Alstom T&D India Limited - Recovery in sight - Antique

We recently met the Managing Director of Alstom T&D, Mr. Rathin Basu. Alstom T&D, a subsidiary of Euro 4bn Alstom Grid (Part of Euro 20bn Alstom Group) stands among India's leading transmission & distribution (T&D) equipment manufacturers, with focus on high-end technologies like high voltage AC (HVAC) and high voltage DC (HVDC) products and systems. The company, which has refrained from price under-cutting in past few quarters in a highly competitive industry, stands to post improved performance due to healthy order-book and focus on efficiency improvement. The following are key takeaways:

Healthy order-book

The company reported highest ever order intake of INR 47bn in FY13, as against INR38bn in 12 months preceding that (FY12 was a 15-month period), registering a growth of 24% YoY. ATD's order intake growth in FY13 is the highest among all capital goods companies under our coverage. As a result of healthy inflow, order-book stands at INR62bn, as against INR47bn as on March 2012, up 33% YoY. Order-book includes the 800kv HVDC order of 370mn Euro awarded to Alstom T&D UK, in association with Alstom T&D India by PGCIL, of which 40% will be executed by Indian company.

Maintains leadership in 765 KV segment

ATD maintained leadership in 765 kV segment in FY13 with 29 out of India's 50 substations at 765 kV being installed with ALSTOM technology. Similarly, the company commissioned a record number of 88 substations, ranging from 66 kV to 765 kV, during the year. ATD has strong presence in products (transformers, switchgear) and projects (substations, electrical balance of plant, SCADA and automation), and stands to benefit from any revival in T&D sector.

Current order-book at healthy gross margins

ATD, which enjoyed high EBITDA margins of 16-17% in CY07-08, witnessed steep declining in profitability due to intense competition in the transformers and substation projects businesses. EBITDA margin stood at 8.3% in FY13. The company maintains that the current orderbook has healthier margins than the previous year, which should boost profitability going forward. Company has been conscious of margins, while selecting on orders so as to improve the level of profitability. Due to poor levels of margins, ATD did not pick-up orders worth over INR11bn that was available in the market.

Outlook and view

- Alstom T&D is a pure T&D play and offers investors to participate inIndia's growing T&D sector. In recent years, the company's performance has been significantly impacted due to sharp fall in product and project prices. The company also had to suffer due to rising working capital requirements due to delayed payments by customers. As a result, debt on company rose to INR9bn, from being virtually a debt free company in CY06. We believe that the company's current order book is healthy and will provide support to margins. It has also brought down debt to INR4bn in FY13, from INR9bn in CY13.

- With the current order-book, we believe ATD can grow at 15-20% in revenues in FY14, with possible improvement of 150-200 bps improvement in EBITDA margin. With these assumptions, ATD should post PAT of around INR1.5bn in FY14. Possible recovery in T&D market can meaningfully improve earnings in FY15. Stock trades at around 25 x FY14e earnings (base estimates) and fairly prices.

Source : Equity Bulls

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