INSTITUTIONALEQUITYRESEARCH

ABBIndia(ABBIN)

Strongmarginexpansion;Valuationsremainexpensive

10February2015
INDIA|CAPITALGOODS|QuarterlyUpdate

ABB Indias adjusted PAT was ahead of our estimates aided by improvement in margins. SELL
Orders inflow was up 50% YoY to Rs 24.8bn due to spillover of orders from previous CMPRS1360
quarters.Managementmaintainedthatalthoughsentimenthasimproved,howeverthathas
TARGETRS615(55%)
notmateriallytranslatedtoimprovementinorderinflow.ManagementreiteratedthatABB

India is well geared placed to capitalize uptick in investment cycle. In our view, while the
COMPANYDATA
operationsofthecompanyhavestabilized,weexpectoperatingleverageandanincreasein O/SSHARES(MN): 212
marginstokickinonlyonceordersrevivemeaningfully.WeretainourSellratingwithtarget MARKETCAP(RSBN): 272
priceofRs615. MARKETCAP(USDBN): 4.4
52WKHI/LO(RS): 1397/570
LIQUIDITY3M(USDMN): 2.3
Q4CY14highlights
PARVALUE(RS): 2
SalesstoodatRs22bn,up1%YoYinlinewithourestimate;powersegmentsaleswere
down1%YoYtoRs13bnoffsetby6%growthinAutomationsegmenttoRs11bn.Sales SHAREHOLDINGPATTERN,%
growthwasleadbystrongexports(+30%YoY)ledbypenetrationinnewgeographies. PROMOTERS: 75.0
Gross margins at 30% (+100bps YoY) lead by cost rationalization and higher FII/NRI: 4.9
FI/MF: 12.2
indigenization.ABBhastargeted35%grossmarginsoverthenextfewyears.
NONPROMOTERCORP.HOLDINGS: 0.5
Adjusted for forex loss of Rs 0.11bn, EBITDA at Rs 1.5bn up 19.8% YoY ahead of PUBLIC&OTHERS: 7.3
consensusestimateofRs1.4bandmarginsat7.1%(+100bpsYoY)againstourestimate
of6%.Wenoteasharp200bpsimprovementinmarginsinPowersegmentto7%and PRICEPERFORMANCE,%
marginsinautomationbusinesswereup40bpsto8.4%.Managementhasreiteratedits 1MTH 3MTH 1YR
ABS 0.3 14.4 117.3
focusoncostrationalizationandmargins. RELTOBSE 6.1 11.5 75.9
The impact of higher Interest cost (Rs 0.27bn;+4% YoY) was offset by higher other
income(+15%YoY)duetointerestonincometaxrefund.HencePATatRs0.95bn(+37% PRICEVS.SENSEX
YoY)wasaheadofconsensusofRs0.8bn.
190
Order inflow in Q414 at Rs 24.8bn (+50% YoY) driven by spillover of previous quarter
170
orders. Key orders won were Rs 3.3bn substation orders from West Bengal and Bihar
150
discoms and Rs 2.6bn substation order from Sri Lanka. Management expects order
130
inflowinneartermtobedrivenbycapexinrenewablesegment.
110
Powersegmentsalesweredown1%YoYatRs13bnledbyweaknessinPowersystems.
TheEBITmarginswereup200bpsforpowersegmentto7.2%ledbyfavorablemixin 90
projectbusiness. 70
AutomationsegmentsalesatRs11bn(+6%YoY)drivenby9%YoYincreaseindiscrete 50
automation. Margins at 8.4%, up 40bps YoY on account of sharp improvement in Apr11 May12 Jun13 Jul14
marginsindiscreteautomationsegment(8.5%inQ414vs6.8%inQ413). ABB BSESensex

InCY14,ABBsaleswasflatYoYatRs76bnandEBITDAstoodatRs4.9bn(+24%YoY)and Source:PhillipCapitalIndiaResearch
marginsat7%(+200bpsYoY).PATatRs2.7bn(+45%YoY).Workingcapitalcontinuesto
remainunderpressureastightliquidityconditionhasledtohigherdebtors. KEYFINANCIALS
Managementhighlightedthatalthoughsentimenthasimproved,thathasnottranslated Rsmn CY14 CY15E CY16E
NetSales 76,307 82,550 90,681
into material order inflows. Management expects this to change going forward and
EBIDTA 4,531 7,261 8,724
expectsarecoveryintheendmarketsinthecomingquarters.
NetProfit 2,285 4,114 5,029
10.819.423.7
EPS,Rs
Estimatesandtargetprice:WecutourCY15andCY16estimatesby5%tofactorintheweak PER,x 126.170.157.3
orderinginCY14.Weascribe26xtogettargetpriceofRs615.Inourview,salesandmargins EV/EBIDTA,x 63.939.933.1
couldseearecoverygoingintoCY15;however,thesharprunupinthesharepriceappears P/BV,x 3.83.53.2
tobepricinginasharperthanexpectedrecovery.WeretainourSELLratingonthestock. ROE,% 8.113.515.0
Debt/Equity(%) 13.412.311.2
Source:PhillipCapitalIndiaResearchEst.

AnkurSharma(+912266679759)
asharma@phillipcapital.in

HrishikeshBhagat(+912266679986)
hbhagat@phillipcapital.in

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ABBINDIALTD QUARTERLYUPDATE

Quarterlyresults
RsMn Q414 Q413%Change CY14 CY13 %Change
NetSales 22,04921,749 1.4% 76,30776,316 0%
RawMaterial 14,644 14,237 2.9% 52,429 53,985 3%
%ofsales 66% 65% 1.0% 69% 71% 2%
PurchaseoftradedGoods7681,029 25.4% 0 #DIV/0!
%ofsales 3% 5% 1.2% 0% 0% 0%
Employeecost 1,954 1,878 4.1% 7,052 6,771 4%
%ofsales 9% 9% 0.2% 9% 9% 0%
OtherExpenses 3,1083,291 5.5% 11,83511,525 3%
%ofsales 14% 15% 1.0% 16% 15% 0%
EBITDA 1,575 1,315 19.8% 4990 4,036 24%
EBITDAmargins(%) 7.1% 6.0% 1.1% 7% 5.3% 1%
Depreciation 292270 8.1% 1,128 1,033 9%
EBIT 1,2831,045 22.8% 3,862 3,002 29%
EBITmargins(%) 6% 5% 1.0% 0 0 1%
Interest 300288 4.1% 1,050 1,011 4%
OtherIncome 482297 62.6% 1,199 864 39%
PBT 1,4651,053 39.1% 4,012 2,855 41%
Tax 514358 43.6% 1,267 956 33%
PAT 952 696 36.8% 2,745 1,899 45%
PATMargin(%) 4% 3% 1.1% 4% 2% 1%
EPS,Rs 4.53.3 36.8% 13.09.0 45%

SegmentalResults
RsMn Q414 Q413%Change CY14 CY13 %Change
Sales
Power 13,06313,202 1%44,80945,155 1%
Automation 11,10810,489 6%38,80937,485 4%
EBIT
Power 940709 32%3,2002,640 21%
Automation 934834 12%2,5782,216 16%
EBITmargins(%)
Power 7.2% 5.4% 7.1% 5.8%
Automation 8.4% 8.0% 6.6% 5.9%

Changetoestimatestable
Description _______NewEstimates_______ OldEstimates ChangeinEstimates
2014e 2015e 2016e 2015e 2016e 2015e 2016e
Sales 76,307 82,550 90,681 86,878 95,007 5% 5%
EBITDA 4,991 7,261 8,724 7,616 9,099 5% 4%
Margin(%) 6.5% 8.8% 9.6% 9% 10%
PAT 2,745 4,114 5,029 4,324 5,310 5% 5%
EPS 13.0 19.4 23.7 20 25 5% 5%
Source:Company,PhillipCapitalIndiaResearchEstimates

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ABBINDIALTD QUARTERLYUPDATE

Financials

IncomeStatement CashFlow
Y/EMar,Rsmn CY13 CY14 CY15e CY16e FY14 FY15e FY16e FY17e
Netsales 76,316 76,307 82,550 90,681 Pretaxprofit 2,855 3,552 6,013 7,350
Growth,% 2 0 8 10 Depreciation 1,033 1,128 1,135 1,245
Totalincome 76,316 76,307 82,550 90,681 Chginworkingcapital 444 34 575 1,533
Rawmaterialexpenses 53,985 52,429 55,677 61,119 Totaltaxpaid 1,080 1,147 1,747 2,321
OtherOperatingexpenses 18,296 19,347 19,611 20,838 Cashflowfromoperatingactivities 2,365 3,566 4,826 4,741
EBITDA(Core) 4,036 4,531 7,261 8,724 Capitalexpenditure 2,180 2,003 2,003 1,723
Growth,% 7.012.360.320.1 Chgininvestments 352 8 5 8
Margin,% 5.35.98.89.6 Cashflowfrominvestingactivities 1,828 1,994 2,009 1,731
Depreciation 1,033 1,128 1,135 1,245 Freecashflow 537 1,572 2,818 3,010
EBIT 3,002 3,402 6,127 7,479 Debtraised/(repaid) 2,966 2,487 0 0
Growth,% 6.113.380.122.1 Dividend(incl.tax) 744 915 1,647 2,013
Margin,% 3.94.57.48.2 Otherfinancingactivities 360 26 0 0
Interestpaid 1,011 1,050 988 988 Cashflowfromfinancingactivities 1,862 3,428 1,647 2,013
OtherNonOperatingIncome 864 1,199 875 859 Netchgincash 2,399 1,856 1,171 997
Pretaxprofit 2,855 3,552 6,013 7,350
Taxprovided 956 1,267 1,899 2,321
Profitaftertax 1,899 2,285 4,114 5,029 ValuationRatios
NetProfit 1,899 2,285 4,114 5,029
CY13 CY14 CY15e CY16e
Growth,% (28.0)20.380.122.2
PerSharedata
NetProfit(adjusted) 1,8992,2854,1145,029
EPS(INR) 9.010.819.423.7
Wtdavgshares(m) 212 212 212 212
Growth,% (28.0)20.380.122.2
BookNAV/share(INR) 126.4132.7144.3158.6
FDEPS(INR) 9.010.819.423.7
BalanceSheet CEPS(INR) 13.816.124.829.6
Y/EMar,Rsmn CY13 CY14 CY15e CY16e CFPS(INR) 7.111.218.618.3
Cash&bank 3,166 2,260 2,209 3,206 DPS(INR) 3.03.76.78.2
Debtors 32,357 31,575 33,924 37,266 Returnratios
Inventory 9,889 8,938 10,697 11,750 Returnonassets(%) 3.84.26.77.5
Loans&advances 6,077 6,790 3,166 3,478 Returnonequity(%) 7.18.113.515.0
Othercurrentassets 4,172 4,022 5,880 6,459 Returnoncapitalemployed(%) 7.68.313.415.2
Totalcurrentassets 55,661 53,585 55,876 62,160 Turnoverratios
Investments 173 165 170 178 Assetturnover(x) 2.42.32.52.7
Grossfixedassets 18,627 20,630 22,633 24,831 Sales/Totalassets(x) 1.11.11.21.2
Less:Depreciation 4,712 5,840 6,975 8,220 Sales/NetFA(x) 5.55.15.35.5
Add:CapitalWIP 475 475 475 0 Workingcapital/Sales(x) 0.20.20.20.2
Netfixedassets 14,390 15,265 16,133 16,611 Fixedcapital/Sales(x) 0.20.20.20.2
Totalassets 70,496 69,166 72,180 78,949 Workingcapitaldays 84.788.574.874.8
Liquidityratios
Currentliabilities 34,785 32,817 36,752 40,372 Currentratio(x) 1.61.61.51.5
Provisions 2,692 3,524 1,357 1,491 Quickratio(x) 1.31.41.21.2
Totalcurrentliabilities 37,477 36,341 38,109 41,863 Interestcover(x) 3.03.26.27.6
Noncurrentliabilities 6,243 3,756 3,756 3,756 Dividendcover(x) 3.02.92.92.9
Totalliabilities 43,720 40,097 41,865 45,618 Totaldebt/Equity(%) 23.313.412.311.2
Paidupcapital 424 424 424 424 Netdebt/Equity(%) 11.55.35.11.6
Reserves&surplus 26,352 27,696 30,163 33,179 Valuation
Shareholdersequity 26,776 28,120 30,587 33,603 PER(x) 151.8126.170.157.3
Totalequity&liabilities 70,496 69,166 72,180 78,949 Price/Book(x) 10.810.29.48.6
Yield(%) 0.20.30.50.6
Source:Company,PhillipCapitalIndiaResearchEstimates EV/Netsales(x)
EV/EBITDA(x)
EV/EBIT(x)

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ABBINDIALTD QUARTERLYUPDATE

Management
VineetBhatnagar(ManagingDirector) (9122)23002999
KinshukBhartiTiwari(HeadInstitutionalEquity) (9122)66679946
JigneshShah(HeadEquityDerivatives) (9122)66679735

Research
Automobiles Engineering,CapitalGoods Pharma
DhawalDoshi (9122)66679769 AnkurSharma (9122)66679759 SuryaPatra (9122)66679768
PriyaRanjan (9122)66679965 HrishikeshBhagat (9122)66679986 MehulSheth (9122)66679996

Banking,NBFCs Infrastructure&ITServices Retail,RealEstate

ManishAgarwalla (9122)66679962 VibhorSinghal (9122)66679949 AbhishekRanganathan,CFA (9122)66679952
PradeepAgrawal (9122)66679953 DeepanKapadia (9122)66679992
PareshJain (9122)66679948 PortfolioStrategy
Midcap AnindyaBhowmik (9122)66679764
Consumer,Media,Telecom VikramSuryavanshi (9122)66679951
NaveenKulkarni,CFA,FRM (9122)66679947 Technicals
JubilJain (9122)66679766 Metals SubodhGupta,CMT (9122)66679762
ManojBehera (9122)66679973 DhawalDoshi (9122)66679769
AnkitGor (9122)66679987 ProductionManager
Cement GaneshDeorukhkar (9122)66679966
VaibhavAgarwal (9122)66679967 Oil&Gas,AgriInputs
GauriAnand (9122)66679943 Sr.ManagerEquitiesSupport
Economics DeepakPareek (9122)66679950 RosieFerns (9122)66679971
AnjaliVerma (9122)66679969

Sales&Distribution CorporateCommunications
AshvinPatil (9122)66679991 SalesTrader ZarineDamania (9122)66679976
ShubhangiAgrawal (9122)66679964 DileshDoshi (9122)66679747
KishorBinwal (9122)66679989 SuniilPandit (9122)66679745
SidharthAgrawal (9122)66679934 Execution
BhavinShah (9122)66679974 MayurShah (9122)66679945

SINGAPORE
PhillipSecuritiesPteLtd
250NorthBridgeRoad,#0600RafflesCityTower,
Singapore179101
Tel:(65)65336001Fax:(65)65353834
www.phillip.com.sg
JAPAN
PhillipSecuritiesJapan,Ltd
42NihonbashiKabutocho,Chuoku
Tokyo1030026
Tel:(81)336662101Fax:(81)336640141
www.phillip.co.jp
THAILAND
PhillipSecurities(Thailand)PublicCo.Ltd.
15thFloor,VorawatBuilding,849SilomRoad,
Silom,Bangrak,Bangkok10500Thailand
Tel(66)222680999Fax:(66)222680921
www.phillip.co.th
UNITEDSTATES
PhillipFuturesInc.
141WJacksonBlvdSte3050
TheChicagoBoardofTradeBuilding
Chicago,IL60604USA
Tel(1)3123569000Fax:(1)3123569005
No.1,18thFloor,UrmiEstate,95GanpatraoKadamMarg,LowerParelWest,Mumbai400013
ContactInformation(RegionalMemberCompanies)
MALAYSIA HONGKONG
PhillipCapitalManagementSdnBhd PhillipSecurities(HK)Ltd
B36BlockBLevel3,MeganAvenueII, 11/FUnitedCentre95QueenswayHongKong
No.12,JalanYapKwanSeng,50450KualaLumpur Tel(852)22776600Fax:(852)28685307
Tel(60)321628841Fax(60)321665099 www.phillip.com.hk
www.poems.com.my
INDONESIA CHINA
PTPhillipSecuritiesIndonesia PhillipFinancialAdvisory(Shanghai)Co.Ltd.
ANZTowerLevel23B,JlJendSudirmanKav33A, No550YanAnEastRoad,OceanTowerUnit2318
Jakarta10220,Indonesia Shanghai200001
Tel(62)2157900800Fax:(62)2157900809 Tel(86)2151699200Fax:(86)2163512940
www.phillip.co.id www.phillip.com.cn
FRANCE UNITEDKINGDOM
King&ShaxsonCapitalLtd. King&ShaxsonLtd.
3rdFloor,35RuedelaBienfaisance 6thFloor,CandlewickHouse,120CannonStreet
75008ParisFrance London,EC4N6AS
Tel(33)145633100Fax:(33)145636017 Tel(44)2079295300Fax:(44)2072836835
www.kingandshaxson.com www.kingandshaxson.com
AUSTRALIA SRILANKA
PhillipCapitalAustralia AshaPhillipSecuritiesLimited
Level37,530CollinsStreet Level4,MillenniumHouse,46/58NavamMawatha,
Melbourne,Victoria3000,Australia Colombo2,SriLanka
Tel:(61)396298380Fax:(61)396148309 Tel:(94)112429100Fax:(94)112429199
www.phillipcapital.com.au www.ashaphillip.net/home.htm
INDIA
PhillipCapital(India)PrivateLimited
Tel:(9122)23002999Fax:(9122)66679955www.phillipcapital.in

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ABBINDIALTD QUARTERLYUPDATE

DisclosuresandDisclaimers

PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group.This report has been
preparedbyInstitutionalEquitiesGroup.Theviewsandopinionsexpressedinthisdocumentmayormaynotmatchormaybecontraryattimeswiththeviews,estimates,rating,
targetpriceoftheotherequityresearchgroupsofPhillipCapital(India)Pvt.Ltd.

ThisreportisissuedbyPhillipCapital(India)Pvt.Ltd.whichisregulatedbySEBI.PhillipCapital(India)Pvt.Ltd.isasubsidiaryofPhillip(Mauritius)Pvt.Ltd.Referencesto"PCIPL"in
this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the
informationcontainedhereinnoranyopinionexpressedshouldbeconstruedordeemedtobeconstruedassolicitationorasofferingadviceforthepurposesofthepurchaseorsale
ofanysecurity,investmentorderivatives.TheinformationandopinionscontainedintheReportwereconsideredbyPCIPLtobevalidwhenpublished.Thereportalsocontains
informationprovidedtoPCIPLbythirdparties.Thesourceofsuchinformationwillusuallybedisclosedinthereport.WhilstPCIPLhastakenallreasonablestepstoensurethatthis
informationiscorrect,PCIPLdoesnotofferanywarrantyastotheaccuracyorcompletenessofsuchinformation.Anypersonplacingrelianceonthereporttoundertaketrading
doessoentirelyathisorherownriskandPCIPLdoesnotacceptanyliabilityasaresult.SecuritiesandDerivativesmarketsmaybesubjecttorapidandunexpectedpricemovements
andpastperformanceisnotnecessarilyanindicationtofutureperformance.

Thisreportdoesnothaveregardtothespecificinvestmentobjectives,financialsituationandtheparticularneedsofanyspecificpersonwhomayreceivethisreport.Investorsmust
undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment
strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or
consideredasanoffertosellorasolicitationofanyoffertobuyorselltheSecuritiesmentionedinit.Theinformationcontainedintheresearchreportsmayhavebeentakenfrom
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suchinformationisaccurateorcompleteanditshouldnotberelieduponassuch.Anyopinionsexpressedreflectjudgmentsatthisdateandaresubjecttochangewithoutnotice

Important:Thesedisclosuresanddisclaimersmustbereadinconjunctionwiththeresearchreportofwhichitformspart.Receiptanduseoftheresearchreportissubjecttoall
aspectsofthesedisclosuresanddisclaimers.Additionalinformationabouttheissuersandsecuritiesdiscussedinthisresearchreportisavailableonrequest.

Certifications:Theresearchanalyst(s)whopreparedthisresearchreportherebycertifiesthattheviewsexpressedinthisresearchreportaccuratelyreflecttheresearchanalysts
personalviewsaboutallofthesubjectissuersand/orsecurities,thattheanalysthavenoknownconflictofinterestandnopartoftheresearchanalystscompensationwas,isorwill
be,directlyorindirectly,relatedtothespecificviewsorrecommendationscontainedinthisresearchreport.TheResearchAnalystcertifiesthathe/sheorhis/herfamilymembers
doesnotownthestock(s)coveredinthisresearchreport.

Independence/Conflict:PhillipCapital(India)Pvt.Ltd.hasnothadaninvestmentbankingrelationshipwith,andhasnotreceivedanycompensationforinvestmentbankingservices
from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking
servicesfromthesubjectissuersinthenextthree(3)months.PhillipCapital(India)Pvt.Ltdisnotamarketmakerinthesecuritiesmentionedinthisresearchreport,althoughitorits
employees, directors, or affiliates may hold either long or short positions in such securities. PhillipCapital (India) Pvt. Ltd may not hold more than 1% of the shares of the
company(ies)coveredinthisreport.

SuitabilityandRisks:Thisresearchreportisforinformationalpurposesonlyandisnottailoredtothespecificinvestmentobjectives,financialsituationorparticularrequirementsof
anyindividualrecipienthereof.Certainsecuritiesmaygiverisetosubstantialrisksandmaynotbesuitableforcertaininvestors.Eachinvestormustmakeitsowndeterminationasto
theappropriatenessofanysecuritiesreferredtointhisresearchreportbaseduponthelegal,taxandaccountingconsiderationsapplicabletosuchinvestoranditsowninvestment
objectivesorstrategy,itsfinancialsituationanditsinvestingexperience.Thevalueofanysecuritymaybepositivelyoradverselyaffectedbychangesinforeignexchangeorinterest
rates,aswellasbyotherfinancial,economicorpoliticalfactors.Pastperformanceisnotnecessarilyindicativeoffutureperformanceorresults.

Sources,CompletenessandAccuracy:ThematerialhereinisbaseduponinformationobtainedfromsourcesthatPCIPLandtheresearchanalystbelievetobereliable,butneither
PCIPLnortheresearchanalystrepresentsorguaranteesthattheinformationcontainedhereinisaccurateorcompleteanditshouldnotberelieduponassuch.Opinionsexpressed
hereinarecurrentopinionsasofthedateappearingonthismaterialandaresubjecttochangewithoutnotice.Furthermore,PCIPLisundernoobligationtoupdateorkeepthe
informationcurrent.

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Caution:Riskoflossintradingincanbesubstantial.Youshouldcarefullyconsiderwhethertradingisappropriateforyouinlightofyourexperience,objectives,financialresources
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PhillipCapital(India)Pvt.Ltd.
Registeredoffice:No.1,18thFloor,UrmiEstate,95GanpatraoKadamMarg,LowerParelWest,Mumbai400013

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