ABB - Q2CY2012 Result Update - Angel Broking

ABB India (ABB) reported better than expected numbers for 2QCY2012. It reported in-line top-line growth of 10.0% and better than expected bottom-line growth of 33.3%. The order intake during the quarter was up 14%, taking the total order book to Rs.9,175 up 9.0% yoy, implying a sales coverage 1.2x. We expect order flow to improve over the coming quarters which will lend to improved growth trajectory. In addition, margin recovery in the long term seems likely, given that the pricing in the transmission and distribution (T&D) segment has bottomed out. However, on the back of expensive valuations we maintain our Sell recommendation on the stock.

Across the board revenue growth: For 2QCY2012, the company's revenue came in at Rs.1,884cr, up 10% yoy and 5.2% qoq. The revenue growth was robust through all the segments with low voltage products leading at 18.1%. Power systems, power products and process automation grew at ~12%. EBITDA margins for the quarter came in at 5.6%, up from 5.0% yoy and slightly above our estimate of 5.3%. Power systems saw a sharp revival in profitability with EBIT margins at 5.0%, up from -0.7% yoy. However, process automation saw declining margins for the quarter at -2.5%. Automation products also saw a steep increase in EBIT margins at 12.8%, up from 7.6% yoy.

Outlook and valuation: With decent order flows expected in power products and power system segments, along with recovery in profitability due to supply chain initiatives and exit from rural electrification projects coupled with a debt free balance sheet, we expect ABB's fundamentals to steadily improve going forward. However, with the share trading at 38x PE on our CY2013E EPS estimates, we believe the share remains overvalued. Hence, we maintain our Sell recommendation on the stock with a target price of Rs.498.

Source : Equity Bulls

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