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ABB Ltd
Underweight
ABB.BO, ABB IN
Growth concerns remain post weak CY10, stock still expensive: Maintain UW
• Dec-q PAT decline was more severe than expected. Reported PAT of
Rs64mn was down 94% YoY, vs. our estimate of Rs854mn (implying 22%
dip). Sales growth of 8.8% YoY was in line, but OPM was just 0.6%.
Margins were weak across business segments, a trend which has prevailed
throughout CY10.
• Order inflows disappoint. 4Q order inflows of Rs13.9B were down 41%
YoY; overall inflows in CY10 dipped ~27%. According to a company press
release, there was ‘de-logging’ of some orders from backlog for client
projects which were getting postponed indefinitely. Management did not
quantify the size or source of these orders. Post CY10 order backlog of
Rs84.3B is flat YoY, raising growth concerns for CY11, in our view.
• Rural electrification (RE) exit linked woes still remain, in our view. The
company press release mentioned that 4Q results were adversely impacted
due to provisioning for expected incremental early exit costs for all
remaining projects. Prima-facie a one-time clean up sounded positive
and the stock closed up 5.2%. However, post the analyst call, we suspect
the next couple of quarters may still be weak for power systems at an
operating level, as management conceded that RE backlog of Rs700mn still
remains. At the beginning of CY10 unexecuted backlog of RE was Rs2B;
and ABB provisioned ~Rs1B during last fiscal quarter.
• Earnings estimates cut by 15/19%. Owing to weak order inflows,
moderate growth expectations in short-cycle businesses and pricing pressure
across segments, we prune our FY11/12 revenue estimates by 7.5/9.5%,
margins by 80/100bps.
• Still expensive, though RoE lowest in the sector. Maintain UW. Our
revised DCF-based Dec-11 PT is down 14.6% to Rs615. ABB’s fiscalized
FY12E P/E is 33x as compared to 15.6x for CG and 26x for Siemens India.
ABB’s RoE estimate is ~16% vs. 31% for CG and 26% for Siemens. Off of
a low base in the previous fiscal year (CY10), EPS growth will appear high
in CY11. We recommend a switch to CG (OW) within the T&D sector. Key
risks to our UW rating on ABB are: (1) Better-than-expected inflows in
coming quarters; and (2) Low free float ex-LIC, ~17.35%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ABB Ltd
Underweight
ABB.BO, ABB IN
Growth concerns remain post weak CY10, stock still expensive: Maintain UW
• Dec-q PAT decline was more severe than expected. Reported PAT of
Rs64mn was down 94% YoY, vs. our estimate of Rs854mn (implying 22%
dip). Sales growth of 8.8% YoY was in line, but OPM was just 0.6%.
Margins were weak across business segments, a trend which has prevailed
throughout CY10.
• Order inflows disappoint. 4Q order inflows of Rs13.9B were down 41%
YoY; overall inflows in CY10 dipped ~27%. According to a company press
release, there was ‘de-logging’ of some orders from backlog for client
projects which were getting postponed indefinitely. Management did not
quantify the size or source of these orders. Post CY10 order backlog of
Rs84.3B is flat YoY, raising growth concerns for CY11, in our view.
• Rural electrification (RE) exit linked woes still remain, in our view. The
company press release mentioned that 4Q results were adversely impacted
due to provisioning for expected incremental early exit costs for all
remaining projects. Prima-facie a one-time clean up sounded positive
and the stock closed up 5.2%. However, post the analyst call, we suspect
the next couple of quarters may still be weak for power systems at an
operating level, as management conceded that RE backlog of Rs700mn still
remains. At the beginning of CY10 unexecuted backlog of RE was Rs2B;
and ABB provisioned ~Rs1B during last fiscal quarter.
• Earnings estimates cut by 15/19%. Owing to weak order inflows,
moderate growth expectations in short-cycle businesses and pricing pressure
across segments, we prune our FY11/12 revenue estimates by 7.5/9.5%,
margins by 80/100bps.
• Still expensive, though RoE lowest in the sector. Maintain UW. Our
revised DCF-based Dec-11 PT is down 14.6% to Rs615. ABB’s fiscalized
FY12E P/E is 33x as compared to 15.6x for CG and 26x for Siemens India.
ABB’s RoE estimate is ~16% vs. 31% for CG and 26% for Siemens. Off of
a low base in the previous fiscal year (CY10), EPS growth will appear high
in CY11. We recommend a switch to CG (OW) within the T&D sector. Key
risks to our UW rating on ABB are: (1) Better-than-expected inflows in
coming quarters; and (2) Low free float ex-LIC, ~17.35%.
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