ABB India - Weakness in Projects business continues - Religare

ABB reported a below-expected Q4, with sales/PAT of Rs 20.8bn/Rs 168mn (Down 5% / Down 74%YoY) on weakness in the Power Systems business. EBITDA margins slipped 170bps YoY to 3.2% while order inflows declined 29% YoY to Rs 15.8bn as the order book contracted 5% YoY to Rs 86.7bn. Power Systems was impacted by execution delays and withheld shipments. We cut our CY13 EPS estimates by 9% on lower margin expectations and roll over to a Mar'14 TP of Rs 575. Maintain SELL.

Weakness in Projects business led by execution delays/withheld shipments: Power Systems/Process Automation segments (26%/18% of Q4CY12 sales) declined 18%/4% YoY. As per the management, execution in some infrastructure projects was delayed and provisions (Rs 0.8bn for CY12) were made against these. Further, shipments for some projects were withheld due to issues in collection of payments.

Profitability in Products business remains buoyant: Even as sales in Power Products declined 2% YoY, the segment EBIT margin improved 270bps YoY to 9.4%. The Low Voltage segment grew 16% YoY as margins for this segment expanded 100bps YoY to 6.8%. For Automation Products, annual EBIT margins remained largely flat YoY at 11%. Power Systems incurred operating losses of Rs 629mn in Q4CY12 (vs. losses of Rs 14mn in the year-ago quarter).

Order inflows remain muted on unfavorable macro conditions: Order inflows declined 29% YoY to Rs 15.8bn (vs. an average run-rate of Rs 18.7bn for the last 8 quarters) as the investment scenario in Process/Power industries remains weak. Order inflows for CY12 declined 15% YoY to Rs 70bn. Of the current order book of Rs 86.7bn, the contribution of Power/Automation segments stood at 55%/45%.

Maintain SELL: We roll over to a Mar'14 TP of Rs 575. The stock trades at PE of 28.6x/23.8x for FY14E/FY15E, which is expensive in our view. Maintain SELL.

Source : Equity Bulls

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