ABB ‘Under review’, stock performance to remain muted

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Published: May 11, 2019 1:44:01 AM

Q1CY19 PAT at Rs 1.16 bn, up 13% y-o-y, beat our/consensus estimate by 13/12%. Beat was led by (1) strong revenue growth of 18%, (2) Robotics & Motion revenue up 34% with 270 bps margin expansion and (3) Rs 211 mn reduction in unallocable expenses.

Expects exports to pick up in coming quarters.

Q1CY19 PAT at Rs 1.16 bn, up 13% y-o-y, beat our/consensus estimate by 13/12%. Beat was led by (1) strong revenue growth of 18%, (2) Robotics & Motion revenue up 34% with 270 bps margin expansion and (3) Rs 211 mn reduction in unallocable expenses.

We expect stock performance to remain muted as (a) management has guided down Q2CY19 due to elections as well as soft data for its key auto and consumption sectors (FMCG); (b) weak growth in orders at 6% y-o-y with book to bill falling below 1x though base or short-cycle orders were up 17%; (c) pricing pressures for solar inverters compressing margin of EP segment; (d) Power Grid’s (discontinued segment) margin eroded 280 bps y-o-y due to competitive orders though mgmt.

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Expects exports to pick up in coming quarters. We place the stock ‘Under Review’ and would bring out a detailed note revisiting our estimates and rating. ABB’s Q1CY19 revenue grew 18% y-o-y to Rs 18.5 bn on strong growth in Robotics segment (34% y-o-y). Industrial Automation (IA; +20% y-o-y) as well as Electrification Products (EP; 12% y-o-y) too posted steady growth.

Ebitda margin expanded 220 bps y-o-y at 7.9% on higher margin in Robotics (operating leverage, better mix) as well as lower unallocable expenses, offsetting weak margin in IA (lower service revenue) and EP (forex losses, pricing pressures in solar inverters) segments. However, Power Grid (PG; discontinued operations) performance was muted which restricted growth in reported PAT to 13% y-o-y. Order intake grew weak 6% y-o-y at Rs 17.8 bn led by base orders (+17% y-o-y). Backlog stood at Rs 47.3 bn (-8% y-o-y; 0.7x CY18 revenue).

Industrial capex, which has been weak over past few years, is yet to see a material pick-up. Furthermore, consumption-related industries such as automobile, FMCG, food & beverages, which have been driving growth so far, too are seeing slowdown.

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