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ABB (ABB)
Industrials
Short cycle orders boost execution, backlog; weak margin continues to worry.
ABB reported strong order inflows (up 45% yoy) and steady revenues (up 17% yoy) on
booking of short cycle orders. Significant margin miss (3.5% vs. 7.5%) led to 56% PAT
miss and reflects impact of increased competition (T&D and automation) as well residual
effect of low-margin orders. We marginally revise our estimates on reduced margin
assumptions and retain our SELL rating (TP: Rs660 from Rs700 earlier).
Strong inflow of short cycle orders boosts backlog; HVDC and other L1 orders in the offing
ABB reported a 45% increase in order inflow for 2Q (Rs17 bn versus Rs12.3 bn) led by a large
inflow of short cycle orders. This is broadly in line with average quarterly order inflows of Rs16 bn
for CY2010. The company would continue to focus on such orders though it highlighted that its
dependence on the same will not increase. It cited other orders in the offing including (1) the
US$130 mn HVDC order (in advanced stages of financial closure) and (2) L1 status in some tenders.
Its backlog of Rs84 bn was flat on a sequential basis and presents a year of visibility.
Baldor Electric acquisition to complement drives business; contribution may not be significant
ABB India recently acquired Baldor Electric for Rs357 mn (Rs300 mn sales). The company operates
through two segments including (1) motors and drives (American standard vs. IEC standard in
India) and (2) mechanical equip business. ABB would benefit from the small mechanical equipment
segment (20% share) which would complement its domestic drives business.
Significant margin miss (no RE impact) reflect competition, slowdown; aims for 8-10% corridor
ABB reported revenues of Rs16.9 bn in 2QCY11, up 17% yoy and in line with our estimate of
Rs17 bn with all segments contributed to growth (process automation up 30%, power systems
(up 22%). EBITDA margin at 3.9% was significantly below expectation (7.5%) and has failed to
pick up so far. The management cited increased competition (T&D and automation) and a
slowdown in ordering contributing to lower margins (no loss was booked RE orders in 2Q). It is
aiming at an 8-10% margin. Net PAT of Rs387 mn missed our estimate (Rs884 mn) by 56%.
Marginally revise estimates; retain SELL on expensive valuation
We revise our earnings estimates for CY2011, CY2012 and CY2013 to Rs17.1, Rs26.4 and Rs32.8
from Rs21.1, Rs27.3 5 and Rs32.1, respectively, based lower margin assumption. We retain our
Sell rating based on expensive valuations (31X CY2012E), competitive intensity and weak capex
cycle.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ABB (ABB)
Industrials
Short cycle orders boost execution, backlog; weak margin continues to worry.
ABB reported strong order inflows (up 45% yoy) and steady revenues (up 17% yoy) on
booking of short cycle orders. Significant margin miss (3.5% vs. 7.5%) led to 56% PAT
miss and reflects impact of increased competition (T&D and automation) as well residual
effect of low-margin orders. We marginally revise our estimates on reduced margin
assumptions and retain our SELL rating (TP: Rs660 from Rs700 earlier).
Strong inflow of short cycle orders boosts backlog; HVDC and other L1 orders in the offing
ABB reported a 45% increase in order inflow for 2Q (Rs17 bn versus Rs12.3 bn) led by a large
inflow of short cycle orders. This is broadly in line with average quarterly order inflows of Rs16 bn
for CY2010. The company would continue to focus on such orders though it highlighted that its
dependence on the same will not increase. It cited other orders in the offing including (1) the
US$130 mn HVDC order (in advanced stages of financial closure) and (2) L1 status in some tenders.
Its backlog of Rs84 bn was flat on a sequential basis and presents a year of visibility.
Baldor Electric acquisition to complement drives business; contribution may not be significant
ABB India recently acquired Baldor Electric for Rs357 mn (Rs300 mn sales). The company operates
through two segments including (1) motors and drives (American standard vs. IEC standard in
India) and (2) mechanical equip business. ABB would benefit from the small mechanical equipment
segment (20% share) which would complement its domestic drives business.
Significant margin miss (no RE impact) reflect competition, slowdown; aims for 8-10% corridor
ABB reported revenues of Rs16.9 bn in 2QCY11, up 17% yoy and in line with our estimate of
Rs17 bn with all segments contributed to growth (process automation up 30%, power systems
(up 22%). EBITDA margin at 3.9% was significantly below expectation (7.5%) and has failed to
pick up so far. The management cited increased competition (T&D and automation) and a
slowdown in ordering contributing to lower margins (no loss was booked RE orders in 2Q). It is
aiming at an 8-10% margin. Net PAT of Rs387 mn missed our estimate (Rs884 mn) by 56%.
Marginally revise estimates; retain SELL on expensive valuation
We revise our earnings estimates for CY2011, CY2012 and CY2013 to Rs17.1, Rs26.4 and Rs32.8
from Rs21.1, Rs27.3 5 and Rs32.1, respectively, based lower margin assumption. We retain our
Sell rating based on expensive valuations (31X CY2012E), competitive intensity and weak capex
cycle.
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