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Analyst Research Report Snapshot


ABB Ltd. (ABB) - Qtr. Update - Dated - May 08, 2013




Axis Capital Limited


09 May 2013





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Near term outlook challenging as turnaround remains uncertain. However, ABB is focusing on new segments to drive growth such as Solar invertors, Wind generators, Buildings and Railways. It is also focusing on margin improvement through increasing indigenization by adding new manufacturing capacities for GIS and high voltage transformers. ABB to benefit from changing trends: (1) Future transmission capex will be towards improving grid stability, which would require systems (SVC#, FACTS#) that are available with select MNCs, (2) rising proportion of next generation technologies (HVDC# and GIS#) and (3) mandatory domestic manufacturing. Raise CY13E EPS to Rs 16 from Rs 13 on execution, margin improvement in power systems. Maintain TP at Rs 503 (25x CY14E). Upgrade to HOLD on stock price correction. Q1CY13 key trends ABB’s Q1CY13 performance was mixed. Revenue at Rs 20 bn was up 10% YoY on strong growth in power systems. Adj. EBITDA margin was down 80 bps YoY at 6.5% and adj. PAT was down 19% YoY at Rs 566 mn. Capital employed was flat at Rs 26 bn, which is better than peers. Order inflow at Rs 15 bn was down 6% YoY as growth in short cycle product orders (>10% growth) was offset by absence of large project orders. Revenue growth in Q1CY13 was driven by strong growth in the power systems business (up 32% YoY) on commencement of execution of HVDC and Isolux projects. Power products continued to decline for a third consecutive quarter due to weak market. At CMP of Rs 536 (implies 6% downside), the stock trades at 33x CY13E EPS of Rs 16 and 27x CY14E EPS of Rs 20. Note: # Acronyms used SVC – Static variable compensator FACTS – Flexible AC transmission system HVDC – High voltage direct current GIS – Gas insulated substation 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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