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UBS Investment Research
 
ABB Limited (India)
1Q CY09: Overall, disappointing
 
Results below UBSe: Sales decline 9% YoY and PAT 16% YoY
In 1Q CY09, ABB India reported operating income of Rs14.06bn, a decline of 9%YoY (vs. UBSe of 5% growth). EBITDA at Rs1.4bn has declined 15% YoY andmargins declined 80bps YoY (raw materials lower but higher overheads). ReportedPAT declined 33% YoY to Rs784m. Adjusting for MTM forex losses of Rs200mn,recurring PAT declined 16% YoY to Rs984m (vs. UBSe of flat PAT YoY).
 
Slowdown in both power and automation divisions
Segmental analysis indicates automation division sales declined 10% YoY (process20% and products 3%). Compared to this, power division declined 7% YoY(products flat and systems declined 13% YoY). As per company, the slowdown inpower divisions is due to lower contribution from rural electrification jobs, whereABB has probably started shifting focus.
 
Order inflow growth of 83% QoQ (decline 15% YoY) is half decent
The 83% QoQ improvement in order inflows to Rs23.03bn in 1Q CY09, is goodthough it’s still down 15% YoY. The OB is Rs70bn (up 14% QoQ). Our view isfor industrial activity to trough in June quarter, and partial recovery in 2H FY10.For ABB specifically, we believe deflation in its main product line (transformers)and mid to late cycle nature of industrial automation orders could delay growth.
 
Valuation: Maintain Sell
Our price target of Rs415 is based on 3-stage DCF with 5 years explicit forecast,15% mid-term growth (2014-18E), WACC of 10% and terminal growth of 5%. AtCMP, the stock trades at an expensive 16.6x CY10E EPS with 9% EPS growthover CY08-10E.
Highlights (Rsm)
 
12/0712/0812/09E12/10E12/11ERevenues
59,30369,00469,00479,35599,193
EBIT (UBS)
6,9227,9257,4408,41511,124
Net Income (UBS)
4,9175,2665,3416,2408,248
EPS (UBS, Rs)
23.2024.8525.2129.4538.92
Net DPS (UBS, Rs)
2.203.003.504.000.00
 
Profitability & Valuation
 
5-yr hist av.12/0812/09E12/10E12/11EEBIT margin %
9.811.510.810.611.2
ROIC (EBIT) %
92.770.355.361.167.5
EV/EBITDA (core) x
23.022.511.89.97.5
PE (UBS) x
29.536.919.316.612.5
Net dividend yield %
0.70.30.70.80.0
 
Source: Company accounts, Thomson Financial, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items.Valuations: based on an average share price that year, (E): based on a share price of Rs487.35 on 30 Apr 2009 22:32 EDT
Suhas Harinarayanan
 Analystsuhas.hari@ubs.com+91-22-2286 2091
Pankaj Sharma
 Analystpankaj-p.sharma@ubs.com+91-22-2286 2103
Global Equity Research
IndiaIndustrial, Diversified
12-month rating
Sell
 
Unchanged 
 12m price target
Rs415.00/US$8.32
Unchanged 
 Price
Rs487.35/US$9.77
 
RIC: ABB.BO BBG: ABB IB
30 April 2009
 
Trading data (local/US$)
 
52-wk range
Rs1,141.60-351.95/US$28.16-6.80
Market cap.
Rs103bn/US$2.07bn
Shares o/s
212m (ORD)
Free float
48%
 Avg. daily volume ('000)
135
 Avg. daily value (Rsm)
56.4
 
Balance sheet data 12/09E
 
Shareholders' equity
Rs25.3bn
P/BV (UBS)
4.1x
Net Cash (debt)
Rs11.3bn
 
Forecast returns
 
Forecast price appreciation
-14.8%
Forecast dividend yield
0.8%
Forecast stock return
-14.0%
Market return assumption
11.2%
Forecast excess return
-25.2%
 
EPS (UBS, Rs)
 
12/09E12/08
 
UBS
 
Cons.ActualQ1E
5.55 -5.55
Q2E
6.05 -6.08
Q3E
6.30 -4.07
Q4E
7.31 -9.14
12/09E
25.21
26.04
12/10E
29.45
29.88
 
Performance (Rs)
 
      0      4       /      0      6      0      7       /      0      6      1      0       /      0      6      0      1       /      0      7      0      4       /      0      7      0      7       /      0      7      1      0       /      0      7      0      1       /      0      8      0      4       /      0      8      0      7       /      0      8      1      0       /      0      8      0      1       /      0      9      0      4       /      0      9
0500100015002000020406080100120140160Price Target (Rs) (LHS)Stock Price (Rs) (LHS)Rel. Bombay S.E. SENSEX(RHS)Stock Price (Rs)Rel. Bombay S.E. SENSEX
Source: UBS
www.ubs.com/investmentresearch
 
This report has been prepared by UBS Securities India Private Ltd ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 7.
UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm mayhave a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in makingtheir investment decision.
 
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 ABB Limited (India)
30 April 2009UBS
2
 
1Q CY09: Disappointing results
In 1Q CY09, ABB India reported operating income of Rs14.06bn, a decline of 9% YoY (vs. UBSe of 5% growth). EBITDA at Rs1.4bn has declined 15% YoYand margins declined 80bps YoY (raw materials cost lower but otherexpenditure increased significantly). Reported PAT declined 33% YoY toRs784m (vs. UBSe of flat PAT YoY). However, recurring PAT declined only16% YoY to Rs984m adjusted for exceptional Rs200m forex loss. The 1QCY09 results are below UBSe.The other key features of the results are;1)
 
Staff costs have declined 9% YoY due to cut in variable compensationof employees. The absolute no. of employees has not declined.2)
 
The reported other expenditure of Rs2.01bn has increased 26% YoY.This also includes Rs200m of MTM adjustment on forex. Adjusted forthat, the other expenditure is up 13% YoY.3)
 
ABB India has reported order inflows of Rs23.03bn in 1Q CY09, up83% QoQ. However, order inflows are still down 15% YoY. The orderbook is Rs70bn (up14% vs. 31
st
December 2008).
Table 1: ABB – 1Q CY09 results
Rs mn
 
1Q CY081Q CY09
Order inflows (Rs mn) 26,954 23,033Order book (Rs mn) 61,749 70,315Income from operations 15,353 13,931Other operating income 133 129Total operating income 15,486 14,061Growth YoY% 18% -9%(Increase)/Decrease in Stock in Trade 118 (64)Consumption of Raw materials (11,147) (9,698)as a % of net sales 71.2% 69.4%Staff Cost (969) (886)Other Expenditure (1,601) (1,812)Total Expenditure (13,599) (12,460)EBITDA 1,887 1,601EBITDA margin (%) 12.2% 11.4%bps change YoY 242 (80)Depreciation (83) (109)EBIT 1,804 1,492Interest (55) (103)Other Income 52 14PBT 1,801 1,403Tax (624) (419)Recurring PAT 1,177 984Recurring PAT margin% 7.6% 7.0%Growth YoY% 36% -16%Exceptional (200)Reported PAT 1,177 784Reported PAT margin% 7.6% 5.6%Growth YoY% 36% -33%Source: Company data, UBS estimates
 
 
 ABB Limited (India)
30 April 2009UBS
3
 
Segmental analysis
In 1Q CY09, segmental analysis of sales growth indicates that automationdivision has declined 10% YoY (process declined 20% and products declined3%). Compared to this, power division has declined 7% YoY (products flat andsystems declined 13% YoY). We are highly concerned with the slowdown inpower division as we believe the slowdown in automation division could berelated with general industrial slowdown.As per the company, the slowdown in power divisions is largely related withlesser contribution from rural electrification jobs.
 
Table 2: 1Q CY09 Segmental results
1Q CY081Q CY09
Revenues (Rs mn)
 
Power Products 4,262 4,259Power Systems 5,121 4,472Automation Products 3,951 3,844Process Automation 2,953 2,355Others 111 147Total 16,398 15,077Unallocated 102 74Total 16,500 15,150Inter Segment Revenues (1,014) (1,090)Net Sales 15,486 14,061EBIT (Rs mn)Power Products 553 541Power Systems 476 280Automation Products 397 282Process Automation 421 306Others 9 (11)Total 1,856 1,398Interest (55) (103)Unallocated expenditure net (1) (92)Total 1,801 1,203EBIT Margin %Power Products 13.0% 12.7%Power Systems 9.3% 6.3%Automation Products 10.0% 7.3%Process Automation 14.3% 13.0%Others 8.2% -7.3%Total 11.3% 9.3%Source: Company data
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