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MOSL: Morning India (11/March/20): 1. ABB (Margin to improve slightly post solar inverter biz sale); 2. Aviation (Reeling under ripple effect of Coronavirus)

MOrning India (11/March/20):  1. ABB (Margin to improve slightly post solar inverter biz sale); 2. Aviation (Reeling under ripple effect of Coronavirus)

 

Today’s top research idea

ABB: Margin to improve slightly post solar inverter biz sale

• ABB India to exit solar inverter biz: ABB India has announced the sale of its solar inverter business for INR1b on a slump sale basis. As of end-CY19, solar inverter business revenue stood at INR6.6b or 9% of overall revenue of ABB India. While the contribution to the top line is meaningful, we suspect that the contribution to earnings is quite negligible.
• Exports CAGR at robust 37% over CY17-19: ABB’s strong exports growth over the past two years demonstrates the increasing emphasis of the parent company on the Indian entity for global sourcing. ABB’s exports for the continued business have increased at 37% CAGR over CY17-19.
• Industrial Automation margins to stabilize by CY21: Industrial Automation was barely breakeven in 4QCY19. We expect Industrial Automation margins to bounce back to 12% in CY21. Thus, overall EBITDA margins for the company should normalize by CY21 to 8.9% v/s 7.3% in CY19.
• Valuation and view: We cut our CY20/21E EPS by 2%/7%. We maintain our Buy rating with a lower TP of INR1,410 (prior: INR1,455), based on 45x Mar’22E EPS.

Piping hot news

Saudi Arabia, Russia raise stakes in oil production standoff

• Saudi Arabia said on Tuesday it would boost its oil supplies to a record high in April, raising the stakes in a standoff with Russia and effectively rebuffing Moscow's suggestion for new talks. The clash of oil titans Saudi Arabia and Russia sparked a 25% slump in crude prices on Monday, triggering panic selling on Wall Street and other equity markets that have already been badly hit by the impact of the coronavirus outbreak.