Accumulate ABB; target of Rs 1403: Prabhudas Lilladher

Beat in PAT led by lower interest cost: ABB reported sales at Rs21bn (PLe: Rs20.2bn), up 8.8% YoY. High volumes of short‐cycle orders and focus on timely execution led to healthy execution. Sales of Discrete Automation & Motion, Electrification products and Power Grids increased by 10%, 7% and 7% YoY, respectively, while sales of Process Automation declined by 3.3% YoY. EBITDA was up 13.4% YoY at Rs1.7bn (PLe: Rs1.6bn). EBITDA margin came in at 8.1%, up 30bps YoY (PLe: 8.0%). Focus on cost‐cutting and operational excellence aided in improving margins. Adj. PAT was up 34.8% YoY at Rs774m (PLe: Rs684m) on account of 27% dip in interest cost YoY to Rs180m.

Renewable and services business drive inflow: Order inflow for Q2CY16 stood at Rs20bn, up 8% YoY. Growth in orders was supported by service business (up 32% YoY). Huge installed base is helping service business; it has also worked on creating new solution in service portfolio to add value to customers. Efficiency and technology‐driven upgrades by utilities such as the adoption of gas insulated switchgears was a major contributor to the order book. Renewables continue to have a significant share of the order inflow (15‐16%). Improving demand in the automotive industry drove automation orders but traditional industries remained sluggish. Railways as segment also saw fast growth (contribution to inflow increased to 4% from 2%).Order book stood at Rs77.5bn, down by 5% YoY.

The stock is trading at 50xCY17E earnings. We believe ABB has consolidated its position over the last few years in terms of capacity and localization and is ready to benefit from market upturn. The company continues to focus on introduction of new products and tailor the technology to meet Indian requirement. We expect stock to deliver 33% earnings CAGR over CY15‐17E. Maintain ‘Accumulate’.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.