Axis Cap raises ABB India target on delisting hint

Written by fe Bureau | Mumbai | Updated: Oct 30 2014, 09:37am hrs
Even though the September quarter numbers of ABB India disappointed the Street, resulting in rating downgrades by Deutshce Bank and Quant Broking, Axis Capital has raised its target multiple on the stock, citing an increased probability of delisting.

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The domestic brokerage considers a mention of the de-lisitng norms by the management of ABB India in the earnings call as an indication of forthcoming delisting of the Indian unit.

During the earnings call, the management indicated that new delisting norms are being finalised and would be simpler than existing, noted Axis Capital. While acknowledging the company's dismal operational performance by reducing earnings per share (EPS) estimates for CY14 from Rs 14.4 to Rs 11.8, Axis Capital raised the target price for CY15 from Rs 975 to Rs 1,108. Raise target multiple to 40x (35x earlier) on rising probability of delisting, the research note said.

The earnings call transcript compiled by Bloomberg shows that the company's chief financial officer (CFO), Amlan Datta Majumdar, said that the new Companies Act and listing agreement of the Sebi are all in the right direction.

And there has been a rationalisation, end of September of this year, on the listing agreements and Sebi has come out with more practical norms. Maybe, some more clarity and reasonable thinking will help and we are all looking forward to that, like any other industry, said Majumdar as per the transcript.

After opening with more than 2% gains in Wednesday's trade, the ABB India scrip ended the session at Rs 1,164.15, up Rs 1.3%, or Rs 14.50.

Since 2013, on at least two instances, rumours have floated of a possible delisitng of the Indian unit of the Zurich-based company, which it denied. Traders cited high valuations of the stock as an indicator of delisting expectations while the financials of the capital goods player still reflect muted economic activity.

While in May 2013, speculation gained ground that a majority stakeholder had proposed delisting of ABB India, even in September 2013, shares of several multinational companies, including ABB India, rallied on delisting rumours.

For the quarter ended September 2014, order inflow declined 19% y-o-y to Rs 1,421 crore as delay in contract closures impacted the intake. The top line grew at a lower than expected 3.3% y-o-y to Rs 1,840 crore, while Ebitda margins advanced by a moderate 83 bps to 6.7%.

According to Motilal Oswal Financial Services, ABBs continued focus on cash over profit led to lower-than-expected revenue growth, whereas as operating margins were below expectation on account of higher other expenses, led by a forex loss of Rs 11 crore.

After factoring in higher other expenses, the brokerage reduced its estimates for CY14 and CY15 by 10.9% and 3.3%, respectively, and noted that management commentary suggests cautious optimism and expects continued traction in short cycle orders".