ABB-3Q10: strong headwinds, weak quarter : UBS

Visit http://indiaer.blogspot.com/ for complete details �� ��


UBS Investment Research
ABB Limited (India)
3Q10: strong headwinds, weak quarter
􀂄 3Q10: another set of disappointing results
In 3Q10, ABB India reported operating income of Rs13.49bn, down 8% YoY
(versus UBS’s estimate of Rs15.8bn). EBITDA margin fell 973bp YoY on higher
raw material, staff and overhead costs. Reported PAT fell 86% YoY to Rs115m.
Adjusting for forex gain of Rs479m, recurring PAT is negative (versus UBS’s
estimate of Rs950m profit). We believe the results are disappointing. In 9M10,
operating income declined 2% YoY and recurring PAT declined 60% YoY.
􀂄 Slowdown across segments; power systems and products are worst hit
In 3Q10, the slowdown was visible across all segments except for discrete
automation and motion. The PBIT margins have also declined in most of the
segments. The company has indicated that the slowdown might continue for the
remainder of 2010 as market conditions continue to remain challenging. ABB also
announced a leadership change in India. Bazmi Husain, the global head of the
Smart Grid industry segment for ABB, has been appointed Country Manager
starting 1 January 2011.
􀂄 Order inflow (decline of 21%YoY in 9M10) is disappointing
The order inflow of Rs20.3bn in 3Q10 was up 7% YoY. The order book is
Rs91.78bn. For ABB, the competitive intensity in most of its markets has increased
and there are strong head winds in the core business. We remain cautious on the
outlook for the company in the short-to-medium term.
􀂄 Valuation: maintain Sell rating on expensive valuation
We base our price target of Rs650 on a three-stage DCF methodology. We assume
20% medium-term growth (2014-18E), a WACC of 9.8%, and terminal growth of
5%.