Sell ABB India; target of Rs 1100: JM Financial

JM Financial’s research report on ABB India

We read ABB Indias CY17 annual report and the key takeaways are as follows: a) healthy free cash flow generation continued as FCF yield stood at 1.5%, led by improvement in the NWC cycle, b) gross margins scaled up to 10-year highs, but a 4x jump in outgo to parent/group entities from 1.9% to 7.7% of sales has led to moderate growth in EBITDA/PAT (6%/12% in CY17 and -0.6%/-2.3% CAGR over the last 10 years), c) management indicates an improved outlook due to increased opportunities in transportation (railway modernisation and EV charging infra), energy efficiency, service income, renewables (although margins may be suppressed) and exports, d) return ratios were flat, but cash position improves due to lower NWC and e) contingent liabilities jump 43% YoY to 10% of sales and 23% of capital employed.


The stock trades at expensive valuations of 51x CY18E and 41x CY19E EPS. We maintain our SELL rating with a TP of INR 1,100, based on 35x CY19E EPS of INR 31.6, as we forecast 11%/21% CAGR in sales/earnings over CY17-19E.

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