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Research
ABB - 1QCY12 Results Update - Motilal Oswal
Posted On : 2012-05-12 10:40:35( TIMEZONE : IST )
ABB India reports mixed performance in 1QCY12: ABB India reported mixed 1QCY12 performance with flat YoY revenues, impacted by deferment of project bookings and focus on tight working capital management. EBIDTA margins were impacted by forex losses of INR327m (largely MTM losses on derivative contracts), adjusted for which net profit was up 35% YoY, broadly in line with our estimates.
- Profitability shows improvement while order momentum moderates: EBITDA margin, adjusting for forex losses, was up 150bp YoY and the improvement was driven by Power Systems business which showed turnaround (EBIT margins at 5%) after reporting losses since last eight quarters. 1QCY12 saw moderation in order intake momentum, down 4% YoY, impacted by slowdown in industrial sector (largely process automation) while power segment posted strong double digit growth.
- Management re-iterates its confidence in the Indian market; will continue to invest: Although the company currently going through a challenging phase due to macro concerns and certain company specific issues, the management re-emphasized its confidence in the underlying demand in the Indian market and the company's growth prospects. ABB has nearly trebled its gross fixed assets to INR15b (Dec 2011) over the past 5 years, and the management reiterated plans to invest in capacities - recently the company announced plans to invest INR2.5b for setting up power products facility.
- Exports and Services show robust growth: The quarter saw significant traction in exports (~10% of sales) driven by Middle East and Africa, particularly in Power segment. Services business (~10% of sales) has also shown strong performance and this continues to be an important focus area.
- Valuation and view: We believe 1QCY12 is the first sign of profitability improvement as (1) ABB has largely exited RE works, and (2) the benefits of cost reduction measures have started to flow in. We have cut our earnings estimate by 4%/11% for CY12/13 driven by slower execution. Valuations are rich, and we remain Neutral on the stock.