.5 13.4 3.3 1.3 25.4 29.6 4.7 0.9 1.4 13.0 2.9 1.2 27.3 17.4 4.2 0.9 1.3 13.9 2.7 1.2 23.4 15.4 3.7 0.9 1.1 12.1 2.4 1.2 CY2008 CY2009 CY2010 CY2011E CY2012E

November 17, 2011

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Areva T&D India | 3QCY2011 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

November 17, 2011

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