Published on 15/05/2019 9:43:10 AM | Source: Prabhudas Lilladher Ltd

Reduce ABB Ltd For The Target Rs.1,320 - Prabhudas Lilladher

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2019 beginning on a strong note

Quick Pointers:

* Base orders were up 17% YoY, Order backlog stood at Rs47bn.

* Services revenue came in at 13-14% of the total revenue during the quarter

* HVDC is complete 70%, around Rs14bn is still pending to be executed

We have maintained our earnings estimates and the stock is trading at 50/41x CY19/CY20E earnings. 1QCY19 numbers of ABB were ahead of our and street expectations, both on the topline and bottom-line led by strong revenue performance across the segments. The company continue to expand its digitalization footprints across verticals and sectors by offering average efficiency between 20-30%. ABB’s fives focus areas would be -– Power (mainly digital solutions), Manufacturing, Smart infrastructure, Hospitals, Retail, Schools and Transportation (Railways, Shipping, roads).

We believe ABB has been successful in consolidating its position over the last few years in terms of capacity and localization and is ready to benefit from the market upturn. On the digitalization, the company continues to collaborate with customers, deploy solutions from digital portfolio and support the new era of growth through smarter, greener grids, electrification of transport and digitalizing industries for greater efficiency and productivity. We expect ABB to witness revenue/PAT CAGR of 15%/23% over next two years (CY18-20E). We maintain Reduce rating with SOTP based TP of Rs1320 (Residual Business Rs936 (45x CY20E) + Power Grids Rs384(25x CY20E)).


Robust operating performance:

ABB’s revenue (Ex Power Grids) was up by 18% YoY at Rs18.5bn (PLe Rs17.3bn) mainly led by robust growth across the segments. Robotics & Motion/Electrification Products/Industrial Automation revenue was up by 34%/12%/20% YoY respectively. EBITDA margin improved to 7.9% YoY from 5.7% in 1QCY18 mainly due to improved capacity utilization and change in revenue mix. EBITDA was up by 63% YoY to Rs1.5bn. Interest cost decreased by 87% YoY to Rs26mn mainly on account of higher interest income due to increased cash (Rs6.5bn) due to recent debenture redemption by the company. Hence with strong operating performance, PAT for the quarter grew 95% YoY to Rs890mn.


Base business orders continue to drive growth:

ABB reported 4% YoY (adjusting for Rs1.8 bn large order in 1QCY18) growth in order inflows at Rs17.8bn, mainly due to 17% YoY growth in base orders. Robotics & Motion and Electrical Products witnessed order inflow growth of 38%YoY and 15% YoY respectively. However, Industrial Automation reported a dip of 24% YoY in order inflow mainly on account of delay in decision making. Exports orders (+38% growth) and Services (+21%). Order back log at the end of 1QCY19 stands at Rs47.3bn, up by 12% on QoQ basis. Basis orders received from smart infrastructure, railways, digitalization and F&B, order mix looked positive.


Power Grids witnessed weak performance:

Power Grids segment’s revenue fell 6% YoY to Rs9bn. EBIT margin came in lower at 5.5% from 9.3% in 1QCY18 due to weak revenue performance in 1QCY19 and higher margin export orders during the same period of last year. The company is confident of recovery in profitability in consecutive quarters of the year due to strong order back log of Rs56.9bn from both domestic and export markets. Order inflow during the quarter was Rs6.7bn. On the RP800 HVDC order, the company has completed ~70% of the work.


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