ABB India (ABVFF, Underperform)BofA Merrill Lynch,

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ABB India (ABVFF, Underperform)
Bear case: What can go wrong
􀂄 In our bear case, a delay in capex could slow down order inflows. We
assumed order inflows decline by 6%YoY (-20% base case) in CY12E and
grow by 35%YoY (-18% base case) in CY13E on low base.
􀂄 Consequently, we assumed a slower sales growth at ~8-9% over CY12-13E.
We assumed an EBITDA margin of 9.5-10% in CY12-13E vs 6.7% in CY11E.
􀂄 Consequently, we expect an ~8-16% cut in base case EPS over CY12-13E
resulting in an EPS CAGR of 60% over CY10-13E on low base of -65%YoY
in CY10.
􀂄 In the bear case, we expect the ABB stock to de-rate and trade at 18x 1-yr
forward EPS (which is at 10% discount to base case multiple of 20x) at
Rs427 per share.
Base case:
􀂄 In the base case, we estimate order inflows to grow by 18% in CY12E and
31% in CY13E.
􀂄 Consequently, we estimate a sales growth of 16-19% over CY12-13E.
Assumed EBITDA margin of 9.5-10% in CY12-13E vs 6.7% in CY11E.
􀂄 Consequently, we estimate earnings to grow at 69% CAGR over CY10-13E
on low base of -65%YoY in CY10.
􀂄 In the base case, we expect the stock to trade at 20x 1-yr forward EPS at
Rs560 per share.
Risk-reward: Unfavorable
􀂄 In the bear case, we expect the stock to trade at 18x 1-yr forward EPS at
Rs427/share, translating into P/BV of 3.0x CY12E
􀂄 In the base case we, expect the stock to trade at 20x 1-yr forward EPS at
Rs560/share, translating into P/BV of 3.94x CY12E
􀂄 Overall, the risk-reward appears unfavorable with no upside return.