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ABB (ABB) - Qtr. Update - Dtd. - Febraury 21, 2013




Axis Capital Limited


22 Feb 2013





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ABB’s Q4CY12 performance was mixed. Revenue at Rs 21 bn was down 6% YoY on delays in project executions; products business was flat. Adj. EBITDA margin was up 120 bps YoY at 6.1% and adj. PAT was up 11% YoY at Rs 519 mn. Capital employed declined by Rs 571 mn QoQ which is commendable. Order inflow at Rs 16 bn was down 29% YoY. Management indicated CY13 could be challenging but it will focus on profits over volumes. We believe this will lead to lower than expected revenue in CY13. Hence we reduce CY13E EPS to Rs 13 (Rs 20 earlier). We also roll forward our valuation to CY14E EPS of Rs 20 (on better margin due to increased localization and cost rationalization). Maintain SELL with target price of Rs 496 (25x CY14E) – implies 15% downside. Q4CY12 key trends: ABB’s products business (esp. low voltage products; up 16% YoY) registered better performance vs. projects (Power systems down 18% YoY). Management indicated most of the projects in Power segment were getting delayed; hence customers have deferred deliveries of equipment. There was substantial growth in services and exports (>20% growth driven by African market). In automation segment, core sectors such as Cement and Steel continued to be weak. This was partially offset by growth in new segments such as Solar and Railways. Outlook for CY13: Power sector has been the worst hit, hence ABB has decided to reposition its offerings for this sector globally – which implies emphasis on higher value/ content of ABB products in projects. Management expects orders from Power sector to start flowing in from H2CY13. In the automation segment, new project investments have slowed down; hence it will take couple of quarters for improvement. ABB would also increase focus on services, exports and new segments such as Solar, Data Centers and Energy efficiency products. At CMP of Rs 583, the stock trades at 46x CY13E EPS of Rs 13 and 29x CY14E EPS of Rs 20. Regards, Bhavin Vithlani (Executive Director – Power & Cap Goods) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1144 Charanjit Singh (Vice President – Capital Goods) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1123

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