ABB India - Q2CY20 - BUY (Target Rs1041, Upside 15%) - ICICI Securities

Sales were down 43% yoy to Rs9.86bn due to supply chain disruptions & lockdown. However, it came in 15%/10% ahead of our/cons. est. as ABB's execution improved sequentially in June'20. Industrial Automation (IA)/ Electrification (EL)/ Motion (MO)/ Robotics & Discrete Automation (RA) revenues declined by 37%/51%/35%/64%. EBITDA margins contracted across all segments except Motion. EBITDA margin came in at 2.4% down 480bps yoy, (much ahead with our/cons est. of -4.7%/-4.3%) as lower revenue was offset to a reasonable extent by various cost saving initiatives & favorable forex. Order inflow de-grew by 31% (ex-solar inverter) to Rs12bn by securing orders in varied sectors, including power distribution equipment, automation projects for process industries, food and beverage. Net non-cash working capital days stood at ~37 as on Q2CY20 vs ~34 as on Q4CY19. Cash position remains strong at ~Rs15bn.

ABB's order book stood at Rs46.7bn & is well positioned to focus on pockets of growth like F&B, Data Centers, Pharma, Rail & Metro, Gas distribution, Chemicals, Renewables, Waste water and Smart infra. We are positive on ABB, given its niche business related to products and services and a pure play on Digitalization and Automation. Postponement of major capex to subsequent quarters due to COVID-19 has led to greater focus on plant upkeep, optimization, automation & digital solutions which should augur well for ABB. We cut our CY20E EPS estimates by 27% to factor in the extended impact of COVID-19 pandemic, weak business prospects for IA & RA in H2CY20, gradual recovery in global macros & trade uncertainties. We expect margin recovery over CY21-CY22E led by i) Increasing contribution of high margin ‘electrification products', ii) Exit from solar inverter business which had wafer thin margins, iii) Higher sales contribution by exports and services, iv) Increase in local content & v) Efficiency improvement through cost rationalization. The Stock is trading at 56x Jun'21 earnings vs 15-yr average forward P/E of ~72x, implying ~20% discount. We retain ‘BUY' rating with TP of Rs1041 at 45x as we rollover to Sept'22 earnings.

Shares of ABB India Limited was last trading in BSE at Rs.892 as compared to the previous close of Rs. 912.15. The total number of shares traded during the day was 4304 in over 573 trades.

The stock hit an intraday high of Rs. 912 and intraday low of 890.05. The net turnover during the day was Rs. 3857514.

Source : Equity Bulls

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