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Areva T&D Q4 Results

Areva T&D Q4 Results Update.

Revenues for the quarter has grown 68% yoy in Q1 CY09 driven by robust demand from the power T&D utilities (60% of the orders) as well as the industrial sector. Margins declined 280 bps to 12.9%. Areva's product portfolio is mainly oriented towards the higher end of T&D equipment, thus earnings higher margins. However, during the quarter, EBITDA margins declined 280bps to 12.9%. We believe decline in operating margins is mainly due to higher share of subcontracting expenses in the revenues. Margins can fluctuate in a quarter depending upon the share of projects revenue (lower margins).

Areva inaugurated eight manufacturing facilities in April. The actual capex incurred
was Rs 9.5 bn higher than Rs 7.0 bn envisaged. This capex has been financed through a mix of internal accruals and debt. Outstanding debt at the end of the year has increased to Rs 4.7 bn as compared to Rs 1.0 bn in CY07.

Capacity addition in April 2009

The company has setting up plants at three locations. The Vadodora (Baroda) factory will make Power transformers up to 765 kV and later upto l,200 KV range. The company has a large site at Vadodara which will take care of further expansion needs. This will be Areva's second plant for transformers in India. Total capex envisaged is Rs 5bn for the site. The unit will cater to both domestic and international markets.

Valuations have corrected but remain at a premium to broad market. Areva is trading at 18.9x CY09E earnings. The DCF based price target works out to Rs 180.