Areva T&D is the third largest transmission and distribution player globally with a significant presence in the Indian T&D space. Areva currently has an order book of Rs 24.2bn, 1.8x its CY06 sales, providing visibility of earnings for next few years. The company has won the first ever 765 kV substation order from NTPC, being the only fully integrated 765kV substation supplier in the country.
For the period FY07 to FY09, PL expect CAGR of 57.7% in net profit on the back of revenue CAGR of 24.7%. At the CMP of Rs 1,590, the stock is available at 36.8x and 25.7x CY07E and CY08E earnings of Rs 43.1 and Rs 61.8 respectively. Areva enjoys attractive return ratios with RoE at 46.1% and RoCE at 47.5%. PL initiates coverage on Areva T&D with an “Outperformer” rating and a target price of Rs 1855 (30x CY08 earnings), implying an upside of 17% from current levels.