>ABB Limited (UBS)

1Q CY09: Overall, ll, disappointing

■ Results below UBSe: Sales decline 9% YoY and PAT 16% YoY
In 1Q CY09, ABB India reported operating income of Rs14.06bn, a decline of 9% YoY (vs. UBSe of 5% growth). EBITDA at Rs1.4bn has declined 15% YoY and margins declined 80bps YoY (raw materials lower but higher overheads). Reported PAT declined 33% YoY to Rs784m. Adjusting for MTM forex losses of Rs200mn, recurring PAT declined 16% YoY to Rs984m (vs. UBSe of flat PAT YoY).

■ Slowdown in both power and automation divisions
Segmental analysis indicates automation division sales declined 10% YoY (process 20% and products 3%). Compared to this, power division declined 7% YoY (products flat and systems declined 13% YoY). As per company, the slowdown in power divisions is due to lower contribution from rural electrification jobs, where ABB has probably started shifting focus.

■ Order inflow growth of 83% QoQ (decline 15% YoY) is half decent
The 83% QoQ improvement in order inflows to Rs23.03bn in 1Q CY09, is good though it’s still down 15% YoY. The OB is Rs70bn (up 14% QoQ). Our view is for industrial activity to trough in June quarter, and partial recovery in 2H FY10. For ABB specifically, we believe deflation in its main product line (transformers) and mid to late cycle nature of industrial automation orders could delay growth.

■ Valuation: Maintain Sell
Our price target of Rs415 is based on 3-stage DCF with 5 years explicit forecast, 15% mid-term growth (2014-18E), WACC of 10% and terminal growth of 5%. At CMP, the stock trades at an expensive 16.6x CY10E EPS with 9% EPS growth over CY08-10E.

To see full report: ABB