ABB India's Q4CY19 results (Underperformer) - Miss on earnings, low visibility
Q4CY19 result highlights
- ABB’s adj. PAT from continued ops at Rs1.34mn (+4.4% yoy): due to weak operational performance. Reported PAT declined 81% yoy to Rs387mn led by charge of Rs697mn on re-measurement of inventory of discontinued solar inverter business.
- Muted revenues: 1% yoy decline in revenues to Rs19.3bn due to 20% yoy decline in Industrial Automation to Rs4.4bn led by macro slowdown & cautious business environment. Growth was across other segments with Electrification products +11% yoy to Rs8.33bn, Motion +7% yoy to Rs6.9bn and Robotics +10% yoy to Rs652mn.
- OPM -385bps yoy to 5.9%: led by negative operating leverage and decline in industrial automation (IA; -1380bps to 0.2% impact of low margin legacy order) and robotics margins. Core OPM contracted 390bps yoy to 5.6%. Hence, EBITDA declined by 40% yoy to Rs1.13bn.
- Order intake led by base orders: Intake declined by 16% yoy to Rs16bn due to lack of large order wins. For CY19, intake was +4% yoy to Rs70bn led by Electrification (+8% to Rs30bn; steel, gas, water automation, etc), which was offset by weakness in IA (-7.5%; Rs15.7bn) and robotics (-12% to Rs2.7bn; slowdown in auto). Hence, backlog fell 2.5% yoy to Rs41.23bn (-5.7% qoq; 0.6x CY19 revenues).
- CY19 adj PAT +46% yoy to Rs3.8bn: Revenues +9% yoy to Rs72.3bn, OPM +40bps yoy to 6.2% driving +17% yoy growth in EBITDA. Reported PAT +19% yoy to Rs3.02bn (Rs697mn impact).
Impact on financials: CY20E EPS cut by 8% to Rs23.5
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 is taking time as seen in muted inflows in CY19 as seen in Industrial Automation and Robotics. This has resulted in a weak backlog and provides limited revenue visibility. We note, ex-PG, ABB’s increased offerings and technological edge can drive growth at a faster pace, apart from having an asset light, short cycle and superior return profile. However, at 54/41x CY20/21E earnings; 32% earnings CAGR over CY19-21E), we believe the stock is adequately valued and leaves limited room for disappointment. 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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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