MOSL: ABB (Sell)-Operational performance marginally below expectations

ABB: Operational performance marginally below expectations

(ABB IN, Mkt Cap USD5.2b, CMP INR1590, TP INR1240, 22% Downside, Sell)

• Operational performance below expectations: 4QCY17 revenue rose 11% to INR27.8b, broadly in line with our estimate of INR27.5b. EBIDTA margin of 10.6% (-100bp YoY) too was below our estimate of 11.2%. EBITDA grew by a muted 1.4% YoY to INR2.9b, below our estimate of INR3.1b, led by an adverse revenue mix and execution of lower-margin orders. PAT of INR1.7b too missed our estimate of INR1.9b.
• Gross margin shrinks 340bp YoY to 32.6%: Gross margin contracted 340bp YoY to 32.6%. Despite this, EBIDTA margin contraction was controlled to 100bp to 10.6%, led by better control on employee cost (-60bp YoY to 6.6% of sales) and other expenses (-180bp YoY to 15.4%).
• 4Q order inflow declines on account of higher base: Order inflow declined 48% YoY to INR29.1b in 4QCY17 on account of a higher base (4QCY16 had a large HVDC order finalization of INR36b) and absence of finalization of large orders. Excluding the large order of INR36b in 4QCY16, order inflow improved 45% YoY. Key sectors driving order inflow are infrastructure and transport, metals and mining; some green shoots are also visible on the industrial capex side. Order backlog stands at INR115b (+5% YoY), providing revenue visibility of 1.3x its CY17 revenue.