Stock Review: AREVA T&D

Areva T&D's excellent numbers for the December 2010 quarter are in line with the company's improving performance over the past four quarters. Improved order execution during the quarter led to margin expansion and higher profits. The continuation of this winning streak will now depend on its ability to sustain order flows in times of growing competition.

During the December quarter, revenues increased 14.4% year-onyear to . 1,327 crore while net profit grew 36% to . 88 crore. This marked the best quarter in 2010 for the company, which had posted poor numbers in the first half and a recovery in the September quarter. With this, Areva T&D's revenue growth in the second half of 2010 stood at a strong 24% compared with a degrowth in the first half when the company faced significant price pressures due to aggressive bidding from its Chinese and Korean counterparts in the high voltage segment. Even the net profit of the second half was almost three times bigger compared with the first half. For the year, however, the company's performance was merely stagnating. Net profit for 2010 at . 186.7 crore stood 5% lower compared with the previous year. Debt collection has been a key worry for long. Its debtors' velocity — or the average number of days to receive payments post-sales — stood at its all-time high of around 194 days for CY2010.

Order flows in 2010 were down 1% compared with last year due to delay in orders from both public as well as private power T&D sectors due to non-availability of land and coal linkages. For instance, orders for 765 KV transmission projects in 2010 were almost half of that in 2009. Still, the company was able to maintain its annual order in-take above. 4,000 crore for a third year in a row, thanks to healthy orders from non-utility industrial clients. Delays in project allotments have plagued the entire capital goods industry, with other major players also facing challenges similar to Areva's. The management expects the situation to improve from second half of the current year.

The company commissioned a first of its kind indigenously-developed 1,000 MVA, 765 KV ultra-high voltage interconnecting transformer for Lanco Infratech. Moreover, the company would also benefit from . 11,000-crore capacity expansion plan of Power Grip Corporation in 12th Plan, which will double demand for 765 KV transformers. In June 2010, erstwhile promoter French Areva Group completed the process of selling its global transmission and distribution business to the Alstom-Schneider consortium, which meant the ownership transfer of Areva T&D in India. The subsequent mandatory open offer mopped up 1.2% more equity, taking promoters' stake to 73.4%. While it is to be seen how new promoters steer the company, the management has indicated it is unlikely to follow the delisting route. Meanwhile, the company prepares to transfer its distribution business to Schneider Group in line with its agreement with Alstom Group.