Accumulate ABB; target Rs 1,480: KRChoksey

KRChoksey's report on ABB

Q4CY14 results is in line to expectations, ABB reported a revenue of Rs. 2,205 crore (+1.4%, YoY) primarily lead by automation (+10%, YoY) and power products (+9%, YoY) while others showed a subdued growth. ABB reported EBITDA of Rs. 147 crore (+21.4, YoY) which is inline to our expectation of Rs. 151 crore. EBITDA margins improved by 110 bps led by segments like automation products (+190 bps), power system (+380 bps) and fall in segments process automation (-200 bps) power products (-40bps).

Gross margins have improved by 20 bps while other expenses fell by 100 bps that result into operating leverage and improvement in EBITDA to Rs 147 crore by 110 bps. Management commentary is positive related to sectors like railway, smart cities, and metros and solar as volume will grow profitability will improve. We believe higher capacities utillsation in near future helps to improve margins gradually and led to 100 bps margins improvement in next 2 years.

Valuation & Outlook:"At CMP Rs 1,361, the stock trades at EV/ EBITDA 48.8x & 37.1x for CY15E & CY16E financials respectively. ABB is a leader in T&D projects and products; we believe it is a natural beneficiary to revival in industrial capex with the growth in the economy. We recommend “Accumulate” with TP Rs 1,480", says KRChoksey research report.

Read More