Sell ABB; target of Rs 1180: Motilal Oswal

Motilal Oswal's research report on ABB

2QCY17 revenue rose 6% YoY to INR22.3b, missing our estimate of INR23.8b by 7%. EBIDTA margin of 6.6% (+120bp YoY) too was below our estimate of 9.7%. EBITDA rose 30% YoY to INR1.5b, but came in below our estimate of INR2.2b due to ECL provisioning done under Ind-AS accounting system and expenses incurred on developing new products. PAT of INR0.8b too missed our estimate of INR1.1b.

Outlook

Management is optimistic on the demand scenario, driven by government capex. It continues to remain focused on margin expansion via its efforts toward operational efficiency and localization. We cut our estimates for CY17/18 by 11/2% to factor in margin compression on account of ECL provisioning, and maintain our Sell rating given premium valuations. We maintain our price target of INR1,180 (35x Mar’19 EPS of INR33).

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