MOSL: ABB (Sell)-Performance hurt by ECL provisioning
​ABB: Performance hurt by ECL provisioning; valuation premium warrants Sell
(ABB IN, Mkt Cap USD4.9b, CMP INR1459, TP INR1180, 20% Downside, Sell)
- Operational performance below expectations: 2QCY17 revenue rose 6% YoY to INR22.3b, missing our estimate of INR23.8b by 7%. EBIDTA margin of 6.6% (+120bp YoY) too was below our estimate of 9.7%. EBITDA rose 30% YoY to INR1.5b, but came in below our estimate of INR2.2b due to ECL provisioning done under Ind-AS accounting system and expenses incurred on developing new products. PAT of INR0.8b too missed our estimate of INR1.1b.
- Gross margin improves 160bp YoY to 36% – near-all time high: Gross margin improved 160bp YoY to 35.9%, driven by initiatives undertaken over the past 3-4 years toward increased localization, rationalization of supply chain, improving efficiency, better project management capabilities and lower raw material prices. EBITDA margin improved 120bp YoY to 6.6%.
- 2Q order inflow up 13% YoY; order backlog increases 56% YoY: Order inflow increased 13% YoY to INR23.0b in 2QCY17, driven by finalization of base orders. Large-ticket orders did not materialize during the quarter, given the cautious approach adopted by clients in the run-up to GST implementation. Key sectors driving base orders were utilities, transmission and infrastructure, while industrial companies continued to incur operational capex. Order backlog stands at INR121b (+56% YoY), providing revenue visibility of 1.4x its CY16 revenue.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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