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NRI
ABB India Ltd>
  • CMP : 8,458.1 Chg : 303.40 (3.72%)
  • Target : 3,735.0 (21.27%)
  • Target Period : 12-18 Month

14 Feb 2023

Strong business momentum…

About The Stock

ABB India (ABB) is a leader in technology solutions connecting software to its electrification, robotics, automation and motion portfolio.

  • It operates in mainly three key segments including robotics & motion (41%), electrification (38%), industrial/ process automation (22%)
  • Well placed to gain from the overall energy market transformation from electrification to automation & digitisation
Q4CY22

ABB reported a strong performance in Q4CY22*.

  • Revenue at ₹ 2426.9 crore, grew by 15.5% YoY, owing to better execution and value added volume mix
  • EBITDA came in at ₹ 364.3 crore with margins of 15%. Strong margin growth was revenue mix, operational efficiencies coupled with cost optimization and favourable forex fluctuation
  • Hence, PAT came in at ₹ 305.9 crore, grew by 58% YoY
  • Order inflows for Q4CY22 came at ~₹ 2335 crore, up 4% YoY
What should Investors do?

Overall, further penetration of automation & digitisation products and services across segments to drive long term growth.

  • We remain long term positive and retain our BUY rating on the stock
Target Price and Valuation

We value ABB at ₹ 3735 (65x on CY24E EPS).

Key Triggers for future price performance
  • It expects operating margins to improve with increase in capacity utilisation, change in revenue mix, cost optimisation programmes and localisation
  • ABB continues to see a recovery in certain segments and industries like data centre, renewables, electronics, food & beverages and pharma. It continues to focus on order win and seamless execution across projects
  • Expect revenue, EBITDA to grow at CAGR of ~18.5%, 26.7%, respectively, in CY21-24E due to strong traction in short cycle products and services
Alternate Stock Idea

We also like Siemens Ltd in our coverage.

  • Further penetration of valued added automation and digitisation products & services across segments to drive margins, long term growth

 

  • BUY with a target price of ₹ 3630

Key Financial Summary

Particulars CY19 CY20 CY21 5 Year CAGR % (CY17-CY22E) CY22 CY23E CY24E 3 Year CAGR % (CY21-CY24E)
Net Sales 7,315.1 5,821.0 7,087.6 7.6 8,793.2 10,130.2 11,789.7 18.5
EBITDA 531.2 275.9 734.7 - 1,187.6 1,194.8 1,494.1 26.7
RoCE (%) 27.5 18.6 54.2 - 67.1 48.0 55.6 -
RoE (%) 10.0 4.8 13.7 - 17.9 15.0 15.9 -
Source: Company, ICICI Direct Research

  Q4CY22 Q4CY22E Q4CY21 YoY (%) Q3CY22 QoQ (%)   Comments
Revenue 2,426.9 2,576.7 2,101.5 15.5 2,119.7 14.5    
Other Income 70.0 32.3 59.9 16.8 46.9 49.3    
Total Revenue 2,496.9 2,648.9 2,161.4 15.5 2,166.6 15.2    
Raw material cost 1,292.8   1,108.2 16.6 1,210.4 6.8    
Purchase of traded goods 182.6   197.4 -7.5 162.7 12.2    
Changes in inventory 13.0   56.4   -56.0      
Sub-contract & direct exp 63.0   66.7 -5.5 64.8 -2.8    
Employee Expenses 158.5   151.3 4.7 156.1 1.6    
Other expenses 352.8   336.1 4.9 370.8 -4.9    
Operating Profit (EBITDA) 364.3 259.3 185.2 96.7 211.0 72.7    
EBITDA Margins 15.0% 9.9% 8.8% 620 bps 10.0% 506 bps   Strong margin growth was revenue mix, operational efficiencies coupled with cost optimization and favourable forex fluctuation
Interest 7.2 15.1 3.9 86.1 1.6 364.1    
Depreciation 26.8   22.7 18.0 26.9 -0.2    
Total Tax 94.3   71.7 31.5 72.8 29.5    
Extraordinary items -0.6   -5.4   -4.9      
PAT 305.9 182.4 193.6 58.0 202.5 51.1    
                 
Segment-wise Q4CY22 % cont Q4CY21 YoY (%) Q3CY22 QoQ (%)    
Revenue                
Robotics and Motion 998.1 41.1% 814.3 22.6 939.8 6.2    
Electrification Products 950 39.1% 849.3 11.9 881 7.8    
Industrial Automation 511 21.0% 470.8 8.5 350 46.0    
Total 2426.9 100.0% 2101.5 15.5 2119.7 14.5    
EBIT Margin                
Robotics and Motion 16.1%   13.0%   10.7%      
Electrification Products 15.3%   12.8%   14.5%      
Industrial Automation 17.6%   8.7%   10.0%      

 

Q4CY22 Results: Positive performance continues...

  • ABB reported revenue at | 2426.9 crore (Vs our estimate of | 2576.7 crores) which grew by 15.5% on YoY basis on strong order execution. Robotics & Motion segment grew by 22.6% on YoY basis to | 998.1 crore; Electrification segment grew by 11.9% on YoY basis to | 950 crore while Industrial Automation segment revenue grew by 8.5% YoY to | 511 crore. Robotics & Motion, Electrification, Industrial Automation segments contributed ~41.1%, ~39.1%, 21%, respectively.
  • EBITDA came in at | 364 crore (Vs our estimate of | 259.3 crores) with EBITDA margin of 15% (our estimate was 9.9%) (Vs. 8.8% in Q4CY21), while gross margins came at 38.7% expanded by 350bps YoY. Robotics & Motion reported EBIT Margin of 16.1% (Vs. 13% in Q4CY21), Electrification EBIT margin stood at 15.3% (Vs. 12.8% in Q4CY21) while Industrial Automation EBIT margin at 17.6% Vs 8.7%, YoY.
    • Adjusted PAT came in at | 305.9 crore (Vs our estimate of | 182.4 crores), grew by 58% YoY aided by strong operational performance.
    • Order inflows came at | 2335 crore, grew by 4.1% YoY basis, and for CY22 it came at | 10028 crores vs | 7666 crores in CY21 which grew by 31% YoY. The order backlog as of Q4CY22 stood at | 6468 crore, which was up by 32%, YoY. The growth during the quarter (Q4 CY2022) was led by large value orders in industrial solutions and segments like data centers in Electrification. In Motion, better penetration in segments like railways, metals, rubber and food and beverage and enhanced presence tier 1 and 2 cities spurred growth. Process Automation held steady with opportunities from paint industry and energy companies. Robotics received significant traction in paint orders from automotive and auto component companies.

 

Q4CY22 Earnings Conference Call highlights

  • Seamless execution of a solid order backlog, complemented by higher revenue from export and services and focused supply chain actions contributed to the revenue growth during the quarter and the year. ABB India achieved a significant milestone in order inflow by reaching | 10,028 crore in CY22 and | 2,335 crore for Q4CY22 which grew by 31% and 4.1% respectively. The order backlog as of Q4CY22 stood at | 6,468 crore, which was up by 32%, YoY which provides revenue visibility and is well aligned to support growth plans in the coming quarters.

 

  • Management targets strategic acquisition of ~|2000 crores – ABB has strong cash balance of |3,600 crores in their books ABB will go for small and medium size investments and acquisitions which will be in the segments like process automation, robotics automation, electrification, motion. 

 

  • Electrification: Electrification: Order inflows were grown by 13% CAGR in last 5 quarters backed by high growth segments. Efficient supply chain management enabled uninterrupted operations with strong backlog execution. Order backlog increased by 20% YoY to |1583 crores. From a PBT prospective with better product mix, volume and improved price realizations.  

 

  • Motion: Order inflow growth driven by traction convertors and large motors orders also from high value order win from Railways. Revenue grew by 23% of CAGR for last 5 quarters. Export market allocation leading to enhanced growth in large motor business, recovery of traction converter business and higher penetration to Tier I & II cities. Stronger execution resulting in improvement in products and service sales. Order backlog increased by 52% YoY to |2645 crores.
    • Process industries: this is a real turnaround year for process automation. Solid growth in orders on a YoY basis and also on the revenues with backlog at |2,645 crores, a 52% increase and a good traction in terms of profitability and its more because efficient project execution and a very good share of services is driving the profitability of PA.
    • Robotics & discrete automation: Orders in automotive segments witnessed significant uptick with CAGR of 213% in last 5 quarters with higher service orders and Electronics market looking to gain momentum. Order backlog |211 crores with 60% growth on YoY basis. In their revenues higher contribution comes from service segment with better margins from automotive and service.  
    • Strong 15% EBITDA margin is the result of 4-5 years of adoption of different strategies like rejigged product portfolio. Management is confident that ABB India will continue to execute with the same pace going forward.
    • Business outlook: Orders identified as a high focus growth segments are Electronics, railways & metros, data centre, warehouse & logistics, renewables. Water & waste water, F&B, pharma & healthcare, automotive, etc. this will provide moderate growth and Power distribution, oil & gas and chemicals, metals & mining, buildings & infra, cement, rubber & plastics, textile, marine & ports, pulp & paper, etc. will provide moderate-low growth to the company.

 

Disclaimer

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