7 November 2016
Update
| Sector:
Capital Goods
BSE SENSEX
27,430
S&P CNX
8,485
ABB
CMP: INR1,088
TP: INR1,125 (+3%)
ABB India to remain a key sourcing hub
Neutral
India amongst the most promising markets for ABB
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
ABB IN
211.9
1433/963
-4/-21/-17
231.0
3.4
93.6
25
We hosted an investor call with ABB to understand the demand scenario in key end
markets, its recently announced “Next level strategy”, and the outlook for ABB India.
Senior IR Officer, Mr Beat Fueglistaller hailed India amongst the most promising
market for the group and reiterated that it sees ABB India as a key sourcing hub.
Though ABB India remains a bright spot in ABB’s global business scheme, and we
expect 33% earnings CAGR over CY16-18, current valuations leave little upside.
Maintain Neutral.
Financials Snapshot (INR b)
2015 2016E 2017E
Y/E Dec
Net Sales
81.4
88.3
99.6
EBITDA
7.5
7.5
11.1
Adj PAT
3.0
3.7
5.7
Adj EPS (INR)
15.8
18.2
26.9
EPS Gr (%)
22.8
15.6
48.0
BV/Sh (INR)
142.0 159.5 186.5
P/E (x)
69.2
59.9
40.4
P/BV (x)
7.7
6.8
5.8
RoE (%)
11.1
11.4
14.5
RoCE (%)
17.5
16.3
21.8
Shareholding pattern (%)
As On
Sep-16 Jun-16 Sep-15
Promoter
75.0
75.0
75.0
DII
12.4
12.4
12.5
FII
4.5
4.4
4.6
Others
8.1
8.2
7.9
FII Includes depository receipts
Stock Performance (1-year)
ABB
Sensex - Rebased
1,440
1,315
1,190
1,065
940
India amongst the most promising markets for ABB globally
Overall global market demand in 3QCY16 (July-September 2016) was tamer
than in 1HCY16. This was mainly due to the upcoming election in the US. Also,
customers had put off order placement, pending ABB’s decision on the
potential sale of its Power Grids business.
India is the second-largest market in Asia for ABB. In 3QCY16, base orders were
stable for ABB India. In terms of growth outlook, India appears to be the best
market globally, and business traction remains strong across sectors like
Infrastructure, Power Transmission, Rail, Process and Automation.
China, which is the biggest market for ABB in Asia, registered stable base
orders in 3QCY16. Order inflow is improving in Construction and Transmission.
However, orders from Process Industries, namely Chemicals and Metals remain
weak.
In the Middle East, demand remains subdued on account of the fall in oil
prices. Power T&D orders from Saudi Arabia are still readjusting to lower oil
prices and demand continues to decline. ABB is likely to continue facing weak
demand for a few more quarters.
Europe has seen some slowdown in 3QCY16. Spending in the US is also soft.
Next level strategy – realigning into four divisions
From January 2017, ABB is realigning itself into four divisions – Power Grids,
Electrification Products, Robotics & Motion, and Industrial Automation.
Power Grids:
This division will include all sales to utilities. MV switchgear
sales will be part of the Electrification Products division.
Electrification Products:
This division will include all industry and standard
products. Solar and EV charging will also be part of this division.
Robotics & Motion:
Only motors and drives will remain in this division.
Industrial Automation:
Industrial Automation segment would include the
erstwhile process automation segment business.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Ankur Sharma
(Ankur.VSharma@MotilalOswal.com); +91 22 6129 1556
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 6129 1543

ABB
Cost savings:
ABB has opened (a) Two global shared services centers – one each
in Bangalore, India and Krakow, Poland, and (b) four regional centers. This
would help to cut costs down from 30 centers. For EPC jobs, ABB has partnered
with Fluor – while ABB will provide products, Fluor will do the EPC work.
Not hiving off Power Grids business:
ABB has decided not to hive off the Power
Grids business. It intends to grow the business within ABB; it sees many
opportunities in digitalization.
ABB India a critical part of group portfolio
The government’s thrust on infrastructure, power T&D, railways, and
renewables keeps the demand outlook in India strong. India is the most
promising market for ABB globally.
ABB has 50% share in the Indian solar market, where volumes continue to trend
higher. It will continue to introduce new products in inverters and bring down
prices as costs come down. Competition is growing, especially from Chinese
players, and this has brought down prices.
ABB India, which already exports products across its portfolio, will remain a key
sourcing hub for the parent. ABB Africa has a plant only in South Africa; ABB
India can be used to serve other African countries, as it is more efficient and can
make products cheaper. Other key markets to which ABB India is exporting are
the Middle East and South East Asia.
We retain our Neutral rating
Although ABB India remains a bright spot in ABB’s global business scheme, and is
expected to post 33% earnings CAGR over CY16-18, we maintain our
Neutral
rating.
The stock currently trades at rich valuations – 59x CY16E EPS of INR18.2, 40x CY17E
EPS of INR26.9, and 33x CY18E EPS of INR32.2. Our target price of INR1,125 (35x
CY18E EPS) leaves little upside.
7 November 2016
2

ABB
Financials and Valuations
Income Statement
Y/E December
Net Sales
Change (%)
Raw Materials
Staff Cost
Other Mfg. Expenses
Selling Expenses
Admin. & Other Exp.
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
Extra-ordinary Items (net)
PBT
Tax
Rate (%)
PAT
Adjusted PAT
Change (%)
2012
75,650
2.6
54,278
6,196
4,181
1,086
5,191
4,718
6.2
941
432
-20
-1,263
2,062
688
33.4
1,374
2,637
65.6
2013
77,218
2.1
53,985
6,771
4,363
1,044
6,110
4,945
6.4
1,033
1,011
70
-223
3,194
956
29.9
2,238
2,015
-23.6
2014
77,333
0.1
52,429
7,052
4,489
1,133
6,239
5,991
7.7
1,128
1,050
173
-435
3,552
1,267
35.7
2,285
2,719
35.0
2015
81,403
5.3
53,000
7,499
4,904
1,239
7,296
7,465
9.2
1,598
912
130
-340
4,746
1,747
36.8
2,999
3,339
22.8
2016E
88,347
8.5
57,661
7,907
5,816
1,327
8,127
7,509
8.5
1,598
786
578
-140
5,564
1,845
33.2
3,718
3,858
15.6
2017E
99,558
12.7
63,690
8,609
6,488
1,497
8,127
11,147
11.2
1,721
1,036
178
0
8,568
2,858
33.4
5,710
5,710
48.0
(INR Million)
2018E
111,331
11.8
71,870
9,362
7,193
1,675
8,341
12,890
11.6
1,789
1,056
178
0
10,224
3,410
33.4
6,814
6,814
19.3
Balance Sheet
Y/E December
Share Capital
Reserves
Net Worth
Loans
Net Deffered Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other current Assets
Current Liab. & Prov.
Creditors
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2012
424
25,557
25,981
3,277
-148
29,109
15,856
3,783
12,073
1,170
525
50,784
9,204
32,644
767
4,585
3,585
35,443
19,033
13,946
2,465
15,341
29,109
2013
424
26,352
26,776
6,243
-272
32,746
18,627
4,712
13,915
475
173
55,661
9,889
32,357
3,166
6,077
4,172
37,477
20,826
13,960
2,692
18,184
32,747
2014
424
27,696
28,120
3,756
-152
31,723
19,718
5,723
13,995
319
165
53,585
8,938
31,575
2,260
6,790
4,022
36,341
19,840
12,977
3,524
17,244
31,723
2015
424
29,662
30,086
6,043
-478
35,651
20,267
7,227
13,040
443
164
60,007
9,396
33,909
5,736
7,002
3,964
38,003
21,020
12,720
4,263
22,004
35,651
2016E
424
33,380
33,804
7,191
-478
40,517
21,033
8,825
12,208
443
170
67,238
10,217
36,873
8,447
7,164
4,537
39,541
21,491
13,752
4,298
27,697
40,517
2017E
424
39,090
39,514
7,191
-478
46,228
21,858
10,547
11,311
443
183
78,156
11,527
41,600
11,829
8,082
5,118
43,865
24,246
14,771
4,849
34,290
46,228
(INR Million)
2018E
424
43,834
44,258
7,191
-478
50,971
22,715
12,336
10,379
443
196
89,052
12,902
46,563
14,812
9,046
5,729
49,099
27,138
16,533
5,428
39,953
50,971
7 November 2016
3

ABB
Financials and Valuations
Ratios
Y/E December
Basic (INR)
EPS
Growth
Cash EPS
Book Value
DPS
Payout (incl. Div.Tax)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E December
PBT before EO Items
Add : Depreciation
Interest
Less : Direct taxes paid
(Inc)/Dec in WC
CF from operations
(Inc)/Dec in FA
Free Cah Flow
(Pur)/Sale of Investments
CF from investments
(Inc)/Dec in Net Worth
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2012
12.4
65.6
16.9
122.6
3.0
24.1
2013
9.5
-23.6
14.4
126.4
3.0
31.8
2014
12.8
35.0
18.2
132.7
3.7
28.8
2015
15.8
22.8
23.3
142.0
3.7
23.5
69.2
46.8
31.4
2.8
7.7
0.3
10.1
13.8
12.4
158
44
92
2.6
0.1
7.5
12.7
9.5
153
47
98
2.4
0.2
9.7
15.4
11.4
149
42
94
2.4
0.1
11.1
17.5
13.1
152
42
94
2.3
0.2
2016E
18.2
15.6
25.7
159.5
4.6
25.2
59.9
42.3
24.1
2.6
6.8
0.4
11.4
16.3
13.0
152
42
89
2.2
0.2
2017E
26.9
48.0
35.1
186.5
7.0
26.1
40.4
31.1
18.5
2.3
5.8
0.6
14.5
21.8
19.0
153
42
89
2.2
0.2
2018E
32.2
19.3
40.6
208.9
8.4
26.1
33.9
26.8
14.0
2.0
5.2
0.8
15.4
22.9
21.1
153
42
89
2.2
0.2
(INR Million)
2018E
10,224
2,003
80
3,410
-2,680
5,923
-857
5,066
-13
-1,891
0
-237
80
2,070
-4,840
2,983
11,829
14,812
2012
3,325
941
432
688
-5,127
-1,549
-1,661
(3,210)
-18
-1,774
0
3,277
432
739
2,182
-1,877
2,644
767
2013
2,971
1,033
1,011
956
-444
2,604
-2,180
425
352
-1,815
-253
2,924
1,011
744
789
2,399
767
3,165
2014
3,986
1,128
1,050
1,267
34
3,881
-1,053
2,828
8
-1,134
-30
-2,490
1,050
911
-4,157
-906
3,165
2,260
2015
5,086
1,353
900
1,747
-1,284
3,653
-766
2,887
1
-2,039
-122
-1,855
900
911
-4,537
3,477
2,260
5,736
2016E
5,704
1,712
200
1,845
-2,982
2,474
-766
1,708
-6
-1,989
1,130
-371
200
1,130
-2,929
2,710
5,736
8,447
2017E
8,568
1,859
100
2,858
-3,211
4,221
-825
3,396
-13
-1,939
1,735
-297
100
1,735
-3,714
3,383
8,447
11,829
7 November 2016
4

THEMATIC GALLERY
SECTOR RESEARCH
SECTOR RESEARCH
SECTOR RESEARCH

This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company (ies) and/sector(s), if any, covered in the report and may be distributed
ABB
by it and/or
its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or
inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to
you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into account the particular investment
objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek
professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide
for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a some
companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are
seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may educate
investors on investments in such business . The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering,
applying and interpreting information. Our research professionals are paid on twin parameters of performance & profitability of MOSt.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally,
MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or
affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make
investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing among other things, may give rise to real or potential
conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives
thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies)
discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the
same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though
there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not
match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various
objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or employees from,
any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free
and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is based on publicly available data or other
sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions provided by that third party either publicly or through a
subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or developments referred to in the
document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons
that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in
the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation
the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or
for any necessary explanation of its contents.
Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any compensation
for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.
Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities mentioned in this
report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412
Pending Regulatory inspections against Motilal Oswal Securities Limited:
SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold inquiry and
adjudge violation of SEBI Regulations; MOSL replied to the Show Cause Notice whereby SEBI granted us an opportunity of Inspection of Documents. Since all the documents requested by us were not covered we have requested
to SEBI vide our letter dated June 23, 2015 to provide pending list of documents for inspection.
List of associate companies of Motilal Oswal Securities Limited -
Click here to access detailed report
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or
indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research
receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee -
ABB INDIA
No
No
Disclosures
A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or
which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures
Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412)
has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Kong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of
Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of
these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting
Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is
not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in
the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This
document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be
engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by
the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal
Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the
Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
7 November 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
6