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UBS Investment Research
ABB Limited (India)
O utlook remains challenging; maintain Sell
Increased competition in Power and slower pick-up in Industrial activity
We are bearish on T&D equipment manufacturers on increased competitive
intensity in the space. We think the pressure should remain high as Chinese/Korean
companies and smaller domestic manufacturers may continue to bid aggressively.
After the exclusion of circuit breakers from sub-station package by Power Grid, the
profitability of projects may decline further. The pick-up in industrial activity is
also slower than expected. We are convinced that outlook for the company remains
challenging and risk-reward for the stock is unfavourable at current market price.
1Q CY11: No major reversal in trend, we expect PAT of Rs646m
As per the information from exchanges, ABB India is likely to report 1Q CY11
results on 11th May 2011. In 1Q CY11, we forecast revenue to grow 9.5% YoY to
Rs16.2bn and EBITDA of Rs1.3bn with EBITDA margin of 8%. We expect PAT
of Rs646m. We expect the disappointing trend in quarterly results to continue.
We cut EPS estimates by 36%/34%/35% for CY11/12/13 respectively
We have lowered our estimates due to, a) lower revenues as execution has slowed
down for ABB’s customers, b) pressure on margins as competition has increased.
We have cut our earnings estimates by 36%/34%/35% to Rs18.2/24.2/33.3 for
CY11/12/13 respectively.
Valuation: Maintain Sell and lower PT of Rs590
We have reduced our PT to Rs590 on the changes in earning estimates. We use a
three-stage DCF methodology. We assume 20% medium-term growth (2014-18E),
a WACC of 9.8%, and terminal growth of 5%.
ABB India: Outlook remains challenging
We are bearish on increased competitive intensity in the transformers and other
T&D equipments. We think the pressure should remain high as Chinese/Korean
companies and domestic manufacturers may continue to bid aggressively. We
also think that after the exclusion of circuit breakers from sub-station package
by Power Grid, the profitability of sub-station projects may decline further. We
believe that the pick-up in industrial activity is slower than expected. We remain
convinced that the outlook for ABB India remains challenging and the riskreward
is unfavourable.
We have lowered our estimates due to, a) lower revenues as execution has
slowed down for ABB’s customers, b) pressure on margins as competition has
increased. We cut our EPS estimates by 36%/34%/35% to Rs18.2/24.2/33.3 for
CY11/12/13 respectively
Price target cut from Rs650 to Rs590
We have reduced our PT to Rs590 on the changes in earning estimates. We use a
three-stage DCF methodology. We assume 20% medium-term growth (2014-
18E), a WACC of 9.8%, and terminal growth of 5%.
Table 2: Valuation
The Valuation
PV of FCFF during high growth phase = 6,230
PV of FCFF during int growth phase = 16,372
PV of Terminal Value = 96,311
Value of Operating Assets of the firm = 118,913
Value of Cash & Non-operating assets= 5,877
Value of Firm = 124,790
- Value of Outstanding Debt = 6
Value of Equity = 124,785
Value of Equity in Common Stock = 124,785
Value of Equity per share (Rs/share) 589
Source: UBS estimates
ABB Limited (India)
ABB India (ABB) is a 52.11%-owned subsidiary of Switzerland-based ABB
Group, a global provider of power transmission and distribution (T&D) products
and automation technology. ABB is a leader in the medium- (MV) to highvoltage
(HV) power T&D and process industry automation in India. ABB Group
also uses India as a resource base for its international operations.
Statement of Risk
The keys risks for ABB are: a slowdown in power sector investment, an
industrial slowdown, raw materials risk, competition, employees’ retention and
execution risks. The key risk for our rating is faster than expected recovery and
better than expected margins on current order book.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
ABB Limited (India)
O utlook remains challenging; maintain Sell
Increased competition in Power and slower pick-up in Industrial activity
We are bearish on T&D equipment manufacturers on increased competitive
intensity in the space. We think the pressure should remain high as Chinese/Korean
companies and smaller domestic manufacturers may continue to bid aggressively.
After the exclusion of circuit breakers from sub-station package by Power Grid, the
profitability of projects may decline further. The pick-up in industrial activity is
also slower than expected. We are convinced that outlook for the company remains
challenging and risk-reward for the stock is unfavourable at current market price.
1Q CY11: No major reversal in trend, we expect PAT of Rs646m
As per the information from exchanges, ABB India is likely to report 1Q CY11
results on 11th May 2011. In 1Q CY11, we forecast revenue to grow 9.5% YoY to
Rs16.2bn and EBITDA of Rs1.3bn with EBITDA margin of 8%. We expect PAT
of Rs646m. We expect the disappointing trend in quarterly results to continue.
We cut EPS estimates by 36%/34%/35% for CY11/12/13 respectively
We have lowered our estimates due to, a) lower revenues as execution has slowed
down for ABB’s customers, b) pressure on margins as competition has increased.
We have cut our earnings estimates by 36%/34%/35% to Rs18.2/24.2/33.3 for
CY11/12/13 respectively.
Valuation: Maintain Sell and lower PT of Rs590
We have reduced our PT to Rs590 on the changes in earning estimates. We use a
three-stage DCF methodology. We assume 20% medium-term growth (2014-18E),
a WACC of 9.8%, and terminal growth of 5%.
ABB India: Outlook remains challenging
We are bearish on increased competitive intensity in the transformers and other
T&D equipments. We think the pressure should remain high as Chinese/Korean
companies and domestic manufacturers may continue to bid aggressively. We
also think that after the exclusion of circuit breakers from sub-station package
by Power Grid, the profitability of sub-station projects may decline further. We
believe that the pick-up in industrial activity is slower than expected. We remain
convinced that the outlook for ABB India remains challenging and the riskreward
is unfavourable.
We have lowered our estimates due to, a) lower revenues as execution has
slowed down for ABB’s customers, b) pressure on margins as competition has
increased. We cut our EPS estimates by 36%/34%/35% to Rs18.2/24.2/33.3 for
CY11/12/13 respectively
Price target cut from Rs650 to Rs590
We have reduced our PT to Rs590 on the changes in earning estimates. We use a
three-stage DCF methodology. We assume 20% medium-term growth (2014-
18E), a WACC of 9.8%, and terminal growth of 5%.
Table 2: Valuation
The Valuation
PV of FCFF during high growth phase = 6,230
PV of FCFF during int growth phase = 16,372
PV of Terminal Value = 96,311
Value of Operating Assets of the firm = 118,913
Value of Cash & Non-operating assets= 5,877
Value of Firm = 124,790
- Value of Outstanding Debt = 6
Value of Equity = 124,785
Value of Equity in Common Stock = 124,785
Value of Equity per share (Rs/share) 589
Source: UBS estimates
ABB Limited (India)
ABB India (ABB) is a 52.11%-owned subsidiary of Switzerland-based ABB
Group, a global provider of power transmission and distribution (T&D) products
and automation technology. ABB is a leader in the medium- (MV) to highvoltage
(HV) power T&D and process industry automation in India. ABB Group
also uses India as a resource base for its international operations.
Statement of Risk
The keys risks for ABB are: a slowdown in power sector investment, an
industrial slowdown, raw materials risk, competition, employees’ retention and
execution risks. The key risk for our rating is faster than expected recovery and
better than expected margins on current order book.
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