ABB India - 3QCY2012 Result Update - Angel Broking

For 3QCY2012, ABB India (ABB)'s top-line and bottom-line performance was below our expectations. The company reported a subdued revenue growth of 3.7% yoy to Rs.1,809cr and 3.5% yoy decline in net profit to Rs.21cr. Order intake during the quarter declined by 32.6% yoy to Rs.1,679cr due to delays in finalization of large orders. Order backlog stands at Rs.9,062cr for 3QCY2012, down 1% yoy, implying order book coverage of 1.2x. The order intake is likely to improve going forward as the management expects to win a large order soon.

Margins below expectation: The EBITDA margin for the quarter came in flat yoy at 3.7%. The company's margins were below our expectations due to EBIT losses of Rs.8cr and Rs.14cr in power systems and process automation segment respectively. However, power products and low voltage products posted higher margins yoy at 8.5% and 8.2% respectively. The company benefited to the tune of Rs.13cr at the PBT level from a change in accounting policy regarding embedded derivatives. However, ABB incurred a forex loss of Rs.30cr in the quarter against a gain of Rs.8.5cr in the corresponding quarter of the previous year. Consequently, the profit declined by 3.5% yoy to Rs.21cr.

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 33x 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.573.

Source : Equity Bulls

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