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In response to a question on disappointing CG results the management
of ABB (ABB VX, covered by European Capital Goods analyst Andreas
Willi) commented that the Indian market is extremely competitive.
According to them competitors have been going very aggressively after
market share. In his opinion, CG may have accumulated low margin orders
in their backlog. This could have been the outcome of a technology &
productivity deficit combined with aggressive order booking. In this
environment, ABB is being selective and even withdrawing from tenders
where margins are low. They are intensifying local R&D and product
design to reign in cost pressures. According to ABB, they were ‘not
surprised to see the kind of (low) margin’ CG is coming out with.
Strong and broad based inflow growth in India: As per management, interms
of inflow growth India was the outperformer in Asia in Jun-q. In India
ABB witnessed a 39% YoY growth in local currencies with healthy order
increases across the board. As per the group presentation- India power
orders were up 43% and automation up 36% YoY.
Miscellaneous comments: Emerging competitors remain a challenge and
there is still overcapacity and price pressure in parts of the power business,
mainly large power transformers and some high-voltage equipment like gas
insulated switchgear. See J.P. Morgan research on ABB (MNC) Jun-q
results- Not as good as hoped for, positive outlook maintained>
Read-through for ABB India: Broad-based growth across segments
provides further signs of capex recovery. In Jun-q last year ABB India’s
order inflows were depressed at Rs12.4bn (down 41% YoY). ~40% YoY
growth implies inflows of ~Rs17.4bn in Jun-q (vs. Rs17mn in Mar-q). After
9 consecutive quarters of de-growth in profits reported by ABB, we expect
base effect to kick-in bottom-line also, provided margins recover from the
low levels earlier. We estimate Rs16.8bn revenue (up 16.4%), 7.8% margins
(up 280bps) and Rs865mn PAT for Jun-q (up 41.8%). However, we remain
cautious of competitive pressures in the sector.
Investment view. Within the T&D space we continue to be OW on
Siemens- industry and domestic power segment growth of CG in Jun-q has
been relatively strong. We are UW on CG and expect a sharp deterioration
of profitability outlook to lead the P/E de-rating. ABB India (UW)
valuations at 44x FY12E fiscalized P/E are still prohibitive high- the
buyback price of Rs900 continues to provide support to ABB stock and low
free float ex-LIC (~17.35%) is a key risk to our sell recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In response to a question on disappointing CG results the management
of ABB (ABB VX, covered by European Capital Goods analyst Andreas
Willi) commented that the Indian market is extremely competitive.
According to them competitors have been going very aggressively after
market share. In his opinion, CG may have accumulated low margin orders
in their backlog. This could have been the outcome of a technology &
productivity deficit combined with aggressive order booking. In this
environment, ABB is being selective and even withdrawing from tenders
where margins are low. They are intensifying local R&D and product
design to reign in cost pressures. According to ABB, they were ‘not
surprised to see the kind of (low) margin’ CG is coming out with.
Strong and broad based inflow growth in India: As per management, interms
of inflow growth India was the outperformer in Asia in Jun-q. In India
ABB witnessed a 39% YoY growth in local currencies with healthy order
increases across the board. As per the group presentation- India power
orders were up 43% and automation up 36% YoY.
Miscellaneous comments: Emerging competitors remain a challenge and
there is still overcapacity and price pressure in parts of the power business,
mainly large power transformers and some high-voltage equipment like gas
insulated switchgear. See J.P. Morgan research on ABB (MNC) Jun-q
results- Not as good as hoped for, positive outlook maintained>
Read-through for ABB India: Broad-based growth across segments
provides further signs of capex recovery. In Jun-q last year ABB India’s
order inflows were depressed at Rs12.4bn (down 41% YoY). ~40% YoY
growth implies inflows of ~Rs17.4bn in Jun-q (vs. Rs17mn in Mar-q). After
9 consecutive quarters of de-growth in profits reported by ABB, we expect
base effect to kick-in bottom-line also, provided margins recover from the
low levels earlier. We estimate Rs16.8bn revenue (up 16.4%), 7.8% margins
(up 280bps) and Rs865mn PAT for Jun-q (up 41.8%). However, we remain
cautious of competitive pressures in the sector.
Investment view. Within the T&D space we continue to be OW on
Siemens- industry and domestic power segment growth of CG in Jun-q has
been relatively strong. We are UW on CG and expect a sharp deterioration
of profitability outlook to lead the P/E de-rating. ABB India (UW)
valuations at 44x FY12E fiscalized P/E are still prohibitive high- the
buyback price of Rs900 continues to provide support to ABB stock and low
free float ex-LIC (~17.35%) is a key risk to our sell recommendation.
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