ABB India reported 17.4% y-o-y growth in Q1CY18 revenues to Rs 25bn, led by 42% growth in power grid segment and 20% growth in robotics & motion segment. Ebitda margin remained flat at 7.5% y-o-y, impacted by 440bps y-o-y increase in raw material cost proportion which offset operating leverage gains. Order inflow grew 10.2% to Rs 25.8bn, led by 14% growth in base orders; services and export segments were major order intake drivers. Current order book of Rs 116bn provides growth visibility and the momentum from the base orders is expected to continue. Though overall order intake outlook from PGCIL is weak, traction from state electricity boards is expected to offset the same.
Near to medium-term growth is expected to be driven by energy efficiency products, renewables, railways and exports. We estimate earnings CAGR of 23% for CY17-19E with healthy cash flows, and maintain ADD rating on the stock. We assign the company its standard deviation one year forward multiple of 46x for CY19E earnings with a target price of Rs 1,378. Ongoing growth in service and export orders played significant role in order inflow growth. Green shoots of revival in process industries, food & beverages, traction in robotics & automation, transportation and renewable energy augur well for future growth prospects.
Higher competitive intensity coupled with falling project prices impacted the overall margins in electrification segment. ABB India has received mandate to supply for multiple geographies and this will open-up the export market. The company has currently localised majority of the solar inverter technology and is confident about capturing healthy market share in export markets.
Transportation business currently contributes 6-7% to total revenue, and is expected to witness double digit growth in the medium-term. The growth outlook from rail and metro is strong both in terms of execution and order intake. Strong order book provides growth visibility and base order traction is expected to continue driven by F&B, cement, steel and state utilities. Hence, we maintain add rating with a revised target price of Rs 1,378.