ABB India posted weaker-than-expected Q1CY20 results on worse-than-expected impact
on revenues from the Covid-19 lockdown. Revenues were down 17.7% YoY, led by a 14-
24% decline in its key segments leading to overall weak numbers.
Order growth was also affected and stood at 10% YoY, thus leaving Rs44.4bn as order
backlog which is 0.65x of CY20E revenues. Challenging ordering environment ahead
makes us now even more skeptical of medium-term growth prospects for the company.
While ABB has a strong competitive positioning in its industrial footprint, it has been
vulnerable to business cyclicality, and macro headwinds and capex problems in the postCovid environment will get further accentuated across sectors, in our view.
We continue to value ABB on DCF, assigning a TP of Rs766 (~36x CY21E P/E) from
Rs791 earlier, and implies ~11% downside despite the recent correction. We prefer L&T
and Cummins India over ABB in this environment.
Worse-than-expected impact from lockdown on revenues; uncertainty on near-term
trajectory: While we had estimated a 5% revenue decline in Q1 due to lockdown, the fact
that bulk of the sales in March happens during the last fortnight led to a worse-than-anticipated
impact, with revenues falling 12% YoY. Further to this, the month of May has also been a
washout unlike our earlier assumption, thus driving a further cut in our CY20E EPS.
ABB has a short execution cycle for its EP and Motion business segments and thus depends
on order inflow within the year for growth. Current order backlog is down to Rs44.4bn (0.65x
of CY20E revenues), and given the disruption, we expect moderate- to severe medium-term
impact on ABB’s growth. Our CY20/21E EPS is thus down a further 7-24% despite building
in a modest recovery starting from H2CY20.
Overall, we expect ABB to post revenue/PBT CAGR of 7%/10% over CY19-22E.
Trading at 40x CY21E P/E, ABB is the most expensive stock in our coverage: Over the
years, investors have been ascribing super-normal valuations to ABB India (and Siemens).
We believe that investors remain anchored to a hope of recovery in industrial capex driven by
capex-intensive sectors such as power, metals and hydrocarbons just like in the 2004-11
upcycle. In our view, even pre-Covid this was an unrealistic ask and gets further pushed back
now.
At CMP, the stock trades at 40x CY21E EPS and remains the most expensive stock in our
ECG coverage universe. We maintain Sell rating with a revised TP of Rs766. Key upside risk
to our call is a sharp capex revival. We are UW on the stock in our sector EAP.
