Pricing pressure hits Areva’s bottomline

A severe pressure on prices in the domestic market has taken a toll on transmission and distribution major Areva T&D India’s bottomline in the second quarter of calendar year 2009.

Areva T&D, which is a subsidiary of the France-based nuclear giant Areva and is one of the major transformer and substation manufacturers in India, is currently on a major expansion spree. The company had last year commissioned three facilities across the country.

Rathin Basu, country head, Areva T&D India, said, “The market is still flat and there is a sense of panic among the players, which is putting pressure on prices.” He was taking to analysts through a conference call on Wednesday.

He said the transmission and distribution market is witnessing a continuous price fall since September 2009 and the first half of the calendar year has seen practically no growth. While the transmission market has seen a drop in prices of 15-20%, the distribution market has been hit harder and prices have fallen by 20-25%.

This has taken a toll on the company’s bottomline, which is down by almost 14% in the second quarter of the calendar year. For the quarter ended June 2009, the company posted a net profit after tax (PAT) of close to Rs 50 crore against Rs 65 crore in the same period last year.

“However, for the first half, the company booked a profit of Rs 101 crore, which is a 32% growth over the last three years,” he said. The company also saw 24% fall in order intake in the first half, which stood at Rs 1,757 crore against Rs 2,323 crore in H12008. However, orders grew 18% in the last three years.

Basu attributed the fall in orders to three major factors — postponement of several orders by utilities, fall in prices of materials and near absence of private sector orders. He said the situation is slowly improving and by the December end, a sustained order intake should be visible.

For the current year, the company has a planned capex of Rs 370 crore, out of which Rs 170 crore has already been invested. Basu said transmission behemoth PowerGrid Corporation of India (PGCIL) had cancelled four mega orders worth Rs 1,800 crore for 765 kv transformers in the last quarter. “These orders will be revived only in the last quarter of the calendar year,” he added.

Some mega orders are also expected from some state electricity boards (SEB) such as Maharashtra, Haryana, Rajasthan and West Bengal. In Maharashtra, orders worth Rs 858 crore are expected in the distribution segment in the next three years, out of which Areva is likely to bag orders worth Rs 300 crore in this year itself.

The company is currently investing funds in restructuring its old sites by moving them to newer facilities and slowly ramping up these. “By next year, we are expecting the three new factories to post sales of around Rs 1,300-1,400 crore. We also expect them to go full steam by 2011.

For the quarter ended June 2009, Areva T&D’s revenues increased 26% to Rs 788 crore from Rs 624 crore in the same period in 2008. For the half year, the company’s revenues grew 45% to Rs 1,633 crore from Rs 1,130 crore in the first half of 2008.