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ABB (India) (ABB.BO)
Sell: 14th Consecutive Disappointing Quarter; TP Cut to Rs461
Another quarter of disappointment — ABB’s 3Q11 sales of Rs17.3bn were up 29%
YoY which was 6% ahead of CIRA. Despite the sales beat, EBITDA margins at 2.9%
v/s CIRA at 4.6% implied that PAT at Rs222m was 48% below CIRA at Rs427m.
Inflows up 23% YoY - But is this reason to cheer? — ABB’s 3Q11 inflows at
Rs24.9bn was up 23% YoY. We believe this is not a reason to cheer given: (1) dismal
EBITDA margins reported over the last seven quarters (0.2% to 5%), (2) not all these
quarters were impacted by rural electrification provisions, (3) severe competition on
account of drying up of order pipeline and (4) a very high possibility that ABB has been
cutting prices to gain market share.
Focus on RE in CY07-08 impacted traditional business — ABB’s bought-out
components as % of sales shot up in CY07-10 as the lack of indigenization implied other
companies could make components more cost-competitively. When Chinese/ Koreans
entered India in CY09, ABB was not well prepared to compete.
Significant pile-up of receivables — Since CY04 ABB has seen a pile-up of
receivables. It is worried that the quantum of receivables >6 months has increased. We
wonder if this is a reflection of poor SEB finances. However, by delaying supplier
payments, ABB has delivered healthy operating cash flows over the years.
Maintain Sell - Target price cut to Rs461 — Revise CY11E-13E EPS down by 18-
26% to factor in: (1) 4-10% higher sales on higher-than-expected inflows and (2) 134-
162 bps structurally lower margins. Our EPS estimates are 21-31% lower than
consensus. Revise target price downwards to Rs461 (from Rs501 earlier) to factor in
(1) EPS cuts and (2) roll forward of target P/E of 25x to Mar13E from Sep12E earlier.
ABB continues to be most the over valued stock in our electrical equipment and
engineering & construction universe. Barring a possible delisting we believe there is no
fundamental support for the stock to trade at current valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ABB (India) (ABB.BO)
Sell: 14th Consecutive Disappointing Quarter; TP Cut to Rs461
Another quarter of disappointment — ABB’s 3Q11 sales of Rs17.3bn were up 29%
YoY which was 6% ahead of CIRA. Despite the sales beat, EBITDA margins at 2.9%
v/s CIRA at 4.6% implied that PAT at Rs222m was 48% below CIRA at Rs427m.
Inflows up 23% YoY - But is this reason to cheer? — ABB’s 3Q11 inflows at
Rs24.9bn was up 23% YoY. We believe this is not a reason to cheer given: (1) dismal
EBITDA margins reported over the last seven quarters (0.2% to 5%), (2) not all these
quarters were impacted by rural electrification provisions, (3) severe competition on
account of drying up of order pipeline and (4) a very high possibility that ABB has been
cutting prices to gain market share.
Focus on RE in CY07-08 impacted traditional business — ABB’s bought-out
components as % of sales shot up in CY07-10 as the lack of indigenization implied other
companies could make components more cost-competitively. When Chinese/ Koreans
entered India in CY09, ABB was not well prepared to compete.
Significant pile-up of receivables — Since CY04 ABB has seen a pile-up of
receivables. It is worried that the quantum of receivables >6 months has increased. We
wonder if this is a reflection of poor SEB finances. However, by delaying supplier
payments, ABB has delivered healthy operating cash flows over the years.
Maintain Sell - Target price cut to Rs461 — Revise CY11E-13E EPS down by 18-
26% to factor in: (1) 4-10% higher sales on higher-than-expected inflows and (2) 134-
162 bps structurally lower margins. Our EPS estimates are 21-31% lower than
consensus. Revise target price downwards to Rs461 (from Rs501 earlier) to factor in
(1) EPS cuts and (2) roll forward of target P/E of 25x to Mar13E from Sep12E earlier.
ABB continues to be most the over valued stock in our electrical equipment and
engineering & construction universe. Barring a possible delisting we believe there is no
fundamental support for the stock to trade at current valuations.
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