GE Vernova T&D India Ltd. share price target

20 November 2018 Sales grew 14% YoY to INR9.9b, led by execution of (a) transmission projects for PGCIL, CSPTCL and Surya Urja, (b) two air-insulated substation projects for CSPTCL and (c) R&D; facility for BARC. EBITDA grew 15% YoY to INR921m (in-line). PAT rose 8.3% YoY to INR515m, below our estimate of INR645m due to lower other income (INR238m v/s our estimate of INR400m) and a higher tax rate (36% v/s our estimate of 32%). EBIDTA margin came in flat YoY at 9.3% (in-line). Order intake increased by a muted 2% YoY to INR7.2b, given lower PGCIL ordering and non-finalization of TBCB orders. GETD expects ordering from state SEBs to remain strong; it is also targeting neighboring countries to grow the exports business. We maintain our visibility on orders (on account of muted capex from PGCIL in the near-to- medium term) adds an element of uncertainty over growth.

FY18, it declined by 32% yoy to Rs8bn in Q4FY18, as a substantial proportion of the execution scheduled for FY18 was completed by 9MFY18, especially in Q3FY18 (wherein revenue increased by 32% yoy). While the gross margin held steady at 31.2% (+54 bps yoy), the EBIDTAM shrank by 771bps yoy to 1.5% impacted by lower turnover. EBIDTA declined by 89% yoy to Rs119mn. Other income increased by 279% yoy to Rs670mn. PAT contracted by 40% yoy to Rs278mn. The relentless focus on project closures and collection of old dues (including retentions) enabled GETD to generate FCF of ~Rs8.8bn (~4XFY18 PAT). Cash surplus (net of borrowings) now stand at ~Rs4.3bn v/s borrowings...

margin profile. EBIDTA margin for the quarter stood at 9.3% (+510bp YoY). Adj. PAT stood at INR475m v/s INR205m in 2QFY17. EBIDTA margin expansion driven by execution of better-margin order and cost rationalization: EBIDTA stood at INR805m, as against profit of INR349m, with the margin expanding YoY to 9.3% from 4.2%, led by closure of a large order (Champa Kurukshetra phase I) with a better margin profile, and also cost-rationalization measures. Management guided for 7-8%...

Top takeaways from Q1FY17 : Alstom T&D’s (ATD) loss of Rs 176mn (vs Rs 102mn profit in 1Q16) was materially below our and consensus estimates of profit. Results were below estimates due to weak margins and high interest expenses.On reported basis losses were even higher at Rs 1.97bn on account of provisions for doubtful debts and tax disputes. These provisions were over and above IND?AS impact. In our view change in management (from Alstom to GE) led to these provisions. The pricing for power?transmission equipment, especially transformers and GIS, continues to remain under pressure due to intense competition from foreign manufacturers and further added by reverse auction process adopted by some utilities.Despite the weak market, order inflows grew 12% yoy to Rs 8bn led by government orders for transformers, reactors, GIS and AIS of 220?765kV range.

Outlook and valuation: ATD is still in the integration phase with GE, resulting in higher volatility in margins. Visibility on order inflows also remains low on weak T&D ordering in FY17?18 coupled with loss of opportunity in 765 KV GIS, HVDC and STATCOM orders. They cut their FY17/18 EPS estimate by 28/6% to factor in lower revenues and margins. Maintain Neutral rating with a revised target price of Rs 335 (earlier Rs 375). The stock currently trades at 43x FY18 EPS.

 

BUY Alstom T&D India CMP at Rs. 359 - 332 for the taget of Rs. 425 - Rs. 490

Key highlights: Revenues at Rs 9.7bn (29% yoy) were below our estimates of Rs 15bn (consensus Rs 14bn) as realignment of revenue recognition milestones led to deferred revenue.Despitea670bpsexpansioningrossmarginto32.6%,weakrevenuetranslatedto...

the Chennai floods impacted despatches at its GIS factory. Higher rawmaterial cost and lowercontributionfromproductsledtogrossmarginof31.6%,(+86bpsyoybutlowerthan our estimate of 34%). Lowerthanexpected gross margins and other expenses (Rs 1.4bn,...

8 Order inflows adjusted for Rs 14bn ChampaKurukshetra I order booked in Q2FY14, declinedby7%yoyduetoweakspendingfromprivatesector.OrderbookatRs78bn (flatyoy)impliesabooktobillof2.3x....

Alstom T&D;'s Q1FY16 results were below estimates led by lower margins due to unfavourable project mix. Order inflow at Rs 7bn was down 6% yoy. Management maintainedacautiousstanceonprivatecapex,butexpectsorderingtoremainrobustfrom...

Alstom India's Q1FY16 results were below our estimates as weak execution translated to negativeoperatingleverage.However,aftersubduedorderinflowsinFY15weexpectorder inflows to bunch up in FY16driven byboiler pressure part orders from BHEL.Execution is...