ABB's Q1CY19 results (Underperformer) - Strong performance; all priced in
Q1CY19 result highlights
- ABB’s PAT from continued operations at Rs890mn (+95% yoy): led by strong revenues and margins.
- Execution pick up: resulted in 18% yoy growth in revenues to Rs18.3bn. Growth was particularly strong in Robotics & Motion (RM) which grew 34% yoy to Rs8bn. Further, sustained growth in services (+21% yoy; effective conversions from process industries, oil & gas and auto) aided revenues. Revenues (incl PG) +9% yoy to Rs27.45bn.
- OPM +198bps yoy to 6.8%: led by higher utilisations, cost efficiencies and improved revenue mix towards services. Core operational margins expanded +290bps yoy to 6.8%. Hence, EBITDA grew by 67% yoy to Rs1.24bn on low base.
- Order intake led by base orders: Intake was at Rs17.8bn (+5.7% yoy), led by robust growth in base orders (+17% yoy). Backlog is at Rs47.3bn (0.6x CY19E revenues). Growth in base orders was led by transportation, retail, auto, metals, cement and oil & gas sectors. The momentum in capex remains muted and is likely to improve post elections.
- Sharp deterioration in Power Grid: Revenues declined 8% yoy to Rs9.1bn while EBIT margins declined 505bps to 5.5%. PAT declined 52% yoy to Rs272mn.
Impact on financials: CY19E /20E EPS +16.4%/7.5% at Rs18.8/22.3
Valuations & view
The sale of PG business is positive as it has low growth & return profile. However, PG accounted for ~45-50% of PAT and the residual business is more industrial and infra driven and will need to scale up to fill in the gap. We note these segments have 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 Rs1368 (PG: 30x PAT; continuing ops at 40x CY20 earnings; 50% 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). Maintain 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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