ABB (ABB IN, Mkt Cap USD2.1b, CMP INR536, Neutral) - Motilal Oswal

- 1QCY13 operational performance in-line: Revenue at INR19.7b (up 10% YoY) was 7% above est of INR18.4b, led by strong 32% YoY growth in Power Systems business (accelerated execution in specific projects, even as order intake remains constrained). EBITDA margin of 5.4% (flat YoY) was marginally below est of 6%. Reported EBITDA at INR1.1b was in line with est. Net profit at INR426m (declined 11% YoY) was below est of INR530m due to higher-than-expected interest cost at INR198m.

- Project business turns around: The most important highlight in 1QCY13 was the strong profitability improvement in Project business (both Process Automation and Power Systems), which was impacted by continuous provisions for time and cost overruns, poor cost absorption etc. In our view, sustainability of the same would be keenly watched. Margins in Product business was muted impacted by increased commodity prices and one-off change in business mix for relatively larger projects.

- Order intake remains under pressure: Order intake stood at INR15.3b, down 6% YoY, affected by lack of large orders, while short cycle orders posted 10%+ growth. Order book at INR82.3b declined by 9% YoY (flat QoQ). Management stated that demand opportunity in segments like Solar industry (inverters), Data Centers and buildings (building technology), Railways (power electronics and turbo chargers) and Energy Efficiency (drives) segment remains robust.

- Valuation and view: We believe though the recovery in margins is slower-than-expected, signs of profitability improvement are visible. In our view, improvement in Project business' profitability in 1QCY13 was a positive development and sustainability would be keenly watched. We have lowered earnings estimate by 4% for CY13E and 13% for CY14E to factor the constrained order intake and margin pressure in Product business. Maintain Neutral.

Source : Equity Bulls

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