ABB India - 1QCY2012 Result Update - Angel Broking

ABB India (ABB) reported a mixed set of numbers for 1QCY2012. The company reported lower-than-expected top-line as well as bottom–line performance; however, when adjusted for MTM forex loss, the bottom line exceeded expectations. Order intake during the quarter was down 3.7% at Rs.1,632cr, taking the total order book to Rs.9,028cr. We expect order inflow to improve over the coming quarters, which will lead to improved growth trajectory. In addition, margin recovery in the long term seems likely, given the pricing in the T&D segment has bottomed out. However, overly expensive valuations do not warrant a change in our view. Hence, we continue to maintain our Sell view on the stock.

Revenue flat, margin improves when adjusted for forex loss: For 1QCY2012, the company's top line was flat at Rs.1,790cr (Rs.1,793cr), which was 12.8% lower than our (as well as consensus) estimate of Rs.2,053cr. EBITDA margin declined by 22bp yoy to 5.4%, lower than our estimate of 5.9%; however, when adjusted for forex loss, EBITDA margin came in higher at 7.3%. Reported PAT came in at Rs.47.6cr, declining by 20% yoy. Margin improvement was primarily on the back of reduction in cost of materials, which was on account of certain cost-saving measures, which the company started taking five quarters back.

Outlook and valuation: With decent order inflows expected in the power products and power system segments along with recovering profitability, exit from rural electrification projects and debt-free balance sheet, we expect ABB's fundamental to steadily improve going forward. However, with ABB trading at 41x and 36x PE on CY2012 and CY2013 EPS estimates, we believe the stock remains overvalued. We maintain our Sell view on the stock with a target price of Rs.498.

Source : Equity Bulls

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