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UBS Investment Research
ABB Limited (India)
2 Q11: results below expectation
Event: 2Q11 results are below expectations
For 2Q11, ABB India reported operating income of Rs17.1bn, up 17% y/y (versus.
UBS estimate of Rs18bn and consensus estimate of Rs17bn) and PAT of Rs387m,
flat y/y (UBS estimate of Rs800m and consensus estimate of Rs805m). EBITDA
was Rs855m, down 4% y/y (UBS estimate: Rs1.4bn and consensus: Rs1.21bn).
The EBITDA margin of 5% is lower than expectations due to higher-than-expected
raw material costs and other expenses. For 1H11, reported operating income is
Rs35.1bn (up 19% y/y), EBITDA Rs1.87bn (up 106% y/y), and PAT Rs983m (up
118% y/y).
Impact: profitability across segments is still a major concern
In 2Q11, ABB recorded revenue growth in all of its business segments (the highest
growth was in process automation at 30% and the lowest was in power products at
6%). However, EBIT declined in power products, discrete automation, and process
automation. Overall, EBIT rose 6% y/y in 2Q11 (versus 17% growth in revenue).
Action: order inflow is a positive, strong headwinds remain
The order inflow of Rs17.92bn was up 45% y/y. The order book is Rs84.15bn
(down 2% y/y). For ABB, the competition in its key business segments is a major
reason for lower profitability and we remain cautious on the outlook for the
company in the short-to-medium term.
Valuation: maintain Sell rating, price target of Rs590
We use a three-stage DCF methodology to arrive at our price target of Rs590. We
assume 20% medium-term growth (2014-2018E), a WACC of 9.8%, and terminal
growth of 5%.
2Q11 results below UBS estimates
Operating income of Rs17.1bn, up 17%y/y (versus UBS estimate of Rs18bn
and consensus estimate of Rs17bn)
PAT of Rs387m is flat y/y (UBS estimate was Rs800m and consensus was
Rs805m).
EBITDA was Rs855m, down 4% y/y (UBS estimate: Rs1.4bn; consensus:
Rs1.21bn).
EBITDA margin of 5% has improved y/y. However, it is lower than
expectations.
In 1H11, reported operating income is Rs35.1bn (up 19% y/y), EBITDA at
Rs1.87bn is up 106% y/y, and PAT at Rs983m is up 118% y/y.
On margins, we think ABB India has not been able to sustain the margin
improvement recorded in 1Q11.
ABB Limited (India)
ABB India (ABB) is a 75%-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 high-voltage
(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
We believe the key risk for our rating is a faster-than-expected recovery and
better-than-expected margins on the current order book. We think the keys risks
for ABB are: a slowdown in power sector investment, an industrial slowdown,
raw materials risk, competition, employees’ retention, and execution risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
ABB Limited (India)
2 Q11: results below expectation
Event: 2Q11 results are below expectations
For 2Q11, ABB India reported operating income of Rs17.1bn, up 17% y/y (versus.
UBS estimate of Rs18bn and consensus estimate of Rs17bn) and PAT of Rs387m,
flat y/y (UBS estimate of Rs800m and consensus estimate of Rs805m). EBITDA
was Rs855m, down 4% y/y (UBS estimate: Rs1.4bn and consensus: Rs1.21bn).
The EBITDA margin of 5% is lower than expectations due to higher-than-expected
raw material costs and other expenses. For 1H11, reported operating income is
Rs35.1bn (up 19% y/y), EBITDA Rs1.87bn (up 106% y/y), and PAT Rs983m (up
118% y/y).
Impact: profitability across segments is still a major concern
In 2Q11, ABB recorded revenue growth in all of its business segments (the highest
growth was in process automation at 30% and the lowest was in power products at
6%). However, EBIT declined in power products, discrete automation, and process
automation. Overall, EBIT rose 6% y/y in 2Q11 (versus 17% growth in revenue).
Action: order inflow is a positive, strong headwinds remain
The order inflow of Rs17.92bn was up 45% y/y. The order book is Rs84.15bn
(down 2% y/y). For ABB, the competition in its key business segments is a major
reason for lower profitability and we remain cautious on the outlook for the
company in the short-to-medium term.
Valuation: maintain Sell rating, price target of Rs590
We use a three-stage DCF methodology to arrive at our price target of Rs590. We
assume 20% medium-term growth (2014-2018E), a WACC of 9.8%, and terminal
growth of 5%.
2Q11 results below UBS estimates
Operating income of Rs17.1bn, up 17%y/y (versus UBS estimate of Rs18bn
and consensus estimate of Rs17bn)
PAT of Rs387m is flat y/y (UBS estimate was Rs800m and consensus was
Rs805m).
EBITDA was Rs855m, down 4% y/y (UBS estimate: Rs1.4bn; consensus:
Rs1.21bn).
EBITDA margin of 5% has improved y/y. However, it is lower than
expectations.
In 1H11, reported operating income is Rs35.1bn (up 19% y/y), EBITDA at
Rs1.87bn is up 106% y/y, and PAT at Rs983m is up 118% y/y.
On margins, we think ABB India has not been able to sustain the margin
improvement recorded in 1Q11.
ABB Limited (India)
ABB India (ABB) is a 75%-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 high-voltage
(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
We believe the key risk for our rating is a faster-than-expected recovery and
better-than-expected margins on the current order book. We think the keys risks
for ABB are: a slowdown in power sector investment, an industrial slowdown,
raw materials risk, competition, employees’ retention, and execution risks.
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