Areva T&D India NEUTRAL. Performance Highlights CMP. `264 Target Price - 1QCY2011 result Update Capital Goods. Investment Period -

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1 1QCY2011 result Update Capital Goods May 17, 2011 Areva T&D India Performance Highlights (` cr) 1QCY11 1QCY10 % chg (yoy) 4QCY10 % chg (qoq) Revenue ,327 (25.0) EBITDA (53.0) EBITDA margin (%) bp 13.4 (502)bp Reported PAT (67.3) Areva T&D (Areva) posted good set of results for 1QCY2011 aided mainly by lower base. The top line and bottom line grew strongly, but EBITDA margin was lower than our estimates. Revenue increased by 28.1% yoy to `995cr (`777cr), while PAT grew by nearly eight-fold to `29cr (`3cr). Order inflow increased by 23.1% to `1,253cr. Going forward, the pricing pressure in the T&D segment is expected to continue due to increasing competition, which weighs heavily on the stock. Hence, we continue to remain Neutral on the stock. Strong volumes drive growth: Higher sales volume during 1QCY2011 compared to lower volumes amid execution issues in 1QCY2010 helped Areva deliver 28.1% yoy growth in revenue to `995cr (`777cr). EBITDA margin for the quarter also expanded by 273bp to 8.4% as fixed manufacturing and production costs were spread over large volumes. Higher sales volume and margin expansion enabled Areva to post nearly eight-fold yoy growth in PAT to `29cr (`3cr). Outlook and valuation: Central utilities have been delaying their orders on account of non-availability of land on time, resulting in lower number of 765kV projects being finalised. Ordering scenario from state utilities has also remained flat. Further, Korean and Chinese suppliers continue to quote very aggressive prices in transformers. While the growth trajectory looks promising with a decent order book of `5,204cr (1.1x CY2011E revenue), we remain cautious on the above concerns and believe the stock will trade sideways until the T&D segment revives post 1HCY2011 as guided by the management. At the CMP of `264, the stock trades at 29.6x CY2011E EPS and 22.3x CY2012E EPS. Historically, the stock has traded at an average P/E of 28x. We believe the stock is fairly valued and, hence, we continue to remain Neutral on the stock. Key financials Y/E December (` cr) CY2009 CY2010 CY2011E CY2012E Net sales 3,566 4,020 4,564 5,320 % chg Net profit % chg (12.7) (2.2) EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) NEUTRAL CMP `264 Target Price - Investment Period - Stock Info Sector Capital Goods Market Cap (` cr) Beta 52 Week High / Low 6, /223 Avg. Daily Volume 391,113 Face Value (`) BSE Sensex Nifty Reuters Code 2 18,137 5,439 AREVA.BO Bloomberg Code ATD@IN Shareholding Pattern (%) Promoters 73.4 MF / Banks / Indian Fls 15.8 FII / NRIs / OCBs 1.3 Indian Public / Others 9.5 Abs. (%) 3m 1yr 3yr Sensex (2.0) Areva T&D (8.5) 3.0 (13.5) Hemang Thaker Ext: 6817 hemang.thaker@angelbroking.com Please refer to important disclosures at the end of this report 1

2 Exhibit 1: Quarterly performance (` cr) 1QCY11 1QCY10 % chg (yoy) 4QCY10 % chg (qoq) CY10 CY09 % chg (yoy) Net Sales ,327 (25.0) 4,037 3, Other operating income Total income ,327 (25.0) 4,037 3, Stock adjustments (38.7) (77.4) 4.5 (122.6) 39.2 Raw Material (19.5) 2,876 2, (% of total income) Employee Cost (2.0) (% of total income) Other Expenses (11.1) (% of total income) Total Expenditure ,149 (21) 3,596 3, EBITDA (53) (EBITDA %) Interest (26.9) Depreciation Other Income PBT (67.7) (3.9) (% of total income) Total Tax (68.5) (6.1) (% of PBT) Reported PAT (67.3) (6.8) (% of total income) EPS (67.3) (3.9) Exhibit 2: Actual vs. estimates (` cr) Actual Estimates Var. (%) Revenue EBITDA (25.2) PAT (35.1) EPS (`) (35.1) Cost control aided profitability, thanks to localisation: Despite a challenging market scenario, the company was able to sail through due to combination of higher volumes and better cost optimisation. Product manufacturing facilities in Vadodra, Padapai and Hosur, which started in early CY2010, have augured well for the company. Notably, raw-material cost for the current quarter declined by 120bp yoy to 69% as a percentage of revenue. Lower staff cost also aided the profitability, which decreased by 200bp to 9.1% as a percentage of revenue. Higher growth and margin expansion resulted in EBITDA surging by 89.6% to `84cr (`44cr). May 17,

3 Segment-wise performance The company provided segment-wise break-up between its transmission and distribution businesses with revenue contribution of 73% and 27%, respectively. The transmission segment was profitable with operating margin of 7.8% compared to 1.7% of the distribution segment. Order inflows Despite tight market conditions, the order intake for the quarter grew handsomely by 23.1% yoy to `1,253cr. Base orders continued to account for a bigger portion in order inflows. During the quarter, the company won PGCIL s Vindhyachal 765kV substation contract. Order backlog at the end of the quarter stood at `5,402cr. Competition from overseas suppliers, viz. Chinese and Korean suppliers, continues to be strong and has been affecting price realisations of domestic suppliers. However, management expects the T&D market to revive by 2HCY2011. Exhibit 3: Major orders received during the quarter (` cr) Utility segment Power Grid (Vindyachal) 765 kv substation 135 CSPTCL (220 kv Substation at Churri) 41 MSETCL (Substation & Transformer Packages) 77 Tripura State Electric Corporation 30 Industry / Infrastructure JP (substation & transformer at Nigrie) 105 Doosan Projects (GT for Raikheda) 39 Aditya Birla (E&I Pkg for Lapanga smelter) 50 Reliance Infra (transformer packages) 62 Enercon (Distribution transformer) 20 Moser Baer (Substation) 17 Exhibit 4: Order backlog Exhibit 5: Order inflow (` cr) 6,000 4,800 3,600 2,400 1,200 4,232 4,225 4,538 4,772 4,975 5,111 4,921 4,877 5,204 ((` cr) 1,600 1, ,038 1,418 1,016 1, ,295 1, (%) 30 (10) (50) 0 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 Order Inflows (LHS) 2QCY10 3QCY10 4QCY10 1QCY11 Growth (RHS) May 17,

4 Management s view on the T&D market Capacity addition for the Eleventh Plan is expected to be 55,000MW. The NTPC bulk tender decision is further delayed on account of various reasons. Change in pre-qualification criteria of 765kV substation tenders of PGCIL has resulted into entry of various EPC players, thereby increasing competition. Most large T&D projects have been delayed, leading to continued price pressure. Meaningful price correction is yet to be seen. Management expects the T&D market to revive during the second half of CY2011. Investment concerns Generation delays to impact T&D growth: Areva T&D's fortunes are directly linked to the growth of the Indian power sector. In the present macro environment, though the power sector capex is relatively resilient with majority of the projects being envisaged by the central and state sector utilities, major worry for the T&D sector is generation capacity addition delays. This is likely to adversely affect growth prospects of the T&D equipment suppliers as the sector has a high degree of correlation with power capacity addition. Notably, around 60% of the planned transmission expenditure for the Eleventh Plan is directly associated with the concurrent addition in generation capacity. Competitive pressure in T&D to swell: Besides emphasising localisation norm for getting qualified for 765kV, PGCIL has also altered the eligibility criteria for the bidding process of high-voltage power sub-station projects. Under this norm, PGCIL will award tenders for sub-station projects and circuit breakers separately. This will pave a way for Crompton Greaves, BHEL and L&T to grab a pie from the growing high-voltage T&D segment. This will strain formidable players such as ABB, Areva and Siemens, who enjoy a dominant market share in the high-voltage T&D space. Outlook and valuation: Central utilities have been delaying their orders on account of non-availability of land on time, resulting in lower number of 765kV projects being finalised. Ordering scenario from state utilities has also remained flat. Further, Korean and Chinese suppliers continue to quote very aggressive prices in transformers. While the growth trajectory looks promising with a decent order book of `5,204cr (1.1x CY2011E revenue), we remain cautious on the above concerns and believe the stock will trade sideways until the T&D segment revives post 1HCY2011 as guided by the management. At the CMP of `264, the stock trades at 29.6x CY2011E EPS and 22.3x CY2012E EPS. Historically, the stock has traded at an average P/E of 28x. We believe the stock is fairly valued and, hence, we continue to remain Neutral on the stock. May 17,

5 Exhibit 6: Key assumptions Particulars CY2011E CY2012E Order inflow growth (%) Order book to sales (x) Exhibit 7: Angel EPS forecast vs. Consensus Angel forecast Bloomberg consensus Var. (%) CY2011E (16.7) CY2012E (12.7) Exhibit 8: One-year forward P/E band May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Share Price (`) 21x 27x 33x 39x Exhibit 9: Peer Valuation Company Reco. CMP Tgt. price Upside/ P/BV(x) P/E(x) FY E RoCE (%) RoE (%) (`) (`) (Downside) (%) FY12E FY13E FY12E FY13E EPS CAGR FY12E FY13E FY12E FY13E ABB* Sell (26.2) Areva T&D* Neutral BHEL Neutral 2, BGR Energy Buy Crompton Greaves Buy Jyoti Structures Buy KEC International Buy Thermax Neutral ; *Note: December year ending May 17,

6 Profit & Loss Statement Y/E December (` cr) CY2008 CY2009 CY2010 CY2011E CY2012E Net Sales 2,641 3,566 4,020 4,564 5,320 Other operating income Total operating income 2,641 3,566 4,020 4,564 5,320 % chg Total Expenditure 2,216 3,164 3,596 4,097 4,749 Net Raw Materials 1,726 2,493 2,753 3,195 3,698 Other Mfg costs Personnel Other EBITDA % chg 18.8 (5.6) (% of Net Sales) Depreciation& Amortisation EBIT % chg 16.8 (13.0) (3.0) (% of Net Sales) Interest & other Charges Other Income (% of PBT) Others Recurring PBT % chg 9.3 (20.1) (6.1) Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of associate Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg 1.2 (12.7) (2.2) (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg 1.2 (12.7) (2.2) May 17,

7 Balance Sheet Y/E December CY2008 CY2009 CY2010 CY2011E CY2012E SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus ,117 1,350 Shareholders Funds ,002 1,165 1,398 Minority Interest Total Loans Deferred Tax Liability (39) (10) Total Liabilities 1,154 1,623 1,901 2,014 2,197 APPLICATION OF FUNDS Gross Block 374 1,050 1,162 1,234 1,324 Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets 2,160 2,876 3,574 3,758 4,764 Cash Loans & Advances Other Current liabilities 1,652 2,142 2,566 2,633 3,424 Net Current Assets ,008 1,125 1,340 Mis. Exp. not written off Total Assets 1,154 1,623 1,901 2,014 2,197 May 17,

8 Cash Flow Statement Y/E December( ` cr) CY2008 CY2009 CY2010 CY2011E CY2012E Profit before tax Depreciation (Inc)/Dec in Working Capital (93) (138) (286) (80) (105) Less: Other income Direct taxes paid Cash Flow from Operations (9) (Inc.)/Dec.in Fixed Assets (446) (278) (82) (100) (80) (Inc.)/Dec. in Investments - - (0.2) - - Other income Cash Flow from Investing (432) (261) (66) (73) (48) Issue of Equity Inc./(Dec.) in loans (50) (50) Dividend Paid (Incl. Tax) Others (6) (26) (16) - - Cash Flow from Financing (100) (100) Inc./(Dec.) in Cash (13) Opening Cash balances Closing Cash balances May 17,

9 Key Ratios Y/E December CY2008 CY2009 CY2010 CY2011E CY2012E Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) May 17,

10 Research Team Tel: Website: DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement Areva T&D India 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors. Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%) May 17,