20 July 2017
2QCY17 Results Update | Sector: Capital Goods
ABB
Sell
BSE SENSEX
31,904
S&P CNX
9,873
CMP: INR1,459
TP: INR1,180 (-20%)
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Performance hurt by ECL provisioning; valuation premium warrants Sell
Operational performance below expectations:
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.
Gross margin improves 160bp YoY to 36% – near-all time high:
Gross margin
improved 160bp YoY to 35.9%, driven by initiatives undertaken over the past 3-
4 years toward increased localization, rationalization of supply chain, improving
efficiency, better project management capabilities and lower raw material
prices. EBITDA margin improved 120bp YoY to 6.6%.
2Q order inflow up 13% YoY; order backlog increases 56% YoY:
Order inflow
increased 13% YoY to INR23.0b in 2QCY17, driven by finalization of base
orders. Large-ticket orders did not materialize during the quarter, given the
cautious approach adopted by clients in the run-up to GST implementation.
Key sectors driving base orders were utilities, transmission and infrastructure,
while industrial companies continued to incur operational capex. Order backlog
stands at INR121b (+56% YoY), providing revenue visibility of 1.4x its CY16
revenue.
Valuation view:
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).
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg. Val, INRm
Free float (%)
ABB IN
211.9
313.4 / 4.9
1619 / 950
-5/11/-2
126
25.0
Financials & Valuations (INR b)
Y/E Dec
2016 2017E 2018E
Net Sales
86.6
97.5 113.1
EBITDA
7.9
10.0
12.6
Adj. PAT
3.7
5.2
6.9
Adj. EPS (INR)
19.7
24.4
32.5
EPS Gr (%)
25.0
23.7
33.2
BV/Sh (INR)
154.9 179.3 203.3
RoE (%)
12.7
13.6
16.0
RoCE (%)
18.3
20.9
24.0
P/E (x)
75.8
61.2
46.0
P/BV (x)
9.6
8.3
7.3
Estimate change
TP change
Rating change
Quarterly Performance
Y/E December
Sales
Change (%)
EBITDA
Change (%)
As % of Sales
Depreciation
Interest
Other Income
PBT
Tax
Effective Tax Rate (%)
Repoted PAT
Adj. PAT
Change (%)
1Q
20,035
10.4
1,808
25.9
9.0
359
223
149
1,376
442
32.1
854
934
72.0
(INR Million)
CY16
2Q
3Q
20,947 20,550
8.4
4.4
1,136
1,516
-29.5
-2.7
5.4
7.4
357
406
197
178
299
299
881
1,231
324
427
36.8
34.7
556
811
556
871
-18.7
48.2
4Q
24,915
2.7
2,819
7.1
11.3
389
285
95
2,241
773
34.5
1,468
1,468
13.4
1Q
21,689
8.3
1,715
-5.2
7.9
376
212
186
1,312
428
32.6
884
884
-5.3
CY17
2Q
3Q
22,237 23,383
6.2
13.8
1,473
1,533
29.7
1.1
6.6
6.6
383
393
231
327
326
100
1,185
913
435
309
36.7
33.9
751
603
751
603
34.9
-30.7
CY16
4Q
30,173
21.1
5,230
85.5
17.3
420
399
-233
4,177
1,249
29.9
2,928
2,928
99.4
85,318
6.4
7,901
5.8
9.3
1510
919
658
6,131
1,957
31.9
3,687
4,175
25.0
CY17E
96,113
12.7
9,951
25.9
10.4
1573
1,169
378
7,587
2,421
31.9
5,166
5,166
23.7
MOSL
1Q
23,833
13.4
2,236
31.5
9.4
393
285
40
1,598
542
33.9
1,056
1,056
36.4
Var.
(%)
-6.7%
-34.1%
-25.8%
-28.9%
-28.9%
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Ankur Sharma
(Ankur.VSharma@MotilalOswal.com); +91 22 6129 1556
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 6129 1543