KRChoksey`s research report on ABB“Q3CY14 results below expectations, ABB reported a revenue of Rs. 1,821 crore (+3.3%, YoY) primarily lead by automation (+8%, YoY) and power systems (+9%, YoY) while others showed a subdued growth. ABB reported EBITDA of Rs. 102 crore (+23.1, YoY) which is below our expectation of Rs. 116 crore. EBITDA margins improved in segments automation products (+40 bps), low voltage products (+240bps), process automation (+470bps) and fall in segments power products (-240bps). Order inflow Rs. 1,421 crore (-19.4%, YoY) is weak for last quarter and order books stands at Rs. 7,666 crore. Management indicated due to projects deferment few order inflow delayed to Q4CY14E. While shorter-cycle orders continue to be healthy and the product business forms ~60% of order book, the project business constitutes the balance 40%. Gross margins have improved by 240 bps points while EBITDA is flat due to forex losses Rs 11 crore and other expenses. Negative operating leverage results in flat margins. We believe higher capacities utillsation in near future helps to improve margins gradually.""Management commentary is positive for upcoming quarters as economy grow will lead to revival in industrial capex. Last quarter was sluggish in case of execution and order inflow, uptick in industrial activity was low. Further, mentioned customer deferrals to continue in certain large cycle projects, as there is still some hesitancy among corporate to incur capex. Margin of the power product segment was impacted by new one time investment. At CMP Rs 1,150, the stock trades at EV/ EBITDA 49.5x & 31.0x to CY14E & CY15E 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 1,300,” says KRChoksey research report.
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