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ABB Ltd - Q3CY13 Result Update - "HOLD"




Kisan Ratilal Choksey Shares and Securities Private Limited


08 Nov 2013





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ABB Ltd - Q3CY13 Result Update CMP: Rs 626 Target Price: Rs 630 Recommendation: HOLD “Macro headwinds continue to impact execution and large ticket size orders” ABB net sales decreased by 1.3% YoY to Rs. 1,785 cr, which was marginally below expectation. ABB registered EBIDTA margins of 5.9% against our estimation of 6.25%. On a YoY basis EBIDTA margins improved by 223 bps as in Q3CY12 there was a forex loss of Rs. 30 cr vs a gain of Rs 7 cr in current quarter. Interest cost increased sharply 130% YoY to Rs. 27 cr in Q3CY13. Consequently ABB registered PAT of Rs. 35.6 cr. Order inflow increased by 5% to Rs 1,762 cr and order backlog stands at Rs. 8,252 cr (down 9% YOY). Liquidity constraints impact execution Net sales declined by 1.3% YoY on account of client’s deferring payments, project related delays and ABB’s prudent cash over revenues policy. Segment wise sales declined YoY in power system and process automation by 10.3% and 4.1% respectively. Automation products grew by 9.2% YoY and arrested decline in sales. ABB commented customers are hesitating not only capital expenditure but also operational expense, impacting product orders. Raw material cost expected to remain sub 70% of sales The management guided raw material cost to remain sub 70% of sale on back of focus on cost, supply chain and localization. The same efforts have started to benefit the company. Last couple of quarters RM cost as a % of sales was lower than 70%. Interest remains high on account of liquidity constraints in the system Interest cost increased to Rs. 27 cr vs Rs. 25.6 cr/Rs. 11.7 cr in Q2CY13/Q3CY12 on account of liquidity constraint face by clients/vendors which has stretch ABB’s working capital. Tight liquidity is making customer reluctant to part payments. Order backlog 1.1x TTM sales is comfortable Order inflows during the quarter at Rs 1,762 cr (up 5%). ABB commented absence of large order continues, while base orders remains commendable. The company bagged export orders worth Rs. 370 cr in current quarter. Order backlog stand flat on sequential basis at Rs. 8,235 cr and down 9% on YoY basis. Current order backlog gives 12 to 15 months visibility. Our View & Valuation At CMP of Rs 626, ABB is trading at a P/E of 48 x CY14E EPS and 35 x its CY14E EPS. Macro headwinds continue to impact execution. However, the company posted improvement in operating margins and have managed to keep raw material cost below 70%, which is encouraging. Considering the same we retain our HOLD recommendation with a price target of Rs. 630.

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