CMP (Rs) 712.00

Target Price (Rs) 797.00

ISIN: INE117A01022

Nov 30th

, 2012

ABB LIMITED Result Update: Q3 CY12

HOLDHOLDHOLDHOLD

Stock Data

Sector Capital Goods

BSE Code 500002

Face Value 2.00

52wk. High / Low (Rs.) 915.00/541.10

Volume (2wk. Avg ) 7442.00

Market Cap ( Rs in mn ) 150879.92

Annual Estimated Results (A*: Actual / E*: Estimated)

Years CY11A CY12E CY13E

Net Sales 74489.71 84918.27 93410.10

EBITDA 3779.63 4367.24 4797.90

Net Profit 1845.36 2124.31 2352.14

EPS 8.71 10.02 11.10

P/E 81.76 71.03 64.15

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX ABB LTD

Source: Company Data, Firstcall Research

SYNOPSIS

ABB is the leading power and automation

engineering companies and its portfolio

ranges from light switches to robots, and

from huge electrical transformers to control

systems that manage entire power networks

& factories.

ABB has won an order worth $39 million

from PKP Energetyka S.A., the main power

supplier to railway operators in Poland.

ABB has won orders worth over $100

million, to supply converter transformers

and components for the Hami-Zhengzhou

ultrahigh-voltage direct current (UHVDC)

transmission link.

During the quarter, the robust growth of Net

Sales is increased by 3.73% to Rs. 18086.10

million.

ABB Finance (Australia) Pty Ltd has priced

an AUD 400 million 5-year bond transaction.

CLEVER, a leading electric mobility operator

in Denmark has chosen ABB as a supplier of

50 Terra 51 DC fast chargers at multiple

locations throughout Denmark.

ABB has received orders worth over

Rs.1679 crore, during the quarter.

Net Sales and PAT of the company are

expected to grow at a CAGR of 14% and 55%

over 2010 to 2013E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

ABB Ltd 712.00 150879.92 8.71 81.76 5.95 150.00

Siemens Ltd 670.60 236073.40 10.09 66.46 6.18 300.00

BHEL Ltd 233.35 571147.50 28.63 8.15 2.25 320.00

Crompton Greaves Ltd 114.40 73386.60 7.72 14.82 2.72 70.00

Investment Highlights

Results updates- Q3 CY12,

ABB is the leading power & automation engineering

companies and its portfolio ranges from light

switches to robots, and from huge electrical

transformers to control systems that manage entire

power networks & factories in the world and the

largest in India, reported its financial results for the

quarter ended 30th Sep, 2012. The third quarter

witness a healthy increase in sales but the moderate

decline in profit was a result of delayed projects and

the accounting policy to take all anticipated increase

in project costs due to slow progress in some large

infrastructure and industrial projects.

Months Sep-12 Sep-11 % Change

Net Sales 18086.10 17435.26 3.73

PAT 213.70 221.57 (3.55)

EPS 1.01 1.05 (3.55)

EBITDA 673.40 704.18 (4.37)

The company’s net profit decreased to Rs.213.70 million against Rs.221.57 million in the corresponding quarter

ending of previous year, and decrease of 3.55%. Revenue for the quarter rose 3.73% to Rs.18086.10 million from

Rs.17435.26 million, when compared with the prior year period. A reported earnings per share of the company is

at Rs.1.01 a share during the quarter, decrease of 3.55% over previous year period. Profit before interest,

depreciation and tax is Rs.673.40 millions as against Rs.704.18 millions in the corresponding period of the

previous year.

Expenditure :

During the quarter total expenditure cost rose by 4

per cent mainly on account of increase in

Subcontracting Expenses along with consideration

of Other Expenditure. Total expenditure in Q3 CY12

was at Rs. 17662.60 million as against Rs. 17031.40

million in Q3 CY11. Cost of materials consumed &

Purchases of project items is at Rs. 11096.60

millions against Rs. 10745.20 millions in the

corresponding period of the previous year. Other

Expenditure was at Rs. 3278.90 million and

Subcontracting Expenses are Rs. 1179.30 million in

Q3 CY12 are the primarily attributable to growth of

expenditure.

Segment Revenue

Orders Won By ABB Ltd for Q3 CY12

ABB Ltd received orders worth Rs.1679 crore during the quarter ended September 30, 2012, compared to an

order intake of Rs. 2493 crore for the same period last year. Delays in finalization of large orders resulted in an

overall decrease in orders during the quarter. However there was significant increase in orders from

manufacturing, industrial and urban infrastructure sectors.

Latest Updates

• ABB Ltd has won an order worth almost $39 million from PKP Energetyka S.A., the main power supplier to

railway operators in Poland, to deliver rectifier units for DC traction substations. ABB will deliver more than

hundred rectifier units through 2014. Several hundred ABB rectifiers are already in service on the Polish

State Railways’ (PKP) power-feed system.

• ABB has won orders worth over $100 million, to supply converter transformers and components for the

Hami-Zhengzhou ultrahigh-voltage direct current (UHVDC) transmission link.

• CLEVER, a leading electric mobility operator (EMO) in Denmark has chosen ABB as a supplier of 50 Terra 51

DC fast chargers at multiple locations throughout Denmark. ABB’s Terra 51 is specially designed for freeway

driving and is capable of charging an electric vehicle in 30 minutes or less.

• ABB has announced that its subsidiary ABB Finance (Australia) Pty Limited has priced an AUD 400 million 5-

year bond transaction. This transaction is the first domestic Australian bond issued by ABB. The bonds carry

a coupon of 4.25% and will be guaranteed by ABB Ltd, the ultimate holding company of the ABB Group. The

bond is issued off ABB Finance (Australia) Pty Limited’s newly established AUD 1 billion debt issuance

programme.

Company Profile

ABB Group Company was incorporated in India in 1949; it is leader in power automation technologies. These

technologies enable industrial customers to improve performance along with lower environment impact. The

ABB Group has 14 manufacturing units in India. It operates in 100 countries and has employed 1,20,000 people.

In India it has presence across 30 marketing offices, 8 service centers, 3 logistics warehouses and network of 750

channel partners.

The history of ABB goes back to the late nineteenth century, and is a long and illustrious record of innovation and

technological leadership in many industries. Having helped countries all over the world to build, develop and

maintain infrastructures, ABB has in recent years gone over from large-scale solutions to alternative energy and

the advanced products and technologies in power and automation that constitute its Industrial IT offering.

ABB is a global leader in power and automation technologies that enable utility and industry customers to

improve performance while lowering environmental impact. For more than 100 years, ABB and its predecessor

companies have set the pace for innovation in technologies to harvest energy, improve productivity, safeguard

the environment, increase profits, and more. The company modern-day power and automation technologies are

derived from the efforts of dozens of leading companies and thousands of talented individuals worldwide.

Business Area

• Power Products

Power Products are the key components to transmit and distribute electricity. The division incorporates

ABB's manufacturing network for transformers, switchgear, circuit breakers, and cables and associated

equipment. It also offers all the services needed to ensure products' performance and extend their lifespan.

The division is subdivided into three business units.

• Power Systems

Power Systems offers turnkey systems and services for power transmission and distribution grids, and for

power plants. Substations and substation automation systems are key areas. Additional highlights include

flexible alternating current transmission systems (FACTS), high-voltage direct current (HVDC) systems and

network management systems. In power generation, Power Systems offers the instrumentation, control and

electrification of power plants. The division is subdivided into four business units.

• Discrete Automation and Motion

This division provides products, solutions and related services that increase industrial productivity and

energy efficiency. Its motors, generators, drives, programmable logic controllers (PLCs), power electronics

and robotics provide power, motion and control for a wide range of automation applications. The leading

position in wind generators and a growing offering in solar complement the industrial focus, leveraging joint

technology, channels and operations platforms.

• Low Voltage Products

The Low Voltage Products division manufactures low-voltage circuit breakers, switches, and control

products, wiring accessories, enclosures and cable systems to protect people, installations and electronic

equipment from electrical overload. The division further makes KNX systems that integrate and automate a

building's electrical installations, ventilation systems, and security and data communication networks.

• Process Automation

The main focus of this ABB business is to provide customers with products and solutions for instrumentation,

automation and optimization of industrial processes. The industries served include oil and gas, power,

chemicals and pharmaceuticals, pulp and paper, metals and minerals, marine and turbo charging. Key

customer benefits include improved asset productivity and energy savings.

• Robotics:

ABB is a leading supplier of industrial robots - also providing robot software, peripheral equipment, modular

manufacturing cells and service for tasks such as welding, handling, assembly, painting and finishing, picking,

packing, palletizing and machine tending. Key markets include automotive, plastics, metal fabrication,

foundry, electronics, machine tools, pharmaceutical and food and beverage industries. A strong solutions

focus helps manufacturers improve productivity, product quality and worker safety. ABB has installed more

than 160,000 robots worldwide.

Plants Locations

The Company’s plants are located at Bengaluru, Faridabad, Haridwar, Mumbai, Nashik and Vadodara.

Financial Highlight

Balance sheet as at December 31st, 2011

(A*- Actuals, E* -Estimations & Rs. In Millions)

Particulars March (Rs.in.mn) CY11A CY12E CY13E

1.Shareholder’s Funds

a) Capital 423.82 423.82 423.82

b) Reserves & Surplus 24921.35 27045.66 29397.80

Total Net worth 25345.17 27469.48 29821.62

Total Liabilities 25345.17 27469.48 29821.62

1.Fixed Assets

a) Gross block 14619.41 16666.13 18666.06

b) Depreciation 2935.37 3199.55 3391.53

c) Net Block 11684.04 13466.57 15274.54

d) Capital Work in Progress 839.15 965.02 1061.52

Total Fixed Assets 12523.19 14431.60 16336.06

2. Investments 506.98 557.68 602.29

3. Deferred Tax Assets (net) 223.97 257.57 283.32

Current Assets, Loans & Advances (A)

a) Inventories 9255.49 10458.70 11399.99

b) Sundry Debtor 30825.05 31749.80 32384.80

c) Cash & Bank Balance 2643.68 2855.17 2997.93

d) Other Current Assets 3209.55 3370.03 3471.13

e) Loans & Advances 3666.60 3739.93 3777.33

Total Current Assets 49600.37 52173.64 54031.18

Less: Current Liabilities & Provisions (B)

a) Liabilities 35178.83 37294.22 38508.77

b) Provisions 2330.51 2656.78 2922.46

4. Net Current Assets (A-B) 12091.03 12222.64 12599.94

Total Assets( 1+2+3+4) 25345.17 27469.48 29821.62

Annual Profit & Loss Statement for the period of 2010 to 2013E

Value(Rs.in.mn) CY10 CY11 CY12E CY13E

Description 12m 12m 12m 12m

Net Sales 63593.29 74489.71 84918.27 93410.10

Other Income 133.07 161.77 121.33 127.39

Total Income 63726.36 74651.48 85039.60 93537.49

Expenditure -62033.51 -70871.85 -80672.36 -88739.59

Operating Profit 1692.85 3779.63 4367.24 4797.90

Interest -173.93 -306.80 -398.84 -478.61

Gross profit 1518.92 3472.83 3968.40 4319.29

Depreciation -516.61 -795.43 -835.20 -860.26

Profit Before Tax 1002.31 2677.40 3133.20 3459.03

Tax -370.00 -832.04 -1008.89 -1106.89

Net Profit 632.31 1845.36 2124.31 2352.14

Equity capital 423.82 423.82 423.82 423.82

Reserves 23813.21 24921.35 27045.66 29397.80

Face value 2.00 2.00 2.00 2.00

EPS 2.98 8.71 10.02 11.10

Quarterly Profit & Loss Statement for the period of 31st March, 2012 to 31st Dec, 12E

Value(Rs.in.mn) 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12E

Description 3m 3m 3m 3m

Net sales 17903.10 18837.90 18086.10 22426.76

Other income 18.60 14.20 9.50 7.60

Total Income 17921.70 18852.10 18095.60 22434.36

Expenditure -16927.90 -17778.00 -17422.20 -21305.43

Operating profit 993.80 1074.10 673.40 1128.94

Interest -54.00 -76.50 -117.20 -159.39

Gross profit 939.80 997.60 556.20 969.55

Depreciation -223.40 -231.30 -240.30 -168.21

Profit Before Tax 716.40 766.30 315.90 801.34

Tax -240.00 -250.00 -102.20 -260.43

Net Profit 476.40 516.30 213.70 540.90

Equity capital 423.80 423.80 423.80 423.80

Face value 2.00 2.00 2.00 2.00

EPS 2.25 2.44 1.01 2.55

Ratio Analysis

Particulars CY10 CY11 CY12E CY13E

EPS (Rs.) 2.98 8.71 10.02 11.10

EBITDA Margin (%) 2.66% 5.07% 5.14% 5.14%

PBT Margin (%) 1.58% 3.59% 3.69% 3.70%

PAT Margin (%) 0.99% 2.48% 2.50% 2.52%

P/E Ratio (x) 238.62 81.76 71.03 64.15

ROE (%) 2.61% 7.28% 7.73% 7.89%

ROCE (%) 9.12% 18.05% 18.94% 18.97%

EV/EBITDA (x) 85.66 39.22 33.89 30.82

Book Value (Rs.) 114.37 119.60 129.63 140.73

P/BV 6.23 5.95 5.49 5.06

Charts

Outlook and Conclusion

� At the current market price of Rs.712.00, the stock P/E ratio is at 71.03 x CY12E and 64.15 x CY13E

respectively.

� Earning per share (EPS) of the company for the earnings for CY12E and CY13E is seen at Rs.10.02 and

Rs.11.10 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 55% over 2010 to 2013E

respectively.

� On the basis of EV/EBITDA, the stock trades at 33.89 x for CY12E and 30.82 x for CY13E.

� Price to Book Value of the stock is expected to be at 5.49 x and 5.06 x respectively for CY12E and CY13E.

We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth

story in the coming quarters also. We recommend ‘HOLD’ in this particular scrip with a target price of Rs.797.00

for Medium to Long term investment.

Industry Overview

The capital goods industry is the backbone of India’s manufacturing sector. India produces wide range capital

goods, including machinery and machine tools. Some of the prominent capital goods produced in India include

heavy electrical machinery, textile machinery, machine tools, earthmoving and construction equipment including

mining equipment, road construction equipment, material handling equipment, oil & gas exploration equipment,

sugar machinery, food processing and packaging machinery, railway equipment, metal surgical equipment,

cement machinery, rubber machinery, process plants machinery & equipments, paper & pulp machinery,

printing machinery, dairy machinery, industrial refrigeration, industrial furnaces etc. Capacity creation in the

Indian capital goods industry has been growing, since liberalization, and in tune with the growth in industry.

Capital Goods refer to products that are used in the production of other products but are not incorporated into

the new product. These include machine tools, industrial machinery, process plant equipment, construction &

mining equipment, electrical equipment, textile machinery, printing & packaging machinery etc. The Capital

Goods industry is the “mother” of all manufacturing industry and is of strategic importance to the National

security and economic independence.

It is in the interest of the User Sectors that the Capital Goods industry should be strengthened since it is a known

fact that the presence of a strong domestic industry increases competition and helps in reducing the capital cost

of the project and most important, the maintenance of plant and machinery can be done economically. The

imported plants come at the lowest cost but the importers make up for that in their high priced maintenance

contracts & spares. Industrial growth has risen to 8.8 per cent in June. The 8.8 per cent year-on-year rise in the

Index of Industrial Production (IIP) -against 7.5 per cent in June 2010 -was led by manufacturing and, within

that, the capital goods sub-segment.

Manufacturing rose 10 per cent (7.9 per cent in June 2010), with the corresponding year-on-year increases for

the other two major IIP constituents - mining and electricity - amounting to 0.6 per cent (6.9 per cent) and 7.9

per cent (3.5 per cent), respectively.

But the most impressive growth of 37.7 per cent — against 3.7 per cent in June 2010 was registered by capital

goods, which is considered a proxy for investment activity in the economy. This is particularly borne out by

production of ‘electrical machinery & apparatus' and ‘office, accounting & computing machinery', which have

gone up by 88.9 per cent and 19.1 per cent, respectively. On the other hand, consumer spending does not appear

all that robust. Both consumer durables (one per cent in June 2011 against 21.2 per cent in June 2010) and non-

durables (2.1 per cent against 7.5 per cent) were down. Similarly, output of basic goods and goods was up by 7.5

per cent and 1.9 per cent, compared with the June 2010 levels of 3.7 per cent and 8.5 per cent.

It is expected that the industry will foresee an upswing either in the last quarter of the current financial year or

first quarter of next financial year as order inflows have picked up. On the whole, the first quarter has seen

industry grow by 6.8 per cent (against 9.6 per cent during April-June 2010), with these correspondingly working

out to 7.5 per cent (10.3 per cent) for manufacturing, one per cent (eight per cent) for mining, and 8.2 per cent

(5.4 per cent) for electricity.

Planning Commission constituted a Working Group on Capital Goods and Engineering Sector for the 12th

Five Year Plan under the Chairmanship of Secretary, Department of Heavy Industry. Seven sector-wise,

subgroups, namely, machine tools & plastic processing machinery, earth moving and mining equipment, heavy

electrical and power plant equipment, metallurgical machinery, textile machinery, process plant equipment,

engineering goods and dies, molds & tool industry were constituted. The methodology consisted of inviting

information/suggestions from all the stake holders, such as industry associations, centres of excellence and

major PSUs etc. The inputs were deliberated in-depth at various for a, before finalizing the report.

The industry growth during 11th Plan stood is at 14%. The turnover during 2010-11 was Rs 2,67,944 crore.

There is a need for rapid growth of the sector, for which it is proposed to initiate some national programmes.

These in turn will create additional demand. It is also proposed to take steps to substitute imports by domestic

production. This is expected to take the sector to Rs 6,81,000 crores in 2016-17 at a CAGR of 16.8%. The current

employment of 1.4 million is proposed to be boosted through a series of recommendations to reach 2.8 million

by the end of the 12th Five Year Plan. In order to increase technology content in the domestic production, policy

and programme initiatives are proposed for R&D, education and training, technology development, technology

purchase, technology development abroad on contract, technology acquisition, IPR purchase and ownership,

joint technology development and funding for technology up gradation. Some sub-sectors of capital goods in

Indian manufacturing sector are not upto the global standards. It is proposed to provide exposure, facilitation,

technology development support and support for acquisition of technology firms abroad. Some of the PSUs are

proposed to be elevated as national/global champions. Technology and design development support is proposed

to be provided to the capital goods sectors for producing energy efficient machines.

During the past few quarters, the capital goods sector has been bearing the brunt of slowdown in global

economies and sluggish domestic industrial growth. The slowdown in infrastructure as well as key user

industries has strained the industry players with slowdown in order inflow, delay in taking deliveries/execution

of projects, delayed bill payments etc. The near-term outlook for capital goods remains bleak unless and until

some much needed reforms are made in the sector.

Market Dynamics

• Godrej Consumer Products Ltd (GCPL) has re-entry into the air care category with a new brand, 'aer'. The

company had exited the segment in 2010. It was selling air freshener brand, Ambi Pur, through a joint

venture with US-based Sara Lee. The 15-year-old partnership ended in 2010.

• The Department of Heavy Industry has recommended a scheme of worth Rs 2,360 crore for the upliftment of

capital goods industry which will in turn reduce the import dependency.

• Under the proposed scheme, modern industrial parks and technical support will be offered to the capital

goods sector.

• The disbursement of Rs 2,360 crore will be the part of the department's commitment to develop the

industrial base of the country.

• Shoemaker Bata India, is considering to open more than 70 new Bata stores every year and also to renovate

the existing stores, as part of its major expansion strategy. Currently, the country's largest footwear retailer

Bata India enjoys a large share in the organised sector of footwear markets with over 1,250 Bata Shoe stores

located in more than 500 cities across India.

Government Initiatives

• The unveiling of Goods and Services Tax (GST) would make India more competitive both in the local and

international markets, said Union Finance Minister Pranab Mukherjee. He allso said that its will be helpful in

lowering the cascading effect of taxes.

• Mukherjee also stated that GST would offer a stable tax revenue source. The Finance Minister stated that for

the consumer, the biggest advantage of the GST would lower the overall tax burden on goods which presently

varies in the range of almost 25-30%.

• With the aim to enhance international trade, Centre is planning the extend the benefits that e-commerce

platforms in Delhi and Mumbai receive for delivering products outside the country to other areas as well,

according to Lalit B Singhal, Joint Director General of Foreign Trade.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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