ABB India’s Q2 2015 revenue grew 6% y-o-y (in-line with HSBCe). Ebitda margin improved 90 bps y-o-y to7.9% (50bps below HSBCe), a large part driven by lower costs (euro depreciation). Earnings at Rs 575 grew 20% y-o-y, though missed HSBCe and consensus by 9% and 14% respectively. The company received Rs 1,890 crore orders during Q2 (down 6% y-o-y). Current order backlog at Rs 7,960 crore is down 2% y-o-y.
Management flagged challenging prevailing market conditions as the pace of new project announcements by end market industries is very subdued. With end market industry capacity utilisation in key industries (like steel and cement) languishing sub 70% level, coupled with slower improvement in demand outlook, management thinks it will take a “few quarters” before there are signs of industrial revival. This is very well reflected in the order inflow performance (H1 2015 order inflows is down 6% y-o-y). The order inflow performance and management commentary validates our delayed industrial recovery outlook, in our view.
We have reduced revenue forecasts by 2-5% and earnings by 6-12% over CY15e-17e. We expect earnings to grow at 33% CAGR over CY 2014-17e and RoE to recover to 15.6% by CY 2017e. We retain ‘reduce’ rating with R810 fair value target price versus Rs 752 earlier.