Angel Broking recommends to 'Reduce' ABB; target Rs 461

Angel Broking's research report on ABB

"For 1QCY2013, ABB's top-line performance was better than our expectations, growing by 10 percent yoy to Rs 1,970cr, mainly on account of 32 percent yoy growth in power system segment to Rs 752cr. Order intake during the quarter declined by 7.9 percent yoy to Rs 1,531cr due to lower intake of large orders (order>75cr is classified as large order). However, double digit growth in short cycle orders limited downside in order intake. The company's order backlog stands at Rs 8,229cr at the end of 1QCY2013, down 7.9 percent yoy, implying order book coverage of 1.1x (trailing 4 quarter revenues)."

"The company posted 12 percent yoy growth in EBITDA to Rs 90cr on back of increased focus to improve operational efficiencies through cost control and supply chain optimizations. However, elevated interest cost (Rs 20cr in 1QCY2013 vs Rs 5cr in 1QCY2012) due to higher working capital borrowings, dragged ABB's bottom-line by 10.7 percent yoy to Rs 43cr. Forex loss for the quarter stood at Rs 21cr (vs Rs 33cr corresponding quarter last year).

Outlook and valuation: "ABB continues to witness a decline in order inflow and order backlog due to slowdown in investment cycle. 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 31x CY2014 EPS estimates. We believe the stock remains overvalued. Hence, we recommend reduce on the stock with a target price of Rs 461," says Angel Broking research report.

Also Read: Hold ABB; target Rs 573: Firstcall Research

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