ABB Limited’s (India) net sales for Q2’08 increased by 15.4% y-o-y to Rs16.2 billion. The revenue growth was slow consecutively for the second quarter in FY08 in comparison to the consistent revenue growth rate in excess of 28% y-o-y over the last eight quarters.
However, effective cost management mitigated the effects of the slow growth in sales and also the impact of higher commodity prices on the net profit. As a result, adjusted earnings grew by 19.7% y-o-y to Rs6.13 per share.
ABB has secured three new orders worth Rs10.6 billion in the months of July and August 2008, translating the order book to Rs78.4 billion, 1.3x of its FY07 revenues, which is the highest during the last seven quarters.
Despite the expected slowdown in the Indian economy caused by high inflation rates, rising energy costs, higher commodity prices, and interest rates, we do not expect steep deceleration in ABB’s business on the back of Power Grid Corporation of India Limited (PGCIL)’s expected orders of around Rs160 billion, new planned capacities, and the company’s arrangement of new revenue streams.
ABB’s stock is currently trading at 50% of its 52-week high. Our DCF-based fair value estimate of Rs1,001 provides an upside of 15.3% to the current market price of Rs868. ABB’s stock has corrected significantly in the past few months and is expected to provide good returns from current levels. We reiterate BUY rating.