ABB India's Q3CY19 results (Underperformer) - Strong performance, but order inflows muted
Q3CY19 result highlights
- ABB’s PAT from continued ops at Rs788mn (+120% yoy): led by strong operational performance (low base).
- Pick up in execution: resulted in 17% yoy growth in revenues to Rs17.24bn. Growth was robust across segments with Robotics & motion growing at 13% yoy to Rs6.7bn, Electrification products +24% yoy to Rs7.1bn and Industrial automation +17% yoy to Rs4.1bn. Revenue was further augmented by growth in services and exports. Revenues (incl PG) +9% yoy to Rs27.53bn.
- OPM +257bps yoy to 5.9%: on a low base led by higher utilisations, cost efficiencies and improved revenue mix. Core OPM contracted 175bps yoy to 6.8%. Hence, EBITDA grew by 107% yoy to Rs1.1bn.
- Order intake led by base orders: Intake was at Rs16.1bn (+5.2% yoy; -19% qoq), backlog is at Rs43.7bn (-6% qoq; 0.6x CY19E revenues). Growth in base orders was led by oil & gas, smart city, transportation & infra sectors partially offset by lower service orders and slowdown in autos. While the slowdown in govt & private capex poses challenges to ABB, it is focussing on micro strategy by targeting fast growing segments and customers in Tier I & II cities.
- Muted Power Grid (PG) performance: Revenues declined 2% yoy to Rs10.1bn while EBIT margins declined 290bps yoy to 8.5%. PAT decreased 22% yoy to Rs565mn.
Impact on financials: CY19/20E EPS raised by 6/17% to Rs19/25 (lower tax)
Valuations & view
While ABB’s new portfolio (ex-Power Grid) is more resilient driven by more service, energy efficient and transport products & offerings, the scale up will take time as seen in muted inflows in 3Q19 and recent headwinds in Industrial Automation and Robotics. We note, ex-PG, business has been growing at a faster pace driven by ABB’s increased offerings and also have an asset light, short cycle and superior return profile. While the quarterly earnings have been encouraging, the backlog provides limited revenue visibility for sustained revenue traction. Based on our SoTP of Rs1435 (PG: 30x PAT; continuing ops at 45x CY20 earnings; 45% earnings CAGR over CY18-20E), we believe the stock is adequately valued and leaves limited room for disappointment on core earnings or PG valuation (to be listed separately). Underperformer.
ABB is engaged in power and automation technologies that enable utility and industry customers to improve their performance while lowering environmental impact. Co. works with customers to engineer and install networks, facilities and plants with particular emphasis on enhancing efficiency, reliability and productivity for customers who generate, convert, transmit, distribute and consume energy. Co.'s portfolio ranges from switches and sockets to robots, and from large transformers to control systems that manage entire power networks and factories.
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