Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ABB (ABB)
Industrials
High exit costs continue to impact results; sedate inflows lower visibility. Another
disappointing quarter saw net PAT decline 94% yoy (revenues broadly in line). The PAT
decline was primarily due to provisions for high exit costs from rural electrification
projects. However, margins are likely remain weak even after adjusting for these
provisions. Order inflows also remained sedate, declining by 42% yoy and leading to
lower revenue visibility. We reiterate our REDUCE rating with a target price of Rs660.
ABB results continue to disappoint; sequential improvement across segments aided by seasonality
Revenues broadly in line. ABB reported 4QCY10 revenues of Rs20.5 bn, up 8.8% yoy,
broadly in line with our estimates. Strong sequential growth (witnessed across segments) of
54% yoy is likely to have been helped by seasonality impact.
High exit costs continue to impact margins. ABB reported weak EBITDA margin of only
0.6% in 4QCY10 (estimate of 10.7%, 4QCY09 margin of 8%) led by high provisioning towards
exit costs from large rural electrification project. Low EBITDA margin led to net PAT of Rs68 mn
(versus our estimate of Rs1.5 bn)—a decline of 94% yoy from Rs1.1 bn in 4QCY09.
Power systems lead revenue growth; margin pressure witnessed across segments. Power
systems led revenue growth, recording strong 49% yoy growth. Other segments, however,
reported relatively sedate revenue growth—about 6-7% for the industrial segments and a
decline of 9% recorded by the power products. EBIT margins remained weak across most
segments; (1) decline of 270 bps yoy for power products, (2) power systems continued to report
EBIT-level losses, and (3) sharp decline in profitability of discrete automation and motion as well.
Sedate inflows lead to decline in backlog visibility
ABB reported 4QCY10 order inflows of Rs13.9 bn, down 41% yoy led by increased competition,
price erosion and de-logging of certain orders that have been indefinitely postponed by clients.
ABB reported a net backlog of Rs84 bn at end-CY2010, relatively flat on a yoy basis. The order
backlog provides revenue visibility of about 12 months of sales (based on forward 4-quarter
revenues) versus about 15-16 months at end-CY2009.
Revise estimates; retain REDUCE (TP: Rs660) on sedate inflows, continued margin pressure
We revise our estimates to Rs26 and Rs31.4 (from Rs28 and Rs33.2) for CY2011E and CY2012E,
respectively, and reduce our TP to Rs660 (from Rs700). Reiterate REDUCE based on (1) relatively
expensive valuations, (2) sedate order inflows reducing near-term revenue visibility, (3) rising
competition likely to keep prices under pressure, and (4) execution issues in certain orders.
Revenues in line; however, high exit costs continue to impact profitability
ABB reported 4QCY10 revenues of Rs20.5 bn, up 8.8% yoy, broadly in line with our
estimates. The power systems segment led the revenue growth, recording a very strong
growth of 49% yoy. High exit costs related to withdrawal from rural electrification projects
and forex losses impacted the profitability of the quarter. The company reported a very low
EBITDA margin of just 0.6%, significantly lower than our estimate. Low EBITDA margin led
to a net PAT of Rs68 mn (versus our estimate of Rs1.5 bn), a decline of 94% yoy from Rs1.1
bn in 4QCY09.
For the full year ending December 31, 2010, ABB reported revenues of Rs62.9 bn, relatively
flat on a yoy basis. Full-year EBITDA margin was at 1.3%, down from 8.5% in CY2009
leading to a net PAT decline of 82% yoy to Rs632 mn (from Rs3.5 bn in CY2009).
Low margins attributed to exit costs and forex losses; however, even adjusted for
this, margins appear weak
ABB reported weak EBITDA margin of only 0.6% in 4QCY10 versus our estimate of 10.7%
and 4QCY09 EBITDA margin of 8%. The weak margins were attributed to provisioning for
expected incremental early exit costs for all the balance projects, pertaining to the non-core
businesses (rural electrification projects) of the company—partly reflected in high raw
material expenses as a percentage of sales (at 81.6% of sales versus about 75% last year).
ABB management did not quantify the exact amount of provisioning for the exit costs;
however, it did mention that the figure is in excess of Rs1 bn for CY2010. However, even
adjusted for this, the margins appear very low in CY2010. Remaining portion of the rural
electrification project constitutes about Rs700 mn of the CY2010-end order backlog (of
Rs84.4 bn).
Profitability of the company was also partially impacted by forex loss—it incurred a forex loss
of Rs375 mn during the quarter. However, this is likely to be only a timing issue. ABB hedges
all of its exposures on procurement as well as sales.
Power systems lead revenue growth; but continue to report EBIT-level loss
The revenue growth was led by the power systems segment which recorded a strong 49%
yoy growth to Rs6.35 bn in 4QCY10. The strong revenue growth was attributed to a pick-up
in execution of the orders currently in the backlog of the company. The yoy growth is likely
to be aided by low base effect as well—power systems revenues declined by about 42% in
4QCY09. The other segments reported relatively sedate revenue growth—about 6-7% for
the industrial segments and a decline of 9% recorded by the power products segment.
However, note that all the segments have recorded a sharp sequential growth—likely to
have been helped by seasonality impact.
Margins remained weak across most of the segments. Margins were very weak for the
power segments, declining by 270 bps yoy for power products to 3.8%. The power systems
segment reported a loss of Rs381 mn in this quarter as well; negative EBIT margin of 6% in
this quarter—in line with the trend seen in the first 9M of CY2010. The Discrete Automation
& Motion segment also reported a sharp decline in profitability by about 17 percentage
points.
Sedate inflows lead to decline in backlog visibility
ABB reported 4QCY10 order inflows of Rs13.9 bn, down 41% yoy (as highlighted in the
ABB global results as well). This led to a net backlog of Rs84 bn at end-CY2010, relatively
flat on a yoy basis. The order backlog provides revenue visibility of about 12 months of sales
(based on forward 4-quarter revenues) versus about 15-16 months at end-CY2009. The
company has attributed the sedate order inflows to price erosion and increased competition,
especially in the power sector (automation businesses remained stable). The orders received
were also impacted by de-logging of some orders for projects, which were indefinitely
postponed.
Revise earnings estimates and target price to Rs660/share; reiterate REDUCE
We have marginally reduced our earnings estimates to Rs26 and Rs31.4 from Rs28 and
Rs33.2 for CY2011E and CY2012E, respectively. Our earnings revision is primarily led by
lower EBITDA margin estimates. We correspondingly revise our target price to Rs660/share
(from Rs700 earlier) based on 24X March-12E earnings.
We reiterate our REDUCE rating based on (1) relatively expensive valuations of 29X CY2011E
and 24X CY2012E earnings, (2) sedate order inflows reducing near-term revenue visibility, (3)
rising competition likely to keep prices under pressure; further, rising commodity prices are
also likely to impact future margins, (4) relatively lower earnings growth scenario in the near
term versus CY2005-08 levels, and (5) execution issues in certain orders (withdrawal from
rural electrification projects).
Key catalysts for the stock include (1) higher-than-expected execution and margins, and (2)
strong order flows from Power Grid and industrial and private sector orders.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ABB (ABB)
Industrials
High exit costs continue to impact results; sedate inflows lower visibility. Another
disappointing quarter saw net PAT decline 94% yoy (revenues broadly in line). The PAT
decline was primarily due to provisions for high exit costs from rural electrification
projects. However, margins are likely remain weak even after adjusting for these
provisions. Order inflows also remained sedate, declining by 42% yoy and leading to
lower revenue visibility. We reiterate our REDUCE rating with a target price of Rs660.
ABB results continue to disappoint; sequential improvement across segments aided by seasonality
Revenues broadly in line. ABB reported 4QCY10 revenues of Rs20.5 bn, up 8.8% yoy,
broadly in line with our estimates. Strong sequential growth (witnessed across segments) of
54% yoy is likely to have been helped by seasonality impact.
High exit costs continue to impact margins. ABB reported weak EBITDA margin of only
0.6% in 4QCY10 (estimate of 10.7%, 4QCY09 margin of 8%) led by high provisioning towards
exit costs from large rural electrification project. Low EBITDA margin led to net PAT of Rs68 mn
(versus our estimate of Rs1.5 bn)—a decline of 94% yoy from Rs1.1 bn in 4QCY09.
Power systems lead revenue growth; margin pressure witnessed across segments. Power
systems led revenue growth, recording strong 49% yoy growth. Other segments, however,
reported relatively sedate revenue growth—about 6-7% for the industrial segments and a
decline of 9% recorded by the power products. EBIT margins remained weak across most
segments; (1) decline of 270 bps yoy for power products, (2) power systems continued to report
EBIT-level losses, and (3) sharp decline in profitability of discrete automation and motion as well.
Sedate inflows lead to decline in backlog visibility
ABB reported 4QCY10 order inflows of Rs13.9 bn, down 41% yoy led by increased competition,
price erosion and de-logging of certain orders that have been indefinitely postponed by clients.
ABB reported a net backlog of Rs84 bn at end-CY2010, relatively flat on a yoy basis. The order
backlog provides revenue visibility of about 12 months of sales (based on forward 4-quarter
revenues) versus about 15-16 months at end-CY2009.
Revise estimates; retain REDUCE (TP: Rs660) on sedate inflows, continued margin pressure
We revise our estimates to Rs26 and Rs31.4 (from Rs28 and Rs33.2) for CY2011E and CY2012E,
respectively, and reduce our TP to Rs660 (from Rs700). Reiterate REDUCE based on (1) relatively
expensive valuations, (2) sedate order inflows reducing near-term revenue visibility, (3) rising
competition likely to keep prices under pressure, and (4) execution issues in certain orders.
Revenues in line; however, high exit costs continue to impact profitability
ABB reported 4QCY10 revenues of Rs20.5 bn, up 8.8% yoy, broadly in line with our
estimates. The power systems segment led the revenue growth, recording a very strong
growth of 49% yoy. High exit costs related to withdrawal from rural electrification projects
and forex losses impacted the profitability of the quarter. The company reported a very low
EBITDA margin of just 0.6%, significantly lower than our estimate. Low EBITDA margin led
to a net PAT of Rs68 mn (versus our estimate of Rs1.5 bn), a decline of 94% yoy from Rs1.1
bn in 4QCY09.
For the full year ending December 31, 2010, ABB reported revenues of Rs62.9 bn, relatively
flat on a yoy basis. Full-year EBITDA margin was at 1.3%, down from 8.5% in CY2009
leading to a net PAT decline of 82% yoy to Rs632 mn (from Rs3.5 bn in CY2009).
Low margins attributed to exit costs and forex losses; however, even adjusted for
this, margins appear weak
ABB reported weak EBITDA margin of only 0.6% in 4QCY10 versus our estimate of 10.7%
and 4QCY09 EBITDA margin of 8%. The weak margins were attributed to provisioning for
expected incremental early exit costs for all the balance projects, pertaining to the non-core
businesses (rural electrification projects) of the company—partly reflected in high raw
material expenses as a percentage of sales (at 81.6% of sales versus about 75% last year).
ABB management did not quantify the exact amount of provisioning for the exit costs;
however, it did mention that the figure is in excess of Rs1 bn for CY2010. However, even
adjusted for this, the margins appear very low in CY2010. Remaining portion of the rural
electrification project constitutes about Rs700 mn of the CY2010-end order backlog (of
Rs84.4 bn).
Profitability of the company was also partially impacted by forex loss—it incurred a forex loss
of Rs375 mn during the quarter. However, this is likely to be only a timing issue. ABB hedges
all of its exposures on procurement as well as sales.
Power systems lead revenue growth; but continue to report EBIT-level loss
The revenue growth was led by the power systems segment which recorded a strong 49%
yoy growth to Rs6.35 bn in 4QCY10. The strong revenue growth was attributed to a pick-up
in execution of the orders currently in the backlog of the company. The yoy growth is likely
to be aided by low base effect as well—power systems revenues declined by about 42% in
4QCY09. The other segments reported relatively sedate revenue growth—about 6-7% for
the industrial segments and a decline of 9% recorded by the power products segment.
However, note that all the segments have recorded a sharp sequential growth—likely to
have been helped by seasonality impact.
Margins remained weak across most of the segments. Margins were very weak for the
power segments, declining by 270 bps yoy for power products to 3.8%. The power systems
segment reported a loss of Rs381 mn in this quarter as well; negative EBIT margin of 6% in
this quarter—in line with the trend seen in the first 9M of CY2010. The Discrete Automation
& Motion segment also reported a sharp decline in profitability by about 17 percentage
points.
Sedate inflows lead to decline in backlog visibility
ABB reported 4QCY10 order inflows of Rs13.9 bn, down 41% yoy (as highlighted in the
ABB global results as well). This led to a net backlog of Rs84 bn at end-CY2010, relatively
flat on a yoy basis. The order backlog provides revenue visibility of about 12 months of sales
(based on forward 4-quarter revenues) versus about 15-16 months at end-CY2009. The
company has attributed the sedate order inflows to price erosion and increased competition,
especially in the power sector (automation businesses remained stable). The orders received
were also impacted by de-logging of some orders for projects, which were indefinitely
postponed.
Revise earnings estimates and target price to Rs660/share; reiterate REDUCE
We have marginally reduced our earnings estimates to Rs26 and Rs31.4 from Rs28 and
Rs33.2 for CY2011E and CY2012E, respectively. Our earnings revision is primarily led by
lower EBITDA margin estimates. We correspondingly revise our target price to Rs660/share
(from Rs700 earlier) based on 24X March-12E earnings.
We reiterate our REDUCE rating based on (1) relatively expensive valuations of 29X CY2011E
and 24X CY2012E earnings, (2) sedate order inflows reducing near-term revenue visibility, (3)
rising competition likely to keep prices under pressure; further, rising commodity prices are
also likely to impact future margins, (4) relatively lower earnings growth scenario in the near
term versus CY2005-08 levels, and (5) execution issues in certain orders (withdrawal from
rural electrification projects).
Key catalysts for the stock include (1) higher-than-expected execution and margins, and (2)
strong order flows from Power Grid and industrial and private sector orders.
No comments:
Post a Comment