ABB Limited (India)’s revenues declined 9.2% yoy to Rs. 14.1 bn in Q1’09 on account of weak order execution.
Net profit of the company was Rs784 million, 33.4% lower than the previous year quarter. This was mainly due to an increase in other expenditures, depreciation charge and interest expenses in Q1’09 vis-à-vis Q1’08.
The postponement of several power projects, particularly by private players in FY08, coupled with ABB’s decision to exit rural electrification projects, had led to a flat growth in order inflows for the power division in FY08 vis-à-vis FY07.
Orders from government utilities had remained strong, thereby offsetting the decline in orders from private players.
Order inflows in Q1’09 increased 83% sequentially, mainly attributable to the finalization of orders from Power Grid Corporation of India.
The inflows in Q1’09 were the second best ever for the company. The current order book of the Company stands at Rs. 70.3 bn, representing 1x of FY08 revenues.
With a peak power deficit of 16% and growing power needs, India has significant scope to increase its generation capacity.
In the medium to long term, we should see robust order inflows for ABB on the back of an increase in government spending in power and other infrastructure related projects.
We have valued ABB by using a combination of the Discounted Cash Flow (DCF) model and the Peer-based Multiple method.
We have assigned subjective weights of 70% to our DCF and 30% to our Peer-based multiple methodologies for calculating the fair value estimate. This valuation model yields a fair value of Rs. 719 per share.
Since, our target price indicates a potential upside of 16.5% from the current market price of Rs617.1, we upgrade our rating from Hold to BUY.