Alstom T D India Initiating Coverage Mar 2014

8/12/2019 Alstom T D India Initiating Coverage Mar 2014

1/15

YEmarch(Rsmn) NetSales EBITDA ReportedPAT Adj.PAT Adj.EPS(Rs.) ROE(%) PE(x) Mcap/SalesFY13 31,519 2,475 841 671 2.62 7.5% 64.0 1.8FY14E 32,470 2,986 819 819 3.2 7.7% 77.8 2.0FY15E 37,148 3,880 2,481 1,281 5.0 9.7% 49.8 1.7FY16E 42,547 4,851 2,466 2,466 9.6 16.2% 25.9 1.5

50

60

70

80

90

100

110

120

130

140

150

AlstomT&D Sensex

IndiaNivesh Research IndiaNivesh Securities Private Limited601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800

Initiating CoverageMarch 31, 2014

Alstom T&D India Ltd.

IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.

STOCK INFO

BSE 522275

NSE ALSTOMT&D

Bloomberg ATD IN

Reuters ALST.NS

Sector Heavy Electrical Equipment

Face Value (Rs) 2

Equity Capital (Rs mn) 12,256Mkt Cap (Rs mn) 63,755.59

52w H/L 255/108

3m Avg Daily Volume(BSE+NSE) 97,879

SHAREHOLDING PATTERN %

(as on 31st Dec. 2013)

Promoters 75.00

FIIs 0.53

DIIs 16.12

Public & Others 8.35

STOCK PERFORMANCE (%) 1m 3m 12m

ALSTOM T&D 23.84 16.05 56.13SENSEX 5.78 5.41 18.60

ALSTOM T&D v/s SENSEX

Source: Capitaline, IndiaNivesh Research

Source: BSE

Source: Cline; IndiaNivesh Research

Daljeet S. Kohli

Head of Research

Mobile: +91 77383 93371, 99205 94087

Tel: +91 22 66188826

[email protected]

Rahul Koli

Research Associate

Mobile: +91 77383 93411

Tel: +91 22 66188833

[email protected]

Financial Performance

CMP : Rs.249

Rating : BUY

Target : Rs.289

Rating : BUY

Target : Rs.259

Current Previous Alstom T&D is a leading player in power transmission products, projects andservices in India. Company was part of Areva T&D group. In the year 2009, Alstom

and Schneider acquired global transmission and distribution business of Areva

T&D. In Nov-2011, company transferred its distribution business (loss making/

low margin business) to Schneider and transmission business was retained with

the company. The name of the company was changed from Areva T&D to its

present name Alstom T&D in Jan-2012. Now Company is part of Alstom Group

(Headquartered in France), which is one of the global leaders in power generation,

power transmission and rail infrastructure.

Investment Rationale

Latent demand in the sector gives long term visibility: India has historically

underinvested in power transmission sector. With large increase in power generation

capacity, transmission capacity is set to follow. Rise in transmission capital

expenditure plan gives better long term visibility for the companies serving the

sector.

Abating competition, early mover advantage, leadership position and new areas

of opportunity: competition level in PGCIL tendering has started abating in past

one year. Company has localized most of the products and technology needed for

the sector ahead of its peers. Company has been biggest receiver of PGCIL orders

and also enjoys leadership position in emerging opportunities like automation.

Combination of all this factors is likely to boost revenue growth and expansion in

profit margin.

Reform in power sector likely to kick start capital expenditure from other players

in power sector: Several steps were being taken in the past couple of quarters by

government to revive the momentum in power sector. We believe that the steps

taken to repair dilapidated sector should start bearing fruits in next couple of

quarters and sector should witness a rise in much needed capital expenditure from

SEBs, power generating companies and Industry/Infrastructure companies.

Limited downside and large upside potential: We've built three scenarios to gaze

the potential financial performance of the company. In base case PAT is likely to be

3.7x in FY16E vs FY13A. In optimistic case PAT is likely to be 4.6x in FY16E vs FY13A

and even in pessimistic scenario PAT is likely to be ~40% higher than FY14E levels,

which effectively means that there is limited downside and large upside potential

Valuation and Recommendation

At CMP of Rs. 249, stock is trading at FY15E and FY16E PE multiple of 49.8x and

25.9x. Given latent demand in the power T&D sector, leadership position of thecompany, likely capex cycle revival and likely improvement in margins for the

company, We initiate coverage of the stock with BUY recommendation and target

price of Rs.289 (30x FY16E EPS).

Best placed (amongst peers) to exploit Power transmission sector opportunity

Source: Company Filings; IndiaNivesh Research


2/15

IndiaNivesh Research March 31, 2014 | 2 of 15

Initiating Coverage| Alstom T&D India Ltd. Best placed (amongst peers) to exploit Power transmission sector opportunity

18,524 21,151

50,805

88,53793,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

9th 10th 11th 12th 13thE E

2933

8226

3312

2441

917

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

World OECD China Brazil India

India much

below world

average

Investment rationale

A) Latent demand in the sectorIndia has perennially remained a power deficit country. Huge potential exist for

power generation and Transmission & Distribution sector in the country as countrys

per capita electricity consumption at 917 kwh is much below the world average of2933 kwh.

Source: IEA;CEA; IndiaNivesh Research

To tackle the menace of power deficit and maintain countrys high economic growth,

Indian government has undertaken a massive power generation and transmission

capacity addition plans in the country. India has added ~50,000 mw in 11thplan(2007-

12) and plans to add ~88,000 and ~93,000 mw in 12 th(2012-17)and 13th(2017-22)

plan respectively. Country has installed capacity of 232,000 mw as of 31stjan 2014.

Planwise Capacity addition (MW)

Source:CEA; MoP; IndiaNivesh Research

Note: Excluding Renewable Capacity additions

Massive capacity addition in generation secor will be of little use without robust

transmission and distribution network in the country. India has historiallly

underinvested in its T&D sector vs generation sector. To make the transmission

network more robust and supplement the addition of generation capacity, aboutRs 1.4 tn were spent in 11thplan. 12thand 13thplans are set to observe greater

investment of Rs 1.8 tn and Rs 2 tn respectively.

Per Capita Electricity Consumption (kwh/capita)

Massive power generation and transmission

capacity addition plans in the country


3/15



178

200

222 225 225 225

0

50

100

150

200

250

FY12 FY13 FY14E FY15E FY16E FY17E

Capital Expenditure Target of PGCIL(Rs bn)

Capex visibility for coming years from biggest customer

1,400

1,800

2,000

46%

76% 79%

0%

10%

20%

30%

40%50%

60%

70%

80%

90%

0

500

1,000

1,500

2,000

2,500

11th FYP 12th FYP 13th FYP

Investment in Transmission(Rs bn) T&D as % of generation capex

Investment in Transmission & T&D as % of generation capex

Source: MoP; IndiaNivesh Research

Power Grid corporation of india (PGCIL),countrys central transmission utility, is single

biggest customer for T&D companies.PGCIL has plans to spend about Rs 1.1 tn in

12thplan. Out of the total capital expenditure of PGCIL the addresable orders for

Alstom T&D (relating to substation,electrical equipments and systems) are likely to

be about 30-35% (~Rs 350 bn) of total. A well planned year wise capital expenditure

target set by PGCIL gives good visibility for the T&D companies.

Capital Expenditure Target of PGCIL(Rs bn)

Source: PGCI; IndiaNivesh Research

B) Abating competition, early mover advantage,

leadership position among peers, New areas ofopportunity

i) Reducing Competition:

At the beginning of 12 th plan, many domestic contractors and foreign

companies(mainly Chinese and Koreans) were very aggressive in bidding process,

this led to drop in margins for all the companies in the sector. However, Local

manufcaturing facility requirement set by PGCIL for many equipments, tough

contractual obligations, cash flow problems on the part of many contractors has

caused many players to exit or become less aggressive in the PGCIL tendering. After

this connsolidation in the sector, we expect margins for the remaining players likely

to improve from hereon.

T&D capex as % of generation capex to rise in

coming 5 year plan

Capex visibility for coming years from biggest

customer PGCIL


4/15



0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

Alstom T&D has emerged as leading order

receiver from PGCIL due to higher

localisation vs peers and competitive

strength in terms of technology

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

FY12 FY13 FY14*

Reduced aggressiveness

amongmany players in

PGCIL tenders

Abating Competition (Rs mn):

Source: PGCIL; IndiaNivesh Research

ii) Early Mover Advantage:

Alstom T&D started its localisation programme early in 2007 and is regularly

absorbing technology from its parent to effectively compete in domestic market.ABB and Siemens, the other two close competitor in the race started late and are

yet to localise all the products and technologies related to transmission.

This early mover advantage is likely to help company gain larger share of products

and projects in offing.

Year Alstom T&D ABB Siemens2007 765 kv transformer

2008220 kv GIS

Shunt Reactors

145 kv GIS245-420 kv transformer

2009 420 kv GIS 145 kv circuit breaker

2010circuit breaker

765 kv transformer

and circuit breaker145-220 kv GIS

2012

765 kV Innovative Elliptical Design,

1200 kV Class Technology absorption

for Instrument Transformer CVT and Disconnector,

420 kV GIS Mono chamber technology


iii) Leading Position amongst peers:

Due to its greater localisation and competitive strenght,Alstom T&D has emerged

as a leading order rceiver in PGCIL tendering for electrical equipments,projects and

services for 12thplan in FY12-14 period. Since other non-serious competitor has

started become less agrresive in bidding process, this will further help company to

strenghen its leadership position.

Total orders received from PGCIL in FY12-FY14*-(Rs mn)



5/15



0

5,000

10,000

15,000

20,000

25,000

Reactors transforme rs automation AIS S /S citc uit

breakers

hvdc GIS S/S

FY12 FY13 FY14*

Automation

picking up

Steady

rise in

GIS

0

2,658

3,571

0

726

0125

680

00

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY12 FY13 FY14*

Alstom T&D Siemens Chemtrols

23 19

20 17

8 35

4524

3 525

6424

59

0

50

100

150

200

250

FY12A-14A FY15E-17E

GIS S/S

hvdc

citcuit breakers

AIS S/S

automation

transformers

Reactors

iv) New areas of opportunity: Automation,GIS

Aim of PGCIL is to make Indian grid more smarter and after failure of grid in july-

2012 in northen and eastern part of india, PGCIL has become more proactive to

tackle the issue. PGCIL ordering is likely to see change for next couple of years

leading to more orders for automation systems and GIS apart from regular orders

of AIS substations,reactors and transformers.

PGCIL Ordering (Rs.mn)


PGCIL Ordering (Rs.bn)


Alstom T&D is likely to be the biggest beneficiary of this order pattern change from

PGCIL as it leads the automation order bidding where Siemens and Chemtrols are

distant second and third

PGCIL Automation Orders (Rs mn)


Automation, GIS are new areas of opportunity


6/15



0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Hyosung New Northeast Elec.Group Xian China Pinggao Alstom T&D

FY12 FY13 FY14*

Marginal

presence of the

only Indian

company

But Chinese players dominate the GIS where Alstom T&D is the onlyindian company having marginal presence

Currently GIS orders are completely dominated by chinese players due to aggressive

bidding and hardly any domestic firm is able to penetrate their castle. However, as

weve seen in last one year for other orders, any reduction in aggression from the

Chinese companies will be beneficial for the companies who are ready with

technology. As of now only Alstom T&D has localised GIS technology upto 400 kvand higher kv technolgy support is available from parent. Other companies like

Siemens, ABB, BHEL and Crompton Greaves have localised facility only upto 220 kv.

Siemens and ABB have support available from parent for higher kv technology but

that puts them at cost disadvantage vs player who has localised facility.

PGCIL GIS Orders (Rs mn)


C) Reform in power sector likely to kick start capitalexpenditure from other players in power sector

Power sector has remained under pressure due to slew of issues like fuel (coal and

gas) availability, fuel cost escalation due to import of coal and gas, poor financial

health of SEBs, land and environmental issues etc. Effect of all this factors on the

order book and eventually financials of the power capital goods companies has

been harsh.

Government and regulatory agencies have taken many steps to resolve the stumbling

issues and revive the animal spirit of the sector. Major steps taken by government

and regulatory agencies like financial restructuring of many SEBs to improve their

financial health, cost pass through allowed for some power plants for increased

fuel cost, regular electricity tariff hikes allowed by electricity regulatory commissionto take care of escalating cost for discoms, establishing coal sector regulator to sort

out grievances of parties involved etc. are likely to revive the momentum in the

sector in next couple of quarters and sector can witness revival in capital expenditure

from other players(apart from PGCIL) like power utilities/generators, SEBs and

industry/infrastructure companies, which will provide growth impetus for the T&D

Capital goods companies.

Reforms in power sector likely to bear fruits

in coming quarters

GIS could be the next growth driver


7/15



Source: IndiaNivesh Research

Financials

Alstom T&Ds order intake and financial Performance:Since the sector has been riddled with many issues in the past, capex in power

sector as a whole & transmission in particular took a sharp decline in last few years.

In order to estimate the future prospects of the order flow,we have built in threescenarios to gaze what kind of number may be expected.

Base Case Scenario

Assumptions:

Company gets orders from two sources PGCIL and other segments (industry,

SEBs etc). We expect PGCIL ordering to take place as planned and given likely

improvement in power sector scenario, quarterly order intake rate (for the

company) from other segments is expected to gradually pick up to normal

(but less than highest rate seen in past) rate of 7-8 bn per quarter for the

company from current FY14 rate of ~6.6 bn.

Execution rate for the company had taken beating in past two years due to

low level of activity in the power sector, Company has improved its execution

pace in past couple of quarters. We expect company to imrove its execution

rate gradually from current ~60% to 70% in next 2 years. (However we dont

expect company to reach its peak execution rate of ~80% in next 2 years).

We expect Company to retire its current debt of ~5 bn in next 2 years.

40,12942,139 41,848

39,444

36,09934,564

37,830

44,640

5%

-1%

-6%

-8%

-4%

9%

18%

-10%

-5%

0%

5%

10%

15%

20%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

CY08 CY09 CY10 FY12* FY13 FY14E FY15E FY16E

Order Intake (Rs mn) Growth %

Order Intake likely to improve by 10% in FY15E and 18% inFY16EDue to Slump in power sector, companys order intake had dropped by ~4-8% in

last two years,however we expect that on back of leadership position in PGCILtendering, new areas of opportunity and likely revival in capital expenditure cycle

from other sectors, companys order intake to rise by 9% and 18% in FY15E and

FY16E respectively.

Order Intake(Rs mn) & Growth(%)


Note: Numbers till CY10 includes erstwhile distribution business,excludes HVDC order

Base Scenario

Rs mn FY14E FY15E FY16E

Order Received 34,564 37,830 44,640

Order Book 64,351 65,033 67,126

Net Revenue 32,470 37,148 42,547

EBITDA 2,986 3,880 4,851

EBITDA Margin % 9.2% 10.4% 11.4%

Adj.PAT 819 1,281 2,466

Adj.PAT Margin % 2.5% 3.4% 5.8%

Adj.EPS 3.20 5.00 9.63

P/E 78 50 26


8/15



26,513

35,789

40,331

31,135 31,519 32,470

37,148

42,547

35%

13%

-23%

1%3%

14% 15%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000


Net Revenue (Rs mn) Growth %

1.51.3

1.2

1.5

2.0 2.0

1.8 1.5

0.0

0.5

1.0

1.5

2.0

2.5


Book to Bill Ratio

Topline to grow ~11% CAGR between FY13-16EPace of project excecution had taken a hit in last 1-2 years due to low level of activity

in power sector, however; Company has improved its execution pace in past couple

of quarters and We expect companys topline to grow by ~11% CAGR between

FY13-FY16E on back of better exceution pace and likely increase in order intake.

Net Revenue (Rs mn) & Growth (%)


Note: Numbers till CY10 includes erstwhile distribution busines,FY12 numbers are adjusted for 12 month

Earnings to be 3.7x in FY16E compare to FY13 level on backof ~360 bps margin expansion:Although we expect topline to grow by ~11% CAGR between FY13-16E; we expect

the bottomline to be 3.7x in FY16E from its FY13 level on back of improvement in

margin by ~360 bps between FY13 and FY16E. Improvement in margin for the

company is expected due to reduction in competition level in PGCIL tendering, likely

increase in high technology products like automation, GIS etc. which are better

margin orders, rise in Capital expenditure from other sectors and better pace of

order execution.

Book to Bill Ratio


Note: Numbers till CY10 includes erstwhile distribution business


9/15



2,544

1,9881,867

1,191

671819

1,281

2,466

9.58%

5.55%4.63%

3.82%

2.12%2.52%

3.45%

5.79%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

0

500

1,000

1,500

2,000

2,500

3,000


Adj.PAT Adj.PAT Margin %

Adj. PAT (Rs mn) & Adj. PAT margin (%)


Note: Numbers till CY10 includes erstwhile distribution busines,FY12 numbers are adjusted for 12 months.

Alternative scenario

Optimistic Scenario

Assumptions:

1. In case of faster than expected (base case) revival in economicrecovery, order intake from other segments are likely to rise faster(near to its highest quartely rate seen in 2009-10) than in base caseand company can witness additional source of order intake fromrenewables and windfall order gain of HVDC order.

2. Execution pace to pick up faster than base case3. Company to retire its debt of ~5 bn in next two years

In optimistic scenario, we expect order intake to rise 27% and 16% inFY15E and FY16E respectively. Stocks Adj EPS is likely to be 4.6x in FY16Efrom its FY13 level. The stock may rise to Rs 367. (conservative multipleof 25x FY16E Adj EPS) in optimistic case.

We expect very low probability of this scenario playing out.Source: IndiaNivesh Research

Source: IndiaNivesh Research

Pessimistic Scenario:

Assumptions:

1. In case of prolonged economic slump , the likely order intake from

other segments like industry/infrastructure and discoms/SEBs willlikely ramain muted

2. Excecution pace of the company should also suffer due to depressedenvironment and likely to take longer (than Base case) to return tonormal rate.

3. Company not able to retire its debt of Rs ~5 bn in next 2 years.

In Pessimistic Scenario,we expect the order book of the company to fallto Rs ~57 bn from current level of about ~64.3 bn. Even in this case AdjEPS is likely to be ~40% higher than FY14E levels. However, we expectthat current euphoria in the stock may cool down for time being andstock may take a fall to Rs 143-167 level. (Valuing at 30x and 35x FY16EAdj EPS). Since 13thfive year plan ordering is likely to begin in next 2 yearstime, we dont expect market to give very low multiple to value the stockin pessimistic scenario.

We expect close to nil probability of this scenario playing out.

Optimistic Scenario


Order Received 34,564 43,830 50,640

Order Book 64,351 64,842 68,693

Net Revenue 32,470 43,339 46,789

EBITDA 2,986 5,877 6,788

EBITDA Margin % 9.2% 13.6% 14.5%Adj.PAT 819 2,618 3,763

Adj.PAT Margin % 2.5% 6.0% 8.0%

Adj.EPS 3.20 10.23 14.70

P/E 78 24 17

Pessimistic Scenario


Order Received 34,564 29,830 34,640

Order Book 64,351 60,129 57,166Net Revenue 32,470 34,052 37,603

EBITDA 2,986 3,060 3,395

EBITDA Margin % 9.2% 9.0% 9.0%

Adj.PAT 819 664 1,222

Adj.PAT Margin % 2.5% 1.9% 3.2%

Adj.EPS 3.20 2.59 4.77

P/E 78 96 52


10/15



Companys recent nine month performance:For the 9 month of FY14 companys topline has increased by 9% Y-o-Y, due to increase

in margin of orders received and better execution pace,EBITDA margin has also

improved by ~200 bps to 9.26%. Adjusted EPS for the company has jumped by 133%

Y-o-Y in 9MFY14.

Company management expects to maintain/improve the margins from current level.

Alstom T&D India Ltd.

Rs.In mn Q3FY14 Q3FY13 Q2FY14 % Y-o-Y % Q-o-Q 9MFY14 9MFY13 % Y-o-Y

Net Income from operations 8,472 7,112 8,022 19% 6% 22,090 20,586 7%

Other Operating Income 12 18 146 -34% -92% 419 129 226%

Total Income from operations 8,483 7,129 8,168 19% 4% 22,509 20,715 9%

Expenditure

Materials and related cost 5,587 4,798 5,943 16% -6% 15,525 14,738 5%

Purchase of stock in trade - - - - -

Changes in inventories etc 295 (70) (670) (918) (1,289)Gross Margin % 30.66% 33.69% 35.45% (302) (479) 35.11% 35.07% 3

Employee benefit expense 829 815 843 2% -2% 2,519 2,436 3%

Other expenses 1,050 1,053 1,296 0% -19% 3,299 3,316 -1%

EBITDA 722 534 757 35% -5% 2,084 1,513 38%

EBITDA Margin % 8.51% 7.50% 9.27% 101 (77) 9.26% 7.30% 196

Other Income 20 3 10 490% 92% 31 14 122%

Depreciation 225 206 216 9% 4% 648 616 5%

EBIT 517 332 552 56% -6% 1,467 910 61%

Finance Cost 230 186 237 24% -3% 637 543 17%

Exceptional Item - - - - 121

PBT 287 146 315 97% -9% 830 489 70%

Tax expense (97.48) (47.30) (107.16) (282) (178)

Effective tax rate % 33.99% 32.46% 33.99% 152 (0) 33.99% 36.49% (250)

Reported Net Profit 189 98 208 92% -9% 548 310 77%

Adj. PAT 189 96 201 97% -6% 528 225 135%

Reported PAT Margin % 2.23% 1.38% 2.54% 85 (32) 2.43% 1.50% 93

Core PAT Margin % 2.23% 1.35% 2.46% 88 (23) 2.34% 1.08% 126

Reported EPS (Rs) 0.78 0.41 0.87 90% -10% 2.28 1.30 75%

Adj. EPS 0.78 0.40 0.84 95% -7% 2.20 0.94 133%

Standalone, Source: Company, IndiaNivesh Research


11/15



OutlookPower transmission grid in india is moving from low and medium voltage(220 kv

and below) to high (400 kv) and extra high voltage (765 kv and above). In addition

to that, the transmission grid is also becoming technologically more advance with

introduction of automation,HVDC and GIS technologies. Companys that aretechnologically advanced and have localised their technologies and facilities are

likely to snatch greater part of available orders pie.

Alstom T&D has localised large number of products and technologies needed in

power transmission ahead of its peers, competition intensity has started abating in

PGCIL tendering, company has leadership position in automation and GIS (among

indian firm) offerings, due to combination of all these factors, we sense that Alstom

T&D is well placed to exploit the opportunity that indian transmission sector has to

offer

We expect companys net revenue to grow by ~11% CAGR in FY13-16E and PAT

Margins to improve by ~360 bps in FY13-16E and earning to become 3.7x in FY16E

from FY13 level.

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Close -Unit Curr 20.0 X 30.0 X 40.0 X 50.0 X 70.0 X

Valuation

Valuation and RecommendationDue to cyclical nature of the business we observe wide swing in the PE ratio for the

company, however average PE multiple for the company has been about 30. At

CMP of Rs. 249, stock is trading at FY15E and FY16E PE multiple of 49.8x and 25.9x.

Given latent demand in the power T&D sector, leadership position of the company,

likely capex cycle revival and likely improvement in margins for the company, We

initiate coverage of the stock with BUY recommendation and target price of Rs.289

(30x FY16E Adj.EPS Rs.9.63).

PE Multiple

Source: Cline; IndiaNivesh Research


12/15



Manufacturing Units

Sr.No. Location Area (Acre) Products Manufactured/Services Rendered

1 Vadodara,Gujarat 34.2 Power Transformers,Shunt Reactors,Converter Transformer

2 Pallavaram,Tamil nadu 27.2 Protection relays,Substation automation

3 Hosur,Tamil nadu 21.6 Instrument Transformer,Capacitive Voltage Transformer,Line Traps,Condenser Bushing

4 Padappai,Tamil nadu 14.4 Switchgear,GIS

5 Naini,Uttar pradesh 21.2 Transformers(generator,auto,furnace,traction,regulating,power)

6 Noida,Uttar Pradesh 4.0 Automation cubicles,Project Management and Services

Source:Company

About Alstom T&D and latest

developmentsAlstom T&D is the leading player in power transmission sector in India. Company is

part of Alstom Group (Headquartered in France), which is one of the global leadersin power generation, power transmission and rail infrastructure. The Alstom group

has presence in over 100 countries, with sales of over 20 bn in fiscal 2012-13.

In the year 2009, Alstom and Schneider groups entered into a consortium agreement

to jointly acquire the global transmission and distribution business of Areva T&D

group and subsequently separate the same such that Alstom group would acquire

the global transmission business and Schneider group would acquire the global

distribution business.

As agreed earlier with Schneider group, in Nov-2011 Company transferred the

distribution business (below 66 kv) to Schneider group. The name of the company

was changed from Areva T&D to its present name Alstom T&D in Jan-2012.

Earlier parent shareholding was 80.31% which has been reduced to 75%-to meet

the SEBI requirement of minimum 25% public shareholding- by issuing new equity

shares through institutional placement program in nov-2013.company received Rs

2,795.5 mn through this placement.

Company has also entered into Agreement for sale for its Bengaluru land for

consideration of Rs 1.2 bn.

Company has total debt of Rs 5 bn as of 31stdec-2013, which management plans to

retire in next 12-18 months

Manufacturing units:Company has localized facilities in Gujarat, Tamil nadu and Uttar Pradesh to cater to

broad requirement of Indian T&D market. Details of facilities are given below.

Companys offerings:Company offers broad range of electrical and automation products in T&D market

from 66 kv to 765 kv and 1200 kv. Major products offering include transformers,

substations (AIS and GIS) and automation products and services. Company also

undertakes turkey projects in T&D space for substations etc. products and their

brief description is given in table below.


13/15



Products/Solutions

Sr.No. Products Key Functions/Features

1 Air In su lated S witch gears

a. Circuit Breakers Used for isolation or connection of live networks

b. Disconnectors Offline switches providing visible and reliable air gap isolation

c. Instrument Transformers Provide current and voltage measurement for secondary equipment such as meters etc

2Gas Insulated Switchgears

(upto 400 kv)

GIS requires much less floor space compare to Air insulated swi tchgears,

Ideal for places where space is limi ted or costly

3 P ow er Transfo rme rs Conne ct AC ne tw orks of di ffe re nt vol tage le ve ls to al low pow er ex change be tw ee n the m

4 Solution Business Turnkey Projects (66 kv to 765 kv,HVDC,FACTS)

5 A utom ati on Busi ne ss

a. S ubs tati on A uto mati on Ef fi ci ent tran sm is si on and d is tri bu ti on o f e le ctri ci ty

b. Network Management Solution Key smart grid enablers to incorporate and manage centralised and distributed power managementSource:Company

Risk Factors1) Company is heavily dependent on single customer PGCIL (accouting for ~40%

of order intake). Any change in capex plan by PGCIL or deterioation in its

financial condition will be big negative for the company

2) Copper and aluminum are the major raw materials for the

company(accounting for ~50% of raw material) and as per historical analysis,

for every 1% rise in these metal prices; gross margin for the company drops

by about 20-30 bps. Sudden surge in prices of these metals will be negative

for the margins of the company.

Sensitivity of gross margin to Copper and Aluminum prices

Source:IMF,Company; IndiaNivesh Research


14/15



Standalone Financials


Cash Flow Statement

Rs mn FY12 FY13 FY14E FY15E FY16E

PBT 2,376 1,226 1,219 3,702 3,680

Depreciation and Amortisation 1,014 813 858 948 1,041

Other non cash items 878 1,024 531 (770) 130

WC Changes (1,104) 1,047 (3,652) 415 1,011

Tax expense (643) (82) (410) (1,222) (1,214)

Cash flow from operations 2,521 4,028 (1,454) 3,073 4,648

Capital Expenditure,net (1,048) (856) (1,261) (927) (1,213)

Free cash flow to firm 1,473 3,172 (2,715) 2,146 3,435

Cash flow from investing (857) (617) (1,241) 293 (1,193)

Equity Capital Raised 0 0 2,796 0 0

Loan availed (Repaid) (863) (1,801) 823 (2,500) (2,500)

Interest paid (656) (662) (551) (450) (150)

Dividend paid (incl tax) (499) (497) (503) (503) (503)

Cash flow from financing (2,018) (2,960) 2,565 (3,453) (3,153)

Net change in cash (353) 450 (130) (87) 302

Cash at the beginning of year 1,199 331 781 651 564

Cash at the end of year 331 781 651 564 866

Income Statement

Rs mn F Y1 2 (1 5 Mont hs) FY1 3 FY1 4E FY1 5E FY1 6E

Net Operating Revenue 41,391 31,519 32,470 37,148 42,547

Expenses

Consumption of raw mate rial 28,825 20, 953 21,380 24,146 27,656

Gross Margin % 30.36% 33.52% 34.15% 35.00% 35.00%

Employee Cost 3,636 3,246 3,410 3,921 4,509

Other expenses 4,747 4,845 4,694 5,201 5,531

EBITDA 4,182 2,475 2,986 3,880 4,851

EBITDA Margin % 10.10% 7.85% 9.20% 10.45% 11.40%

Other Income 153 169 20 20 20

Depreciation and amortisation 1,014 813 858 948 1,041

EBIT 3,321 1,831 2,148 2,952 3,830

EBIT margin % 7.99% 5.78% 6.61% 7.94% 9.00%

Finance cost 1,090 775 929 450 150

Exceptional/Extraordinary item 145 170 0 1,200 0

PBT 2,376 1,226 1,219 3,702 3,680

Tax expense (752) (385) (410) (1,222) (1,214)

Effective tax rate % 31.64% 31.41% 33.63% 33.00% 33.00%

Reported Net P rofit 1,624 841 819 2 ,481 2 ,466

Reported Net Profit margin % 3.91% 2.65% 2.52% 6.67% 5.79%

Adj. Net Profit 1,479 671 819 1,281 2,466

Adj. Net Profit Margin % 3.56% 2.12% 2.52% 3.45% 5.79%

Balance Sheet

Rs mn FY12 FY13 FY14E FY15E FY16E

Share Capital 478 478 512 512 512

Reserves and Surplus 8,286 8,624 11,702 13,679 15,642

Networth 8,764 9,102 12,214 14,191 16,154

Long term borrowings 0 661 0 0 0

Deferred tax liabilities,net 150 124 124 124 124

Long term provisions 153 327 327 327 327

Total Non current liabilities 303 1,111 450 450 450

Short term borrowings 5,935 3,516 5,000 2,500 0

Trade payables 15,568 18,126 16,003 17,077 17,330

Other current liabilities 5,925 8,239 9,092 11,144 14,891

Short term provisions 961 1,330 1,330 1,330 1,330

T ot al curren t lia bil ities 28,3 89 31 ,2 11 31 ,42 4 32, 05 2 3 3,552

T ot al Eq uity an d Li abi li ty 37 ,4 55 41 ,424 44,08 8 4 6, 69 3 5 0,1 56

Net Block 6,487 6,198 6,326 6,469 6,625

Capital work in progress 182 535 809 647 662

Non current investments 0 0 0 0 0

Long term loans and advances 105 235 235 235 235

Total Non current assets 6,774 6,968 7,371 7,350 7,522

Inventories 5,554 6,942 7,483 8,451 9,679

Trade receivables 18,023 17,146 17,859 19,317 19,997

Cash and Cash equivalent 331 781 651 564 866

Loans and advances 2,907 3,531 3,572 3,572 3,572

Other current assets 3,875 6,057 7,143 7,430 8,509

Total current assets 30,689 34,458 36,709 39,334 42,624

Total Assets 37,455 41,424 44,088 46,693 50,156

Key Ratios

FY12 FY13 FY14E FY15E FY16E

EPS Adj (Rs) 6.2 2.6 3.2 5.0 9.6

EPS Reported (Rs) 6.8 3.5 3.2 9.7 9.6

DPS (Rs) 1.8 1.7 1.7 1.7 1.7

BVPS (Rs) 36.7 35.5 47.7 55.4 63.1

ROCI 9.5% 9.0% 10.2% 15.9%

ROE 7.5% 7.7% 9.7% 16.2%

Inventory days 66 109 123 120 120

Sundry debtors days 174 204 197 183 169

Trade Payable days 213 275 284 240 217

P/E 21.0 64.0 77.8 49.8 25.9

P/BV 3.9 6.3 5.2 4.5 3.9

EV/EBITDA 9.5 24.6 22.8 16.9 13.0

Dividend Yield % 1.3% 0.7% 0.7% 0.7% 0.7%

m cap/sales 0.8 1.8 2.0 1.7 1.5

m cap/order book 0.7 0.9 1.0 1.0 0.9

debt/equity 0.7 0.5 0.4 0.2 0.0

debt/ebitda 1.4 1.7 1.7 0.6 0.0


15/15



Disclaimer:

The projections and the forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant

uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which

the projections are forecasts were based will not materialize or will vary significantly from actual results and such variations will likely increase over the period of

time. All the projections and forecasts described in this report have been prepared solely by authors of this report independently. All the forecasts were not

prepared with a view towards compliance with published guidelines or generally accepted accounting principles.

This report is for information purpose only and this document / material should not be construed as an offer to sell or the sol icitation of an offer to buy, purchase or

subscribe to any securities, and neither this document nor anything contained therein shall form the basis of or be relied upon in connection with any contract orcommitment whatsoever. This document does not solicit any action based on material contained herein. It is for the general information of the clients of INSPL.

Though disseminated to the clients simultaneously, not all clients may receive this report at the same time. It does not constitute a personal recommendation or

take into account the particular investment objective, financial situation or needs of individual clients. Persons who may receive this document should consider and

independently evaluate whether it is suitable for its/ his/ her / their particular circumstances and if necessary seek professional / financial advice. Any such person

shall be responsible for conducting his / her/ its/ their own investigation and analysis of the information contained or referred to in this document and of evaluating

the merits and risks involved in securities forming the subject matter of this document. The price and value of the investment referred to in this document / material

and income from them may go up as well as down, and investors may realize profit / loss on their investments. Past performance is not a guide for future performance.

Actual results may differ materially from those set forth in the projection. Forward-looking statements are not predictions and may be subjected to change without

notice. INSPL accepts no liabilities for any loss or damage of any kind arising out of use of this report.

This report / document has been prepared by INSPL based upon the information available to the public and sources believed to be reliable. Though utmost care has

been taken to ensure its accuracy, no representation or warranty, express or implied is made that it is accurate. INSPL has reviewed this report and, in so far as it

includes current and historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

Following table contains the disclosure of interest in order to adhere to utmost transparency in the matter;

Trading position of Clients/Company Associates may be different from the recommendation given in this report at any point of time.This information is subject to

change without any prior notice. INSPL reserves the right to make modifications and alternations to this statement as may be required from time to time. Nevertheless,

INSPL is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific

client queries.

Disclosure of Interest Statement1. Analyst ownership of the stock No

2. Clients/Company Associates ownership of the stock No

3. Broking relationship with company covered No

4. Investment Banking relationship with company covered No

IndiaNivesh Securities Private Limited

601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007.Tel: (022) 66188800 / Fax: (022) 66188899

e-mail: [email protected]|Website: www.indianivesh.in

Home

Alstom T D India Initiating Coverage Mar 2014

Documents

Transcript of Alstom T D India Initiating Coverage Mar 2014