Broker's call: ABB India (Buy)

| Updated on May 19, 2020 Published on May 19, 2020

JM Financial Services

ABB India (Buy)

CMP: ₹800.35

Target: ₹970

ABB India’s 1QCY20 numbers saw a sharp y-o-y decline. Net sales were down 18 per cent y-o-y (in-line with JMFL estimate), but EBITDA saw a significant drop of 90 per cent y-o-y as margins plummeted to 1 per cent (JMFL est: 6.6 per cent), mainly led by a) revenue deferment in March 2020; b) ECL provisions towards projects; c) MTM losses; and d) under-absorption of fixed costs.

The company completed the sale of its solar inverter business for ₹105 crore. Adjusting for profit from the sale of its inverter business, IT refund and loss from discontinued operations, net profit stood at ₹5.2 crore (-94 per cent y-o-y). The only silver lining came from order inflows, which were up 10 per cent y-o-y, led by orders from railways, wind and oil & gas.

The order book was down 6 per cent y-o-y. We expect near-term sales and order inflows to disappoint, on deferment of capex and under-absorption of costs, but we believe ABB will be a beneficiary of early cycle capex, and market share gains in motors segment.

We maintain ‘buy’ with a revised target price of ₹970.

Published on May 19, 2020

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