Sell ABB; target of Rs 701: KRChoksey

KRChoksey is bearish on ABB and has recommended sell rating on the stock with a target of Rs 701 in its August 09, 2012 research report.

“ABB’s net sales increased by 10% to Rs 1883.8 cr, largely in line with our expectation. The company registered EBIDTA margins of 5.6%, below expectation as process automation registered a loss at segmental levels. Consequently the company registered PAT of Rs 51.6 cr, below our expectations of Rs 64 cr. Order backlog as of Q2CY12 stands at Rs 9,175 cr vs Rs 9,028 cr in Q1 CY12, while order inflow for the quarter stood at Rs 2,045 cr.”

“ABB registered subdued EBIDTA margins of 5.6% in the current quarter. Process automation registered a segmental loss of -2.5% which dragged the overall margins. Cost over run in couple of projects led to loss at segmental levels. These projects constitute core business area of process automation and are spread across sectors. Current EBIDTA margins include Rs. 9 cr of forex gain vs Rs 12 cr loss in Q2CY11. Adjusting for forex gain EBIDTA margins stood at 5.2%. ABB registered healthy order inflow of Rs 2,045 cr vs Rs. 1,791 cr in Q2CY11 and Rs. 1632 cr in Q1CY12. Power sector primarily contributed to growth in order inflows. The company also received healthy orders in low voltage products. Consequently current order backlog stands at Rs. 9,175 cr. Rural electrification constitute Rs 18 cr of current order backlog.”

“At CMP of Rs 789, ABB is trading at a P/E of 90.5x CY11 EPS, 46.1x its CY12E EPS and 28.1x its CY13E EPS. Thus considering expensive valuation, slow down in industrial capex and pricing pressure in the industry which is impacting margins, we recommend a SELL on ABB with price target of Rs 701 (25x CY13E EPS of Rs 28.1),” says KRChoksey research report.

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