ABB India's Q1CY18 results (Underperformer) - Margin miss continues
Q1CY18 result highlights
- ABB’s PAT at Rs1bn (+14% yoy): was below estimates due to lower than expected margins on decline in gross margins.
- Execution picked up: Revenues +16.4% yoy to Rs25bn led by pick up in execution particularly the Raigarh-Pugalur HVDC order which is starting to mature in its execution cycle. Services (13-14% of revenues) continued to see traction while exports were flat yoy due to high base.
- OPM -9bps yoy to 6.4%: led by declined in gross margins by 460bps due to higher share of project revenues (HVDC order), forex impact (Rs100-110mn) as also rise in commodity prices. Core operational margins expanded 100bps yoy to 6.7%.
- Order intake led by base orders: Intake was at Rs25.8bn (+10% yoy), with base orders seeing 14% yoy to Rs2.38bn. Intake was robust across segments with exports & services too exhibiting growth. Orders from utilities saw an improvement with orders for power equipment upgrades in domestic and international. Industrial segment (cement, metals, mining, O&G, chemicals) saw brownfield and efficiency related orders. Ordering from consumption driven industries (auto, food and beverages, etc) continued to remain robust. T&D capex is being driven by SEB, offsetting slower PGCIL orders. Further, digitisation (factory automation, efficiencies, etc), renewables (wind, solar) and railways (consolidated orders) are aiding inflows.
Key positives: Pick up in execution, base order intake
Key negatives: Decline in gross margin
Impact on financials: CY18E /19E EPS cut by 11% each to Rs25/31
Valuations & view
ABB’s focus on selective intake, cost efficiencies and increasing localization across segments has led to overall margin improvement. ABB continues its focus on short cycle and base orders as also growing segments like digitisation, renewables and railways, apart from introducing new products. However, we believe valuations are rich at 41x CY19E earnings, which adequately capture a likely improvement in earnings momentum (25% earnings CAGR over CY18-19E) and leave limited room for disappointment. Underperformer.
ABB specializes in power and automation technologies. Co. provides a broad range of products, systems, solutions and services that are designed to boost industrial productivity, increase power grid reliability, and enhance energy efficiency. Co.'s automation businesses serve a full range of industries with process optimization, control, measurement and protection applications. Co.'s power businesses focus on power transmission, distribution and power-plant automation, and support electric, gas and water utilities, as well as industrial and commercial customers.
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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