Sell ABB; target of Rs 1230: Motilal Oswal

Motilal Oswal's research report on ABB

3QCY17 revenue declined 7% YoY to INR 19.2b, missing our estimate of INR 23.1b. Adjusted EBIDTA margin of 5.4% (-40bp YoY) too was below our estimate of 8.5%. Adjusting for forex gain of INR300m, EBITDA declined 12% YoY to INR 1.0b, below our estimate of INR 2.0b. EBIDTA was impacted by negative operating leverage during the quarter. PAT of INR 0.5b too missed our estimate of INR 0.9b.

Outlook

Management is optimistic on the demand scenario, driven by government capex. It remains focused on margin expansion via its efforts toward operational efficiency and localization. We cut our estimates for CY17/18 by 10/9% to factor in weak execution led by GST transition issue and margin compression. We maintain our Sell rating, given premium valuations with a price target of INR 1,230 (35x Dec’19 EPS of INR35).

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