3 November 2015
3QCY15 Results Update | Sector: Capital Goods
BSE SENSEX
26,591
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val,(INRm)/Vol ‘000
Free float (%)
S&P CNX
8,061
ABB IN
211.9
1525/1021
19/-7/15
109/85
25.0
ABB
CMP: INR1,263
TP: INR1,380 (+9%)
Neutral
In-line performance; orders surge on finalization of projects, growth in base orders
Performance in line with estimates:
ABB’s 3QCY15 performance was in line with
estimates. Revenue was up 7% YoY to INR19.4b and EBIDTA margin 40bp YoY to
6.5%. Sales were driven by strong performance in the product businesses, with
Power Products at INR6.62b (+23% YoY) and Low Voltage at INR2.11b (+22% YoY).
The company has maintained its policy of “cash over revenues”, which led to a
fall in the projects segment, with Power Systems at INR4.3b (-12%) and Process
Automation at INR2.8b (-11% YoY). The overall business environment remains
strained and timing of project delivery also impacted revenue recognition.
Order inflow up 61% YoY on finalization of project orders and strong base
orders:
Order intake surged 61% YoY to INR22.9b, driven by finalization of project
orders and a healthy growth in base orders. We note that 3QCY15 is coming off a
weak base of last year when order inflows during 3QCY14 stood at just INR14.2b.
Key sectors driving orders are transportation, renewables (primarily solar) and
transmission. The solar business segment now contributes ~5% to the order book
and remains an important growth driver. Export orders picked up after a weak
1HCY15. Order backlog stood at INR83b, up 8% YoY. The traditional areas of steel,
cement, refining and power continue to remain lackluster and till the time there
is capacity underutilization, capacity expansion in any of these sectors is unlikely.
Valuation and view:
Management remains cautiously optimistic on the demand
scenario and is focused on improving margin via operational efficiencies and
localization efforts. While segments such as transmission, renewables and
transportation are seeing traction, the traditional sectors of steel, cement and
O&G remain elusive. Valuations stand at 83x/55x its CY15E/16E EPS of
INR15.2/22.8. Maintain
Neutral
with a DCF-based price target of INR1, 380.
M.Cap. (INR b) / (USD b) 267.6/4.1
Financials & Valuation (INR Billion)
Y/E DEC
Net Sales
EBITDA
Adj PAT
Adj EPS (INR)
EPS Gr (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
Estimate change
TP change
Rating change
2014 2015E 2016E
76.3
5.0
2.3
12.8
34.9
9.7
9.2
98.4
9.5
80.5
5.9
3.3
15.2
18.1
10.7
12.2
83.3
8.9
87.6
8.4
4.8
22.8
50.7
14.7
15.6
55.3
8.1
132.7 142.1 155.8
Ankur Sharma
(Ankur.vsharrma@MotilalOswal.com); +91 22 3982 5449
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 3029 5126
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.Rs

ABB
Performance in-line with estimates
ABB’s 3QCY15 performance was in-line with our estimates, with revenues at
INR19.4b, up 6% YoY (in-line) and EBIDTA margins at 6.5%, up 40bps YoY (est of
6.6%). Sales were driven by strong performance in the product businesses, with
Power Products at INR6.62b (+23% YoY) and Low Voltage (+22% YoY). The
company has maintained its policy of “Cash over sales” which lead to a fall in the
projects segment with Power Systems at INR4.3b (-12%) and Process
Automation at INR2.8b (-11% YoY). PAT at INR0.6b was in line with our estimate
of INR0.6b.
The reported margins are encouraging and a reflection of the various initiatives
taken over the last 3-4 years in terms of increased localization, rationalization of
supply chain, improving efficiency, better project management capabilities, etc.
Gross margins at 34% are the highest in a decade and a reflection of the steps
taken by the company to improve operational efficiency across the value chain.
EBIDTA margins stood at 6.5% (up 40bps YoY) and the improvement is
commendable, particularly in a constrained environment.
Order intake stood at INR23b, up 61% YoY driven by finalization of large project
orders and a strong growth in base orders. We note that Q216 is coming off a
weak base of last year when order inflows during Q215 stood at just INR14.2b.
Key sectors driving orders are transportation, renewables (primarily solar) and
transmission. The traditional areas of steel, cement, refining, power continue to
remain lack luster and till the time there is underutilization of capacity, it is
unlikely that any of these sectors would be going in for capacity expansion.
Order backlog stood at INR83b, up 8% YoY.
Exhibit 1: RM cost decline led by focus on localization effort
Material cost (% of sales)
Exhibit 2: EBITDA margins have stabilized over last one year
EBITDA (%)
Source: Company, MOSL
Source: Company, MOSL
3 November 2015
2

ABB
Segmental Analysis: Products show sharp revenue and margin expansion led by
operating leverage; projects witness de growth in sales Power products business
sales at INR6.6b were up 23% YoY; supported by new factories commissioned in
end CY13 for localization of 400kv GIS substations, Dry type and Oil filled
transformers, etc. Margins improved to 10% in 3QCY15 vs 6% YoY, supported by
better cost absorption on increased volumes.
Low voltage products witnessed a 22% growth in sales to INR2.1b; however, we
note this was coming off a weak base of Q215 last year. Margins rose 380bps to
10.8%
Discrete automation reported muted revenue growth of +3% YoY at INR5b. We
note that this segment has seen strong growth in H115 (sales up 14% YoY)
supported by improved traction in renewables (~20% of order book for the
segment) and railways (at 10% of revenues). Both these segments, particularly
solar, have witnessed improved demand environment and robust growth.
Projects, including both power systems and process automation segments, have
reported a fall in sales on account of a constrained environment, company’s
focus on cash over sales and timing related issues in project delivery. Power
systems sales at INR4.3b(-12% YoY) and margin of 3.7%(-150bps). Process
Automation sales at INR2.8b(-11% YoY) and margin at 9.1%(+190bps YoY).
Exhibit 3: Segmental Analysis (INR m)
1QCY14
Discrete
Automation and Motion
Revenue
Growth YoY (%)
EBIT
EBIT Margin (%)
Low Voltage Products
Revenue
Growth YoY (%)
EBIT
EBIT Margin (%)
Process Automation
Revenue
Growth YoY (%)
EBIT
EBIT Margin (%)
Power Products
Revenue
Growth YoY (%)
EBIT
EBIT Margin (%)
Power Systems
Revenue
Growth YoY (%)
EBIT
EBIT Margin (%)
4,353
-1.5
192
4.4
2QCY14
3,955
-3.2
210
5.3
3QCY14
4,923
8.1
4QCY14
5,755
15.7
560
9.7
1QCY15
4,647
6.7
390
8.4
2QCY15
4,788
21.1
401
8.4
3QFY15
5,064
2.9
443
8.8
322
6.5
1,815
28.4
78
4.3
1,932
23.6
113
5.8
1,726
-0.4
120
7.0
1,901
-7.7
88
4.6
1,770
-2.5
174
9.8
1,920
-0.6
152
7.9
2,110
22.2
227
10.8
2,891
3.1
206
7.1
3,019
-6.0
282
9.4
3,090
2.7
222
7.2
3,452
-0.2
286
8.3
2,698
-6.7
264
9.8
3,123
3.4
276
8.9
3,123
1.1
284
9.1
5,739
29.8
580
10.1
5,537
5.5
350
6.3
5,402
4.0
318
5.9
6,578
2.2
590
9.0
5,394
-6.0
248
4.6
6,238
12.7
503
8.1
6,620
22.6
691
10.4
4,766
-36.6
231
4.9
5,365
6.5
315
5.9
4,939
9.0
257
5.2
6,484
-4.1
350
5.4
4,576
-4.0
229
5.0
4,547
-15.2
245
5.4
4,342
-12.1
162
3.7
Source: MOSL, Company
3 November 2015
3

ABB
Order inflow up 61% YoY led by finalization of a few delayed orders and
strong growth in base orders
Order intake surged 61% YoY to INR22.9b driven by finalization of large project
orders and an improvement in base orders. We note that 2Q16 is coming off a
weak base of last year when order inflows during 2Q15 stood at just INR14.2b.
Key sectors driving orders are transportation, renewables (primarily solar) and
transmission. The traditional areas of steel, cement, refining, power continue to
remain lack luster and till the time there is underutilization of capacity, it is
unlikely that any of these sectors would be going in for capacity expansion.
Management cited an improvement in the pipeline for large projects with the
market starting to witness an improvement.
Export orders which have been weak in H116 have also seen a revival with 12%
of the overall orders booked during this quarter coming from exports. Services
portfolio witnessed robust double-digit growth.
Order book at INR79.6b is down 1.6% YoY, and down 16% from peak levels of
INR92b during 2QCY12 given the constrained environment.
Exhibit 5: B-T-B ~ 1.1x despite constrained environment
Growth (YoY,%)
49
17
-19
-6 -6
61
Order book (INR b)
BTB (x, TTM)
Exhibit 4: Order inflows up 61% YoY
Order intake (INR b)
45
7
-41
0
58
23
-4
14
-33
-29
-6
-15
5 6
29
Source: Company, MOSL
Source: Company, MOSL
Key Concall Highlights
Management remained cautious on the pace of industrial capex recovery and
stated that industrial capex recovery to be at least few quarters away, given the
continued poor capacity utilization levels and is thus a function of demand
improvement.
Positive on sectors such as transmission, transportation and renewables
(especially wind). Are seeing a growth in the overall project pipeline which
would translate into orders for ABB 2- 3 quarters down the line.
Prefer cash over sales and would not be pushing sales to customers where they
feel there could be an issue with relation to recovery of payments.
Exports contribute 12% of the revenues and about the same percentage of the
order book. Order flows in exports had declined in H116 but have now started
to pick up once again. ABB is targeting exports orders from countries such as Sri
Lanka, Africa and the M. East.
Of the INR60mn spent on a solar plant, ~50% is the panel which is currently
imported. The balance of inverters and the electrical can be addressed by ABB
India. They have already crossed the 2GW mark in terms of supplies to the solar
market and have established a very good brand name in this segment.
4
3 November 2015

ABB
Valuation and view
Over the last 2-3 years, ABB’s material costs have declined from ~75% to ~66%
currently; led the various initiatives. However, the savings are not yet reflected
in the reported EBIDTA margins given the poor operating cost absorption: staff
costs have increased from ~7-7.5% to 9% currently while SG&A expenses have
increased from ~13% to 16% in this period. Hence we believe that ABB is very
strongly positioned to benefit from the market recovery in the next cycle.
Localization of manufacturing is an important priority, and the ongoing /
recently commissioned capacity expansions include i) doubling MCB capacity,
and will largely cater to the export market ii) capacity for GIS transformers and
Distribution Transformers, iii) HT Motors, etc. In process automation, ABB is
making efforts to build a service portfolio, which over a period of time will
provide stability to margins.
Management mentioned that ‘In Country, for Country, by Country’ remains an
important strategy and focus is on developing products that are suitable for
Indian markets.
We expect EPS to improve from INR10.8/sh in CY14 to INR15.2/sh in CY15 (up
18% YoY) and INR23/sh in CY16 (up 51% YoY). At CMP, ABB quotes at PER of 83x
CY15E and 55x CY16E. Maintain
Neutral,
with a DCF based price target of
INR1,380/sh.
3 November 2015
5

ABB
Exhibit 6: Operating metrics
Year ended December
Revenues (INR m)
LV Products
Discrete Automation & Motion
Process automation
Power products
Power systems
Gross Segmental Sales
Revenue Growth (% YoY)
LV Products
Discrete Automation & Motion
Process automation
Power products
Power systems
Revenue Growth
EBIT Margins (%)
LV Products
Discrete Automation & Motion
Process automation
Power products
Power systems
Costs, % of Revenues
Material Costs
Contribution Margins, %
Staff Costs
SG&A Expenses
EBIDTA %
Products (% of Revenues)
Fixed Assets Turn (x)
NWC (Days)
EPS (INR/sh)
% YoY
PER (x)
73.2%
26.8%
8.0%
13.8%
5.0%
55.4%
6.2
71.2
7.5
65.6%
101.5
72.7%
27.3%
8.3%
13.7%
5.3%
56.0%
5.5
71.8
12.4
-23.5%
132.7
70.7%
29.3%
8.9%
13.9%
6.5%
59.3%
5.5
71.7
9.5
34.9%
98.4
68.7%
31.3%
9.2%
14.7%
7.4%
61.4%
5.4
74.1
12.8
18.1%
83.3
67.5%
32.5%
9.4%
13.5%
9.6%
63.5%
5.7
75.1
15.2
50.7%
55.3
66.4%
33.6%
9.1%
14.6%
9.9%
65.7%
6.5
75.1
22.8
21.1%
45.6
6.3%
11.5%
2.9%
5.0%
0.0%
6.4%
11.0%
-1.1%
6.6%
2.9%
3.7%
6.9%
5.7%
8.0%
3.9%
5.4%
6.8%
8.0%
7.9%
5.3%
8.0%
9.0%
9.5%
8.5%
6.5%
10.0%
10.0%
10.0%
10.5%
7.5%
20.4%
13.0%
11.2%
10.2%
29.3%
16.8%
14.4%
-1.3%
2.6%
4.2%
-5.1%
0.7%
9.6%
2.7%
-8.0%
2.2%
6.4%
2.3%
8.9%
4.1%
-0.2%
9.2%
-9.6%
1.2%
5.0%
10.0%
0.0%
4.7%
-3.2%
3.2%
15.0%
14.2%
0.0%
7.9%
2.7%
7.7%
2011
5,399
17,993
13,219
20,008
23,624
80,243
2012
6,174
17,753
13,566
20,853
22,422
80,767
2013
6,769
18,237
12,480
21,304
23,851
82,640
2014
7,373
18,986
12,450
23,255
21,554
83,617
2015E
7,742
20,877
12,450
24,354
20,864
86,287
2016E
8,903
23,836
12,450
26,268
21,438
92,894
Source: Company, MOSL
3 November 2015
6

ABB
Financials and valuations
Income Statement
Y/E December
Net Sales
Change (%)
Raw Materials
Staff Cost
Other Mfg. Expenses
Selling Expenses
Admin. & Other Exp.
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
Extra-ordinary Items (net)
PBT
Tax
Rate (%)
PAT
Adjusted PAT
Change (%)
2011
73,703
15.9
53,954
5,868
3,703
1,099
6,753
2,325
3.2
796
307
1,202
253
2,677
832
31.1
1,845
1,593
151.9
2012
74,703
1.4
54,278
6,196
4,181
1,086
5,191
3,771
5.0
941
432
927
-1,263
2,062
688
33.4
1,374
2,637
65.6
2013
76,316
2.2
53,985
6,771
4,363
1,044
6,110
4,043
5.3
1,033
1,011
974
-223
3,195
956
29.9
2,239
2,017
-23.5
2014
76,307
0.0
52,429
7,052
4,489
1,133
6,239
4,965
6.5
1,128
1,050
1,199
-435
3,552
1,267
35.7
2,285
2,720
34.9
2015E
80,497
5.5
54,341
7,545
4,731
1,195
6,760
5,925
7.4
1,463
988
1,235
110
4,819
1,497
31.1
3,322
3,212
18.1
(INR Million)
2016E
87,636
8.9
58,230
7,977
5,116
1,301
6,568
8,445
9.6
1,633
988
1,273
0
7,097
2,255
31.8
4,841
4,841
50.7
Balance Sheet
Y/E December
Share Capital
Reserves
Net Worth
Loans
Net Deffered Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other current Assets
Current Liab. & Prov.
Creditors
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2011
424
24,921
25,345
0
-224
25,121
14,619
2,935
11,684
839
507
49,600
9,255
30,825
2,644
3,667
3,210
37,509
18,649
16,530
2,331
12,091
25,121
2012
424
25,557
25,981
3,277
-148
29,109
15,856
3,783
12,073
1,170
525
50,784
9,204
32,644
767
4,585
3,585
35,443
19,033
13,946
2,465
15,341
29,109
2013
424
26,352
26,776
6,243
-272
32,746
18,627
4,712
13,915
475
173
55,661
9,889
32,357
3,166
6,077
4,172
37,477
20,826
13,960
2,692
18,184
32,747
2014
424
27,696
28,120
3,756
-152
31,723
19,718
5,723
13,995
319
165
53,585
8,938
31,575
2,260
6,790
4,022
36,341
19,840
12,977
3,524
17,244
31,723
2015E
424
29,688
30,112
3,756
-152
33,716
22,009
7,186
14,823
319
166
55,396
9,429
33,309
2,072
6,616
3,970
36,988
19,848
13,170
3,970
18,408
33,716
(INR Million)
2016E
424
32,592
33,015
3,756
-152
36,619
24,240
8,820
15,420
319
172
60,976
10,265
36,263
2,683
7,203
4,562
40,269
21,609
14,338
4,322
20,708
36,619
3 November 2015
7

ABB
Financials and valuations
Ratios
Y/E December
Basic (INR)
EPS
Growth
Cash EPS
Book Value
DPS
Payout (incl. Div.Tax)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
7.5
-38.2
11.3
119.6
3.0
39.9
2012
12.4
65.6
16.9
122.6
3.0
24.1
2013
9.5
-23.5
14.4
126.4
3.0
31.7
2014
12.8
34.9
18.2
132.7
3.7
28.9
98.4
69.6
36.6
3.5
9.5
0.3
6.4
8.3
153
46
92
2.9
0.0
10.1
6.3
159
45
93
2.6
0.1
7.5
8.0
155
47
100
2.3
0.2
9.7
9.2
151
43
95
2.4
0.1
2015E
15.2
18.1
22.1
142.1
5.4
35.6
83.3
57.2
36.4
3.3
8.9
0.4
10.7
12.2
151
43
90
2.4
0.1
2016E
22.8
50.7
30.6
155.8
7.9
34.4
55.3
41.3
28.0
3.1
8.1
0.6
14.7
15.6
151
43
90
2.4
0.1
Cash Flow Statement
Y/E December
PBT before EO Items
Add : Depreciation
Interest
Less : Direct taxes paid
(Inc)/Dec in WC
CF from operations
(Inc)/Dec in FA
Free Cah Flow
(Pur)/Sale of Investments
CF from investments
(Inc)/Dec in Net Worth
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2011
2,425
795
307
832
467
2,855
-5,081
(2,226)
-339
-5,345
2
307
739
-737
-3,228
5,871
2,644
2012
3,325
941
432
688
-5,127
-1,549
-1,661
(3,211)
-18
-1,774
0
432
739
2,182
-1,877
2,644
767
2013
2,972
1,033
1,011
956
-444
2,606
-2,180
427
352
-1,815
-255
1,011
744
789
2,399
767
3,165
2014
3,987
1,128
1,050
1,267
34
3,881
-1,053
2,829
8
-1,134
-26
1,050
915
-4,157
-906
3,165
2,260
2015E
4,709
1,353
900
1,497
-1,351
3,324
-2,291
1,033
-1
-2,039
0
900
1,330
-4,537
-187
2,260
2,072
(INR Million)
2016E
7,097
1,712
200
2,255
-1,689
4,786
-2,230
2,555
-6
-1,989
0
200
1,938
-2,929
611
2,072
2,683
3 November 2015
8

ABB
Corporate profile: ABB
Company description
ABB is a worldwide leader in power transmission
and distribution and process automation space.
ABB India is 75% subsidiary of ABB with focus on
power T&D and automation space. Besides power
transmission and distribution, automation products
and process automation are the larger areas of
operations. Power T&D includes products and
project services like switchgears, transformers,
motors, generators, balance of plant activities etc.
Exports contribute ~15% to the total revenues, and
share of service sector stands at ~12%.
Exhibit 7: Sensex rebased
1,500
1,350
1,200
1,050
900
Nov-14
ABB
Sensex - Rebased
Feb-15
May-15
Aug-15
Nov-15
Exhibit 8: Shareholding pattern (%)
Sep-15
Promoter
DII
FII
Others
75.0
12.5
4.6
7.9
Jun-15
75.0
12.4
4.8
7.8
Sep-14
75.0
12.2
4.8
8.1
Exhibit 9: Top holders
Holder Name
LIC of India
Aberdeen Global Indian Equity Fund ( Mauritius) Ltd
% Holding
8.3
1.8
Note: FII Includes depository receipts
Exhibit 10: Top management
Name
Francis Duggan
Bazmi R Husain
Designation
Chairman
Managing Director
Exhibit 11: Directors
Name
Francis Duggan
Bazmi R Husain
D E Udwadia*
Name
Nasser Munjee*
Tarak Mehta
Renu Sud Karnad*
*Independent
Exhibit 12: Auditors
Name
S R Batliboi & Co LLP
Ashwin Solanki & Associates
Type
Statutory
Cost Auditor
Exhibit 13: MOSL forecast v/s consensus
EPS
(INR)
CY15
CY16
MOSL
forecast
15.2
22.8
Consensus
forecast
14.0
20.0
Variation
(%)
8.6
14.2
3 November 2015
9

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10