ABB India - Q1FY21 Results - Views of YES SECURITIES

Actual vs. expectations: Beat on all fronts as compare with our/consensus estimates.

Likely stock reaction: Positive

Key highlights from Q2CY20 results:

- Revenues were down 43% yoy to Rs9.86bn (+15%/+10% vs our/cons. est.) due to supply chain disruptions, lower service revenues on the account of national lockdown & non-receipt of delivery clearances. Industrial Automation (IA)/ Electrification (EL)/ Motion (MO)/ Robotics & Discrete Automation (RA) revenues declined by 37%/51%/35%/64%.

- Order inflow de-grew by 31% (ex-solar inverter) to Rs12bn by securing orders in varied sectors, including power distribution equipment, automation projects for process industries, food and beverage and electronics. Sectors with continued investment include, rail infrastructure, industrial buildings as well as water and waste-water.

- Key orders include: 1) Enterprise-wide SCADA management upgrade for oil major as well as custom SCADA-based solution that controls and monitors gas flow in tea estates, 2) Order for 249 compact secondary substations and ring main units for cities in Gujarat, 3) To supply 2.84MW, 4P, 690V doubly-fed induction generator (DFIG), part of serial supply for wind power generator order for an energy major, 4) Robotics order for end of line palletization for an F&B major.

- Order backlog stood at Rs46.7bn (~0.75x TTM sales), flat yoy.

- EBITDA margin came in at 2.4% (much ahead as compare with our/cons est. of -4.7%/-4.3%), down 480bps yoy due to volume shortfall & negative operating leverage.

- The impact caused by lower revenues during the quarter was offset to a reasonable extent by various cost saving initiatives that were implemented by the company as well as favorable forex valuations.

- EBITDA declined by 81% yoy to Rs234mn (as compare with our/cons est. loss of Rs404mn/Rs382mn)

- Adjusted PAT came in at Rs147mn, down 79% yoy as compare with our/cons est. loss of Rs460mn/Rs384mn

- Net non-cash working capital days stood at ~37 as on Q2CY20 vs ~34 as on Q4CY19.

- Debtors / Inventory / Creditors days stood at 95 / 67 / 91 respectively as on Jun'20 vs 97/ 43/ 95 as on Dec'19.

- The company continues to focus its efforts on cash collections and cost optimization initiatives.

- Cash position remains strong at ~Rs15bn.

- Operating cash flow was negative at Rs5.2bn as on Q2CY20 due to fall in profitability vs Rs2.1bn as on Q2CY19.

Our View

The Stock is currently trading at 47x CY21E earnings. We have a 'BUY' rating with TP of Rs961 at 45x on Mar'22 earnings. We would review our estimates post interaction with the Company management. We like ABB, given its niche business related to products and services and a pure play on Digitalization and Automation. Postponement of major capex to subsequent quarters due to COVID-19 has led to greater focus on plant upkeep, optimization, automation & digital solutions which should augur well for ABB. Its focus will remain on the sectors like F&B, data centers, pharmaceuticals, energy, chemicals, and railways & metros, which are likely to demonstrate selective shoots of growth, will be critical.

Shares of ABB India Limited was last trading in BSE at Rs.936.5 as compared to the previous close of Rs. 926. The total number of shares traded during the day was 14653 in over 1166 trades.

The stock hit an intraday high of Rs. 943.55 and intraday low of 926.5. The net turnover during the day was Rs. 13737889.

Source : Equity Bulls

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