HSBC views on AREVA T&D
HSBC has given a neutral rating for Areva T&D as it feels that after years of bearishness, Areva’s tone on business outlook is now turning positive. The company noted that the order pipeline remains strong with increased activity from SEBs, Power Grid and national utilities. In addition, management noted that competition is finally returning to healthy levels and pricing seems to have stabilised. Other than the Power sector, demand for T&D equipment is also likely to improve from the Railways sector, with a lot of orders in the pipeline for Metro projects as well as dedicated freight corridors. The demerger of the Transmission and the Distribution divisions is likely to become effective over the next four to six weeks, after which, both these businesses will be separately listed on the exchange. Transmission is likely to benefit from Alstom’s global sourcing initiative, which should drive both growth & margin improvements of 200-300 basis points. The businesses are likely to benefit from the impending asset sale (as part of the restructuring at Areva T&D), which should draw proceeds of Rs 500 crore, making these companies largely debt neutral. Valuation appears full. It has projected a target of 220 for the stock in near to medium term future and thus stock appreciation is very limited.
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