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ABB (ABB)
Industrials
Broad-based revenue growth; broad-based margin disappointment. ABB reported
strong sales growth (supported by acquisitions, broad-based growth) leading to 9%
beat. Margin, however, disappointed (2.9% versus 7.5% estimate) across segments
(products, projects). Strong ordering growth (25%) was also led by two large awards.
ABB expects price recovery only in 2HCY12E as it focuses to improve margin through
operational excellence. Lower margin assumption (TP: Rs575 versus Rs660 earlier).
Results: Strong revenue growth (includes acquisitions); margin significantly below estimates
ABB reported strong sales outperformance (Rs17.4 bn versus Rs15.8 bn estimate, up 29% yoy)
supported by broad-based growth across segments. The sales include the recently acquired ABB
Global Industries and Service Limited (expects Rs2.5 bn of annualized sales). EBITDA margin at
2.9% disappointed versus estimate of 7.5%. Margin decline (9MCY11 versus 9MCY09) across
product and projects segments is reflective of broad-based market-related pressure rather than just
few bad projects. Net PAT at Rs222 mn was sharply lower than our estimate of Rs764 mn.
Order inflows supported by two large orders; cement and metal sector orders seeing delays
ABB reported significantly higher 3QCY11 order inflows of Rs25 bn (up 23% on a yoy basis) versus
average quarterly run rate of Rs18.5 bn for last 10 quarters. These include two large orders of
(1) Rs8.2 bn substation project order from UP state utility and (2) Rs3.3 bn Bhillai Steel plant order.
ABB also highlighted traction in its base orders in (1) Power (Rs177 bn PGCIL projects to be bid)
and (2) industry (renewables, pharma, textile). It expects delays in cement (overcapacity) and metal
& minerals sectors in near-term. Total backlog at end-Sep-11 was Rs92 bn (Rs310 RE orders).
Expects price recovery only by middle of next year; banking on operational excellence till then
The company believes that pricing may not increase significantly from current levels with visible
improvement happening only by middle of next year. This is despite its view of reduction in
Korean/Chinese competition due to (1) need for serviceability, (2) ramp-up in domestic capacities
and (3) implementation of qualifying criteria (domestic production). The management although
expects to benefit from (1) operational excellence (competitive indigenized products, lower cost
R&D) and (2) hiring of new talent.
Revise estimates on lower margin assumption; maintain SELL on expensive valuations
We revise our estimates to Rs11.7 and Rs22.7 from Rs17.1 and Rs26.4 for CY2011E and CY2012E
on lower margin assumption (140-240 bps revision). We value ABB at 24 times average of
CY2012E and CY2013E (TP: Rs575 from Rs660 earlier). Retain SELL on (1) expensive valuations
(31XCY2012E), (2) competitive intensity may sustain, affecting pricing and (3) weak capex cycle.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ABB (ABB)
Industrials
Broad-based revenue growth; broad-based margin disappointment. ABB reported
strong sales growth (supported by acquisitions, broad-based growth) leading to 9%
beat. Margin, however, disappointed (2.9% versus 7.5% estimate) across segments
(products, projects). Strong ordering growth (25%) was also led by two large awards.
ABB expects price recovery only in 2HCY12E as it focuses to improve margin through
operational excellence. Lower margin assumption (TP: Rs575 versus Rs660 earlier).
Results: Strong revenue growth (includes acquisitions); margin significantly below estimates
ABB reported strong sales outperformance (Rs17.4 bn versus Rs15.8 bn estimate, up 29% yoy)
supported by broad-based growth across segments. The sales include the recently acquired ABB
Global Industries and Service Limited (expects Rs2.5 bn of annualized sales). EBITDA margin at
2.9% disappointed versus estimate of 7.5%. Margin decline (9MCY11 versus 9MCY09) across
product and projects segments is reflective of broad-based market-related pressure rather than just
few bad projects. Net PAT at Rs222 mn was sharply lower than our estimate of Rs764 mn.
Order inflows supported by two large orders; cement and metal sector orders seeing delays
ABB reported significantly higher 3QCY11 order inflows of Rs25 bn (up 23% on a yoy basis) versus
average quarterly run rate of Rs18.5 bn for last 10 quarters. These include two large orders of
(1) Rs8.2 bn substation project order from UP state utility and (2) Rs3.3 bn Bhillai Steel plant order.
ABB also highlighted traction in its base orders in (1) Power (Rs177 bn PGCIL projects to be bid)
and (2) industry (renewables, pharma, textile). It expects delays in cement (overcapacity) and metal
& minerals sectors in near-term. Total backlog at end-Sep-11 was Rs92 bn (Rs310 RE orders).
Expects price recovery only by middle of next year; banking on operational excellence till then
The company believes that pricing may not increase significantly from current levels with visible
improvement happening only by middle of next year. This is despite its view of reduction in
Korean/Chinese competition due to (1) need for serviceability, (2) ramp-up in domestic capacities
and (3) implementation of qualifying criteria (domestic production). The management although
expects to benefit from (1) operational excellence (competitive indigenized products, lower cost
R&D) and (2) hiring of new talent.
Revise estimates on lower margin assumption; maintain SELL on expensive valuations
We revise our estimates to Rs11.7 and Rs22.7 from Rs17.1 and Rs26.4 for CY2011E and CY2012E
on lower margin assumption (140-240 bps revision). We value ABB at 24 times average of
CY2012E and CY2013E (TP: Rs575 from Rs660 earlier). Retain SELL on (1) expensive valuations
(31XCY2012E), (2) competitive intensity may sustain, affecting pricing and (3) weak capex cycle.
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