Sell ABB India, target price Rs 755: HDFC Securities
The brokerage sees a challenging second quarter in CY20 and slow ramp-up for the second half of CY20.
HDFC Securities has given a sell rating to ABB India with a target price of Rs 755/share based on 42 times Mar22E EPS. The ABB business model is highly sensitive to operating leverage as Rs 3.2 billion revenue shortfall (for 10 days of disruption in March 2020) led to sharp erosion in profitability (Rs 1.1 billion contribution shortfall) with Rev/EBIDTA/APAT de-growing 18/90/90 per cent year on year.
We expect weaker performance in the second quarter of CY20 with 1.5months of loss of operations. ABB 1QCY20 commentary signalled that it remains well geared to serve clients only if there is demand pick up. Muted Public/private capex remains a key headwind. The share price moved up by 0.33 per cent from its previous close of Rs 836.10. The last traded stock price is Rs 838.85. Incorporated in 1949, ABB India has a market cap of Rs 17800.30 crore.
Investment Rationale
ABB business model remains highly sensitive to demand outlook. The brokerage sees a challenging second quarter in CY20 and slow ramp-up for the second half of CY20. With clients conserving capital and global growth outlook bleak, capex headwinds remain. The brokerage has cut CY20E EPS estimate by 72 per cent. The headwinds are not fully priced in current rich valuations. The brokerage maintains sell on ABB om key risks of (1) accelerated government capex recovery; (2) Pickup in private investments, and (3) Rupee appreciation.
Financials
For the quarter ended September 30, 2019, the company reported consolidated sales of Rs 1723.76 crore, up .89 per cent from last quarter sales of Rs 1708.58 crore and unchanged .00 per cent from last year same quarter sales of Rs crore. The company reported net profit after tax of Rs 135.28 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 75 per cent stake in the company as of December 31, 2019, while FIIs held 3.31 per cent, DIIs 11.61 per cent and public and others 10.08 per cent.
We expect weaker performance in the second quarter of CY20 with 1.5months of loss of operations. ABB 1QCY20 commentary signalled that it remains well geared to serve clients only if there is demand pick up. Muted Public/private capex remains a key headwind. The share price moved up by 0.33 per cent from its previous close of Rs 836.10. The last traded stock price is Rs 838.85. Incorporated in 1949, ABB India has a market cap of Rs 17800.30 crore.
Investment Rationale
ABB business model remains highly sensitive to demand outlook. The brokerage sees a challenging second quarter in CY20 and slow ramp-up for the second half of CY20. With clients conserving capital and global growth outlook bleak, capex headwinds remain. The brokerage has cut CY20E EPS estimate by 72 per cent. The headwinds are not fully priced in current rich valuations. The brokerage maintains sell on ABB om key risks of (1) accelerated government capex recovery; (2) Pickup in private investments, and (3) Rupee appreciation.
Financials
For the quarter ended September 30, 2019, the company reported consolidated sales of Rs 1723.76 crore, up .89 per cent from last quarter sales of Rs 1708.58 crore and unchanged .00 per cent from last year same quarter sales of Rs crore. The company reported net profit after tax of Rs 135.28 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 75 per cent stake in the company as of December 31, 2019, while FIIs held 3.31 per cent, DIIs 11.61 per cent and public and others 10.08 per cent.