ABB India - 4QCY2012 Result Update - Angel Broking

For 4QCY2012, ABB India (ABB)'s top-line and bottom-line performance was below our expectations. The top-line declined by 5.3% yoy to Rs. 2,082cr, mainly on account of an 18.1% yoy decline in revenue from the Power System segment to Rs. 599cr. Order intake during the quarter declined by 28.5% yoy to Rs. 1,579cr due to lack of large order (on account of a slowdown in investments). Order backlog stands at Rs. 8,672cr for 4QCY2012, down 4.7% yoy, implying order book coverage of 1.1x (trailing 4 quarter revenues).

Margins below expectation: The EBITDA margin declined by 178bp yoy to 1.8%. The company's margins were below our expectations due to EBIT losses of Rs. 63cr and Rs. 1cr in Power Systems and Process Automation segment, respectively. Cost over-runs due to project delays and delay in payment by clients have resulted in margin erosion of project business. However, Power Products and Low Voltage Products posted higher margins yoy at 9.4% and 6.8% respectively. The company benefited to the tune of Rs. 7.5cr on account of a forex gain. However, the forex gain in 4QCY2012 is much lower than the Rs. 26cr forex gain during the corresponding quarter of last year. Consequently, the profit declined by 73.8% yoy to Rs. 17cr.

Outlook and valuation: ABB continues to witness a decline in order inflow and order backlog. Although the company has taken steps like improving efficiency through supply chain initiatives and exit from rural electrification projects, its margin continues to remain under pressure. Currently, the stock is trading at 33.7x CY2014 EPS estimates. We believe the stock remains overvalued. Hence, we maintain our Sell recommendation on the stock with a target price of Rs. 487.

Source : Equity Bulls

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