Abb Report Final . (1)

7/29/2019 Abb Report Final . (1)

1/15

CMP: 478.45 Target: 676.12 BUY

Abhimanyu [email protected]

PARTICULAR

MARKET CAP(RS/$) 106.617/579.572

OUTSTANDINGEQUITY SHARE

3996

52-Week high/low 893.65/482.60

3- month Average

daily volume

648.4

% Dec-12 Dec-13

PROMOTER 75 75FIIs 3.35 3.35BANK & FIS 11.34 11.34PUBLIC 25 25

BSE CODE -500002

NSE CODE-ABB

Investment Rationale

Strong track record spanning two decades with quality certifications inpower and productivity enable the company to pre-qualify and also garnerrepeat orders from large clients like the Agra,North East Project , DelhiMetro Tata Plant , and several state governments.

Healthy order book of Rs 2045 Cr. FY013E sales 7995.03) which is to beexecuted within 2830 months, signifying strong revenue visibility. Orderslargely comprise Power Grid, Automation, Power circuit & Low voltageproduct projects.

Foray into realty development through 100% owned subsidiary.

Increasing capex on equipment will raise operating efficiency by reducingsub-contracting expenses and equipment hire charges. This efficiency willenable the company to sustain its operating margin above 7% in spite ofincreased raw material costs.

Strong balance sheet and joint venture partnerships allow the company tobid and pre-qualify for big-ticket projects.

Key concernsDelay in project execution may affect financials, while a rise in raw material costhikes also pose risks.

ValuationUsing the FCFE approach, we have a target price of Rs 877.8 for the stock .

PARTICULAR FY 12 FY 13E FY 14E

Sales 7875.5 7995.03 8465.76

Growth (%) 2 1.5 5.9

FDEPS (Rs) 31.7 41.0 60.6

P/E (x) 122.30 33.97 78.14

ROE (%) 14 13 12

RETURNS CMP 1 mth 3 mth 6 mth

ABB LTD 478.45 -13.13 -29-91 -37.99

NIFTY 5688.70 -2.50 -5.20 .70


2/15

Company OverviewABB (www.abb.com) is a leader in power and automation technologies thaenable utility and industry customers to improve performance while lowerinenvironmental impact. The ABB Group of companies operates in around 10

countries and employs about 130,000 people.ABB operations in India include 12 manufacturing facilities with over 10,35employees. Customers are served through an extensive countrywide presencwith more than 23 marketing offices, 8 service centers, 3 logisticwarehouses, 2 Power & Automation Engineering Centers and a network oover 550 channel partners. The ABB Group is increasingly leveraging thIndian operations for projects, products, services, engineering and R&D.

ABBs power generation business was globally transferred into the new 50-50 Jwith Alstom in 1999. In India the power generation business has been demergeand transferred to ABB Alstom Power India Ltd. with effect from 1st April 1999In consideration of the transfer of the power business, each shareholder of ABhas been allotted one share in ABB Alstom Power India Ltd. for every share helin the company.

Business Segment

ABB Ltd.

Power

Products

Power

System

Automation &

Motion

Low Voltage

Product

Process

Automation

Extensive Experience in diverse area of Power &automation Technologies.


3/15

ABB Ltd. Presence in India.

Mumbai

ower ProductsThe product offering across voltage levels includes circuit

instrument transformers, power distribution and traction transfo

of medium voltage products.

Key Project Completed Loc

Electrification solutions for metros - Delhi a

Power SystemTurnkey solutions for traditional and renewable energy based po

grids and distribution networks. These solutions play a key rol

generation and the evolution of more flexible, reliable and smarter

Automation & MotionMotors, generators, drives, mechanical power transmission, robinverters, voltage regulators, rectifiers, UPS systems, excitation

DC chargers.

Key Project Completed Loca

Distribution automation solution - Delhi airport n

Key Project Completed LocRobotics painting solution - Tata Mo

angalore Vadodara

breakers, switchgear, capacitor

rmers, as well as a complete rang

ation

nd Bangalore

er generation plants, transmissio

in the optimization of electricit

grids.

tics, PLCs, wind converters, solasystems, traction converters, fas

tion

w terminal 3

ationtors

ashik


4/15

Low Voltage ProductProducts and solutions suitable for multiple electrical applications from residential homautomation to industrial buildings, including low-voltage circuit breakers, switches, contrproducts, wiring accessories, enclosures and cable systems designed to ensure safety anreliability.

Process Automation

Products, systems and services designed to optimize the productivity of industrial processesSolutions include turnkey engineering, control systems, measurement products, life cyclservices, outsourced maintenance and industry specific products (e.g., electric propulsion foships, mine hoists, turbochargers and pulp testing equipment).

Investment RationaleThe Company has been making investments critical to sustained growth, setting up manufacturinlines, training centers and introducing new products in the market. A new semi-automated line miniature circuit breakers (MCB) with an annual production capacity of 10 million poles was set uat the Nelamangala facility near Bangalore. Safe Link CB, a new compact secondary SF6 gainsulated outdoor Ring Main Unit (RMU) for secondary 12 kV distribution networks, was designedeveloped and manufactured at Nasik. ABB launched MoCon Robust, a new range of crandrives for the industry segment that operate at a very high ambient temperature and dusenvironments. Symphony TM Plus, the new generation of ABBs total plant automation for poweand water industries and a state-of-the-art DCS550 drive were also launched last year. A nehigh voltage power products training center has been established in Vadodara.This training centre has started its operations with a pilot batch of ten ITI apprentices undergointhe Swiss Vocational Education & Training project (SVET) program.

OrdersThe company received orders worth Rs.2,045 crores during the quarter ended June 30, 2012compared with an order intake of Rs.1,792 crores for the same period last year, therebregistering a growth of 14%. While businesses catering to the power sector continued to reflecgrowth, a not so positive investment climate affected the automation businesses. The companreceived significant orders in areas such as renewables, projects to optimize energy efficiency iindustries and power infrastructure..

Segment Wise Order BookRevenue recorded in Power Product

segment is up by 1%

Power product segment Summarized performance:

2012 2011

Orders 1977 2257

Order backlog 2040 2088

Revenues 2085 2001

Result 138 100

Key Project Completed Location

Automation solutions for steel plants in India - Tata Steel


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Power Systems (PS) segment Summarized performance:

2012 2011

Orders 1750 3204


Revenues 2242 2362

Result (14) (1)

Discrete Automation and Motion (DM)

2012 2011

Orders 1953 1962


Revenues 1775 1799

Result 196 207

Low Voltage Products (LP)

2012 2011

Orders 690 565


Revenues 617 540

Result 40 34

Process Automation (PA)

2012 2011

Orders 1053 1145


Revenues 1357 1322

Result (15) 38


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Investment Rationale

The Company has been making investments critical to sustained growth, setting up manufacturinlines, training centers and introducing new products in the market. A new semi-automated line ominiature circuit breakers (MCB) with an annual production capacity of 10 million poles was set up athe Nelamangala facility near Bangalore. Safe Link CB, a new compact secondary SF6 gas insulateoutdoor Ring Main Unit (RMU) for secondary 12 kV distribution networks, was designed, develope

and manufactured at Nasik. ABB launched MoCon Robust, a new range of crane drives for the industrsegment that operate at a very high ambient temperature and dusty environments. Symphony TMPlus, the new generation of ABBs total plant automation for power and water industries and a stateof-the-art DCS550 drive were also launched last year. A new high voltage power products trainincenter has been established in Vadodara.This training centre has started its operations with a pilot batch of ten ITI apprentices undergoing thSwiss Vocational Education & Training project (SVET) program.

OrdersThe Company secured orders valued Rs 6,966 crore in 2012 as against Rs 8,189 crore in the previousyear. The decline in orders in the current year was mainly attributable to delayed decisions on a fewlarge projects unlike in the last year wherein the Company had secured couple of landmarklargeorders like HVDC project from Power Grid Corporation of India Limited for nearly Rs 600 croreand 765 kV substation order from Isolux for nearly Rs 800 crore. The base orders continued to bestable in a challenging market environment. The order backlog at the end of the year stood at Rs8,672 crore which continued to give more visibility to the future revenue streams. The revenues for

the Company for the year 2012 stood at Rs 7,565 crore as against Rs 7,449 crore in the previous yearreflecting stability of operations in an uncertain market situation. Profit before tax was at Rs 206crore in 2012 as compared to Rs 268 crore in the previous year. Additional costs required executingthe orders due to inordinate time delays in the infrastructure projects, unfavorable foreign exchangeimpact due to rupee volatility and higher interest costs resulted in lower profitability for theCompany. Net profit after tax stood at Rs 137 crore for the current year ascompared to Rs 185 crorein the previous year. Consequently the earnings per share for 2012 stood at Rs 6.48 per share ascompared to Rs 8.71 in 2011.

During the year, the Company received export orders worthRs 903 crores reflecting growth of 2%over previous year. Theexport revenues during the year were Rs 942 crores, reflecting a growth of8% over previous year. Orders were higher in Low Voltage products segment and Power Productssegment.

2012 2011

Order 6966 8189

Order backlog 8672 9129Revenues 7565 7449Profit before tax 206 268Net profit 137 185Earning per share 6.48 8.71

Major project orders booked during 2012 included:

Turnkey solution including solar panels, inverters and switchgear for 2x25 MW Solar PowerPlant from Megha Engineering, for Mahagenco

Electrical balance of plant (eBoP) solution for 2x350 MW Thermal Power Plant from EdacEngineering, for KVK Nilanchal and for 2x300 MW Thermal Power Plant Phase-1 for CethalVessels, for SKS Ispat and Power

Design, supply, installation and commissioning of essential power infrastructure for Stage-1 of

the East-West corridor of Jaipur Metro Rapid Transportation System Export order from Ceylon Electricity Board for 132/33 kV substation at Galle, Sri Lanka


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Order backlog

The companys order backlog stood at Rs.9,175 crores at the end of June 30, 2012 as againstRs.8,415 crores for the corresponding period in 2011. With a strong order backlog, revenues ofthe company for the coming quarters remain secured.

Strong order inflowsThe firm posted net profit of 221.6 million rupees in the September quarter, a 93 percent jump,but it was much less than the consensus estimates of 564 million rupees, estimated by Reuterspoll of 12 brokerages.It posted a 29 percent rise in its net sales to 17.26 billion rupees beating a Reuters poll estimate

of 16.52 billion rupees.

Strong track record makes ABB ltd. for project wins

The state-of-the-art facility in Vadodara was a Greenfield development and commissioned i1999. Since the start-up phase, the factory has demonstrated consistently good producperformance. To date, it has supplied 35 power and traction transformers of varying capacitand complexity to major Indian utilities and industry. These include Punjab State ElectricitBoard (PSEB), Gujarat Electricity Board (GEB), Bhakra Beas Management Board (BBMBHindalco and the / Railways. As a result of its high-quality product output, it has recently beeable to export transformers to the USA and Bangladesh and has also booked a major order fromSyria.

Ability to take on big-ticket projects

ABB also reinforced its decision to designate India as its global sourcing base for 72.5 kV higvoltage circuit breakers from Vadodara. In addition, the factory in Nashik will globally bresponsible for 33 kV and 11 kV medium voltage outdoor live tank circuit breakers and magnetiactuators. This decision is in line with ABB's philosophy of global optimisation and sourcing. It idesigned to better serve customers in India and abroad and also gives the company benefitfrom economies of scale.

Some significant projects and orders

Turnkey solution including solar panels, inverters and switchgear for 2x25 MW SolarPower Plant from Megha Engineering, for Mahagenco

Export order from Ceylon Electricity Board for 132/33 kV substation at Galle, SriLanka eBoP solution

400/220 kV gas-insulated switchgear (GIS) at Navsari

765/400 kV substation at Agra and Wardha

Traction electrification, power supply, power distribution and SCADA system for theMumbai Metro Fourteen 500 megavolt ampere (MVA), single-phase 765 kV class auto

transformers from PGCIL Jabalpur substation

765 kV circuit breaker and instrument transformer orderfrom LandT for JP project

Solar inverters from Megha Engineering and under KREDL, REC and Gujarat solarschemes.

North-East Agra

ABB has been selected by Powergrid Corporation of India Ltd. to deliver thworlds first multi-terminal UHVDC transmission link, worth $ 900 million. Thlink is called the 800 kV, 6,000 MW HVDC Multi Terminal NER/ER - NR/WInterconnector I Project (NEA800 in short and also known as North East - AgrHVDC). The link comprises four terminals located at three converter stationwith a 33% continuous overload rating and the power transmission system withus have the possibility to convert 8,000 MW which is the largest HVDtransmission ever built.

Current Book Order

ABB Ltd. Currently booked an order worthmore than $900 million from Power GridCorporation of India Ltd., to deliver anultrahigh-voltage direct current (UHVDC)transmission system. The link will supplyhydropower from mountainous northeastIndia to the populous region of Agra incentral India, 1,700 kilometers away.

City Length Period

North-East Agra 1728(km) 2015


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ABB will execute the project together with its partner Bharat Heavy Electricals Ltd.(BHEL), who will deliver the remainder of the contract, which is worth more than $1.1billion in total. The partners have a turnkey responsibility for execution, including systemengineering, design, supply and installation of three HVDC converter stations. The firststage of the system is scheduled to be operational in 2014 and the second stage in 2015.

The North Eastern region of India has an abundance of hydro power resources,approximately 65 000 MW. The resources are scattered over a large area, whereas load

centers are located several hundreds and even thousands of kilometers away. The powerhas to pass through the so called "chicken neck area"; a very narrow patch of land (22 kmwidth x 18 km of length) in the state of West Bengal having borders with Nepal on one sideand Bangladesh on the other side.

During the year under review, your Company acquired 18,45,763 Non ParticipatingRedeemable Preference Shares of Rs 10/- each of Baldor Electric India Private Limited, fora consideration of Rs 1.85 crore.The Consolidated Accounts have been prepared in accordance with theprescribedAccounting Standards and in line with the general exemptiongranted by Ministry ofCorporate Affairs.

The country has an installed power generation capacity of around 200,000 megawatts(MW) and according to estimates of the International Energy Agency, India needs to investmore than $135 billion to add between 600 and 1,200 gigawatt (GW) of additional new

power generation capacity by 2050 to provide universal access to electricity for itspopulation.

The substations will include seventeen 400 kilovolt (kV) bays and fourteen 132 kV bays inSolapur, and twelve 400kV bays and eight 132kV bays in Mauda. ABBs turnkey projectscope comprises the design, engineering, supply, installation, commissioning andassociated civil works for the substations. The project is scheduled for completion in 2016

Substations are key installations in the power grid that transform voltage levels andfacilitate the safe and efficient transmission and distribution of electricity. They includeequipment that protects and controls the flow of electrical power. ABB is the worldsleading supplier of turnkey air-insulated, gas-insulated and hybrid substations with voltaglevels up to 1,100 kV.

ABB, the leading power and automation technology group, has recently commissionedthree 765 kV substations for Powergrid Corporation of India Limited (PGCIL). The

substations are located in Wardha,Seoni and Bilaspur in the Indian states of Maharashtra,Madhya Pradesh and Chhattisgarh, respectively.

The projects form part of PGCILs plans for building a strong national grid by 2012. Fromthe current inter-regional power flow capacity of 27950 MW, the utility aims to take thecapacity up to , 80000 MW through fourmain regional transmission grids. An extensive800 kV extra high voltage (EHV) network will form the backbone of this network.

ABB executed the project on a turnkey basis with end-to-end power equipment supply andproject management. The overall project scope comprised the design, engineering,manufacturing, testing, erection and commissioning of the 765 kV and 400 kV switchyardsincluding civil works.

Acquired Baldor Pvt.Ltd. in 1.85

crore.

Order to strengthen Western Indias

power grid of Rs.175 Cr.

ABB commissions 765 kV substations in

India


9/15

Revenues to grow at 19.20% CAGR over

1. Government initiatives in theinfrastructure spacewill augment overall demand forpower industry

2. It is financially strong with hugecash flows which will help inacquisitions, buybacks and dividends3. Increase in demand for smart gridsincrease demand for any companiesthat manufacture, supply or build

smart grid infrastructure

Huge installed customer base withlong term contracts2. Superior brand value has helpedit in cross selling and gave a lot ofaftermarket sale opportunities

3. ABB has resources all over theworld and is geographically wellspread

4. Significant portion of its revenue

is from emerging markets whichhave a increasing demand forinfrastructure

Financial OutlookExpect revenue CAGR of 19.20% over FY12-FY19

We expect ABB Ltd. revenues to grow at a 19.20% CAGR

driven by strong order momentum in all Segments. The c

order accretion over the past year, the most recent being

Margins to hold above 7%We expect the operating margin for the next 7 years t

compared to 3%-4% in earlier years. The margin wouldowing to the sharp rise in raw material costs.

Volumes to drive PAT CAGR of We expect Unity to repo

in FY10.The increase in profit is likely to come from v

Higher capex will increase depreciation charges, bu

efficiencies and declining sub-contracting expenses.

FY12

A baffthe

2.formaan

1.Tovdelde

2.Oliqim3.

difincaff

Strength Weakness

ThreatOpportunity

over FY12-FY19 to Rs 7995.03 Cr.

mpany has witnessed continuous

rojects worth.

o be in the range of 7% 7.2% a

remain range bound at these leve

t a 43.5% CAGR in PAT to Rs 1.1b

olume growth and stable margin

this will be offset by operatin

ad outlook of the economy willct the cash flows and growth ofeconomy

overnments are under pressurecutting down the costs, whichy slow down replacement sales

put overall sales at risk

e management has a history ofrpaying for acquisitions and notvering synergies on previousls

n the back of shortage ofidity, the margin is notroving in the shorter termad debts and Financial

iculties with customers haveeased the debtor's provisionscting profit


10/15

Peer comparison

Company Order

book/sales

EBITDA M

(%)

BHEL 281.99 23.4

Siemens 2.0286 10.9

ABB 24.602 52

Target of Rs 531.10 represents

upside of 18.18%; Buy

336.49596.029

137.41

380.

7564.99

1

10

100

1000

10000

2012 2013

Valuation

argin M/Cap/sales P/Bv(x) FY13E P/E (x)

0.908 1.721 -

1.378 4.489 -

1.387 3.927 36.28

FCFE target of Rs 531.10; Buy

We have an FCFE target price of Rs 531.10 for the com

trade at 17.8x on FY13E EPS.We initiate coverage on A

price of Rs 531.10 an upside of 18.18% from current

Stock performance

631.12 676.64

10 402.48 431.51

919.98 8386.30 8991.17

E 2014 E 2015 E

FY14E P/E (x)

-

-

41.22

pany, at which the stock would

B Ltd. with a Buy and a target

levels.

Operating profit

Net Income

Sales


11/15

343.54

0

100

200

300

400

500

600

700

800

900

2012 2013

Ini

676.42 716.24767.90

E 2014 E 2015 E

EBITA MARGIN (%)

EXT.HIGH.32%

HIGH

42%

MEDIUM23%

LOW

3%

tial risk profile of supplier

EBITA MARGIN (%)


12/15

Consolidated financials

PROFIT & LOSS STATEMENT

(Rs mn) FY12 FY13E FY14E FY15E

REVENUE 7,610.48 8,010.40 8,588.17 9,207.60

GROWTH (%) 3 5 7 7EBITDA 348.84 547.40 586.88 629.21GROWTH (%) -11% 57% 7% 7%DEPRICIATION 94.17 72.08 77.28 82.86

EBIT 211.43 424.66 455.29 488.13GROWTH (%) -21% 101% 7% 7%INTREST 43.24 50.649225 54.302366 58.218994OTHERINCOME 7.26 97.60 104.64 112.18EBT 348.84 547.40 586.88 629.21INCOME TAX 70.49 138.64 148.64 159.36EFFECTIVETAX RATE (%) -19% 97% 7% 7%EXTRAORDINARYITEM 0 2.01 2.15 2.31REPORTEDNET INCOME 140.94 288.03 308.80 331.07GROWTH(%) -24% 104% 7% 7%SHAREOUTSTANDING

3996 3996 3996 3996

BASIC EPS(RS) 6.65 13.59 14.57 15.62FDEPS (RS) -2863.808 -6683.499 -7708.569 -8888.73DPS (RS) 0.0299989 0.0463952 0.0497415 0.0533292


13/15

BALANCE SHEET STATEMENT

Rs (mn) FY12 FY13E FY 14E FY15E

CASH AND CASHEQ 76.67 238.12 287.56 340.58

ACCOUNTRECEIVABLE 3,264.38 3403.73 3649.23 3912.44INVENTORY 920.4 990.64 1062.10 1138.70OTHERSCURRENT

ASSEST

- - - -

CURRENT

ASSEST 4,261.45 4632.50 4998.89 5391.72LONG-TERMINVESTMENT 52.47 55.34 59.33 63.61NET FIXED

ASSESTS 1,207.34 1183.17 1221.56 1262.73CWIP 117.01 122.99 131.87 141.38INTANGIBLE

ASSEST- - - -

TOTAL ASSEST 2,925.73 2770.77 2955.94 3154.47ACCOUNTPAYABLE

- - - -

OTHERS - - - -

CURRENTLIABILITIES 3,297.82 3854.12 4132.10 4430.14DEBT FUNDS 0 0 0 0PROVISION 246.45 257.15 275.70 295.58EQUITY CAPITAL 42.38 42.38 42.38 42.38RESERVES 2,555.67 2728.39 2913.56 3112.09TOTALLIABILITIES 2,925.73 2770.77 2955.94 3154.47BVPS(RS) 130.75 139.49 148.85 158.90


14/15

CASH FLOW STATEMENT

(Rs MN) FY12 FY13E FY14E FY15E

NET INCOME 140.94 288.03 308.80 331.07DEPRICIATION 94.17 72.08 77.28 82.86OTHER

ADJUSTMENT,NET

- - - -

CHANGE INWORKING CAPITAL -166.20 -53.90 -124.55 -133.54CASH FLOW FROMOPERATION -195.59 670.57 315.33 338.08CHANGE ININVESTMENTS -1.77 -2.87 -3.99 -4.28LOAN & ADVANCES -38.42 -56.31 -64.05 -68.67CASH FLOW FROMINVESTING -130.64 -15.48 -87.96 -94.30FREE CASH FLOW - - - -

DIVIDENT PAID -77.41 -115.31 -123.63 -132.54CASH FLOW FROM

FINANCEG 207.03 -493.64 -177.93 -190.76OPENING CASH &CASH EQ 195.87 76.67 238.12 287.56CLOSING CASH &CASH EQ 76.67 238.12 287.56 340.58


15/15

FY12 FY13E FY14E FY15E

EBITDA MARGIN (%) -11% 57% 7% 7%EBIT MARGIN (%) -21% 101% 7% 7%CURRENT RATIO(X) 1.292 1.201 1.209 1.217QUICK RATIO(X) 1.276 1.187 1.195 1.202

INTEREST COVERAGERATIO(X)

1 1 1 1

DEBT/EQUITY(X) - - - -ROE (%) 7% 14% 15% 16%ROA (%) 5% 10% 10% 10%

ROCE (%) -94% -51% -50% -49%EV/SALES(X) 2.125 3.178 3.178 3.178

EV/EBITDA(X) 49.19 49.19 49.19 49.19

P/E(X) 122.30 47.76 47.76 47.76P/BV(X) 6.624 5.066 5.066 5.066

FINANCIAL RATIOS

Abb Report Final . (1)

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