ABB Ltd The pain continues : RBS

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ABB Ltd
The pain continues
ABB reported another disappointing quarter. Reported profit fell 86% yoy as cost
overruns continued as a result of the company exiting the rural electrification
business. With little clarity on total costs or a timeline, we cut our FY10 forecasts
and reiterate our Sell rating, with a new target price of Rs502.



Another disappointing quarter
ABB reported another disappointing set of results in 3Q10. Sales for the quarter were
Rs13.5bn (down 8.2% yoy), as revenue numbers declined in both the Power and Automation
segments. EBITDA margin, adjusted for an exchange gain, turned negative in 3Q10, led by
sharp 31.7% yoy growth in other expenses. We believe this stems from continuing losses
related to the costs of exiting the rural electrification business. Reported profit was down
86.1% yoy at Rs115m.
Power segment is dragging on revenue, profitability
The Power segment continued to create a drag, with revenue from the segment declining
8.2% yoy during 9M10. Segment profitability also suffered, with PBIT margins remaining
negative in 9M10. Both Power Products and Systems had a dismal nine months with
declining revenue and profitability as a result of continued pricing pressure and losses
related to costs of exiting the rural electrification business.
Order inflow picks up after disappointing 1H10, but gestation increases
Order inflow improved again during the quarter – after a 34% decline in 1H10 – rising 7.3%
yoy to Rs20.3bn. The inflow was driven by large orders from the Power Systems and
Process Automation segments. The company’s order backlog increased 14.4% yoy to
Rs91.8bn, mainly consisting of longer-gestation-cycle projects, indicating that revenue could
remain subdued in the coming quarters.
We cut our FY10 forecast; maintain Sell
Given the disappointing 3Q10 numbers, we cut our FY10 PAT forecast 18%. However, we
believe a pick-up in the order book in the quarter augurs well for future revenues. On this
basis, we marginally increase our FY11-12 earnings forecasts, which pushes our target price
to Rs502 per share from Rs472. We maintain a Sell rating.