Analyst Research Report Snapshot

Title:

Spark Capital: ABB 1QCY13 Results Review - Outlook remains bleak; Maintain Sell

Price:

$58.00

Provider:

Spark Capital Advisors(India) Private Limited

Date:

09 May 2013

Pages:

6

Type:

AcrobatPDF

Companies referenced:

ABB.NS

Available for Immediate Download
Summary:

Outlook remains bleak; Maintain Sell ABB Ltd (ABB) reported a revenue of Rs. 19.7bn in 1QCY13 (10% yoy growth). EBITDA margin of 5.4% was below our expectation of 7.4% due to margin pressure across segments and forex loss of Rs. 210mn during the quarter. While better than expected revenue growth was on the back of pick up in power systems segment (32.2% yoy growth) due to execution spill over from previous quarter, going forward, we expect overall revenue growth to remain muted due to the weak order book position (1.0x CY14E book-to-bill). Order inflow during the quarter stood at Rs. 15.3bn, de-growing by 10% yoy on the back of weak order inflow momentum from traditional segments (steel, cement, etc) and lack of traction in large power projects. While the management is optimistic of securing orders from new sectors like solar, railways and buildings, growth in order inflow is not expected to pick up pace in a hurry due to delays in power sector projects and weak industrial capex. At 31.6x CY14E earnings, the stock continues to remain expensive inspite of 17% correction in past 3 months. With limited macro uptick expected in the near term, we reiterate our Sell rating on the stock. Highlights of the quarter’s performance and outlook Execution pace to remain muted – ABB registered moderate pick up in execution (10% yoy growth) due to a combination of traction in the power systems segment (32.2% yoy growth) and a low base in 1QCY12. Execution in other key segments remained muted on the back of client side and payment delays. Given persistent delays faced by projects in both power and industrial segments due to weak demand, clearance and payment issues, we expect revenue to grow by a muted 9% and 2% in CY13E and CY14E respectively Margin headwinds to persists in spite of cost optimization efforts – Margin pressure continued to prevail with both power and automation segments continuing to register sub-par margins. While the management is aiming at improving margins through process improvement and internal cost efficiencies, given unabated pricing pressure in the market, we expect EBITDA margin to remain muted at 6.7% and 8.1% for CY13E and CY14E respectively Large orders remain elusive, order inflow outlook remain subdued – While short cycle orders (< Rs. 750mn in size) have witnessed healthy growth of double digit during the quarter, large orders from traditional sectors (power, steel and cement) have remained elusive leading to order inflow de-growth of 10% yoy in 1QCY13. While the management is focusing on new segments (solar, railways, etc) to improve order inflow, given lack of traction in large projects, overall growth in inflows is unlikely to improve significantly in the near future

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