ABB India Result Updated

Result Update on ABB India for 1QCY2011 with a Sell recommendation and a Target Price of `637 (12 months).

ABB India (ABB) bounced back with strong set of numbers for 1QCY2011 after reporting disappointing results for the last few quarters. The company reported strong 21.5% yoy top-line growth to `1,793cr (`1,475cr), 5.7% higher than our expectation of `1,697cr. PAT also increased to `60cr (`7cr) on a low base effect, in line with our estimate of `62cr. We maintain a Sell view on the stock.

Power systems segment drives revenue growth; margin improves: For 1QCY2011, ABB’s revenue grew by 21.5% yoy to `1,793cr (`1,475cr), largely aided by 49.6% yoy growth in the power systems segment. Other segments – process automation and low-voltage products – also delivered positive results by growing 15.1% and 33.3%, respectively. Profitability across segments improved on a yoy basis as well as qoq basis. The company’s performance also improved on the operational front, with margin improvement of 416bp yoy to 5.7% (6.5% estimated). Strong revenue growth coupled with margin expansion and other income resulted in an eight-fold yoy increase in PAT to `60cr (`7cr).

Outlook and valuation: ABB is back on track after reporting disappointing performance over the past several quarters.  However, we believe pricing pressures in the T&D segment are likely to continue on account of increased competition from foreign joint ventures (JVs) and relaxation of pre-qualification norms by PGCIL. Historically, the Stock has traded in a wide range of 16–80x forward earnings. At current levels, the stock trades at 42.5x CY2011 EPS and 36.7x CY2012E EPS. We assign a multiple of 27x CY12 EPS to arrive at a target price of `637. We maintain our Sell view on the stock with a revised target price of `637 (`595).