BSE CODE -500002 NSE CODE-ABB

CMP: 478.45

Target: 676.12

BUY

Abhimanyu Mishra +91-9424770622 Abhi.mishra2190@gmail.com

Investment Rationale Strong track record spanning two decades with quality certifications in power and productivity enable the company to pre-qualify and also garner repeat orders from large clients like the Agra,North East Project , Delhi Metro Tata Plant , and several state governments. Healthy order book of Rs 2045 Cr. FY013E sales 7995.03) which is to be executed within 2830 months, signifying strong revenue visibility. Orders largely comprise Power Grid, Automation, Power circuit & Low voltage product projects. Foray into realty development through 100% owned subsidiary. Increasing capex on equipment will raise operating efficiency by reducing sub-contracting expenses and equipment hire charges. This efficiency will enable the company to sustain its operating margin above 7% in spite of increased raw material costs. Strong balance sheet and joint venture partnerships allow the company to bid and pre-qualify for big-ticket projects.

PARTICULAR MARKET CAP(RS/$) OUTSTANDING EQUITY SHARE 52-Week high/low 3- month Average daily volume

106.617/579.572 3996 893.65/482.60 648.4

PARTICULAR Sales Growth (%) FDEPS (Rs) P/E (x) ROE (%) FY 12 7875.5 2 31.7 122.30 14 FY 13E 7995.03 1.5 41.0 33.97 13 FY 14E 8465.76 5.9 60.6 78.14 12

Key concerns Delay in project execution may affect financials, while a rise in raw material cost hikes also pose risks. % PROMOTER FIIs BANK & FIS PUBLIC Dec-12 75 3.35 11.34 25 Dec-13 75 3.35 11.34 25

Valuation Using the FCFE approach, we have a target price of Rs 877.8 for the stock .

RETURNS ABB LTD NIFTY

CMP 478.45 5688.70

1 mth -13.13 -2.50

3 mth -29-91 -5.20

6 mth -37.99 .70

Extensive Experience in diverse area of Power & automation Technologies.

Company Overview ABB (www.abb.com) is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 130,000 people. ABB operations in India include 12 manufacturing facilities with over 10,355 employees. Customers are served through an extensive countrywide presence with more than 23 marketing offices, 8 service centers, 3 logistics warehouses, 2 Power & Automation Engineering Centers and a network of over 550 channel partners. The ABB Group is increasingly leveraging the Indian operations for projects, products, services, engineering and R&D. ABBs power generation business was globally transferred into the new 50-50 JV with Alstom in 1999. In India the power generation business has been demerged and transferred to ABB Alstom Power India Ltd. with effect from 1st April 1999. In consideration of the transfer of the power business, each shareholder of ABB has been allotted one share in ABB Alstom Power India Ltd. for every share held in the company.

Business Segment

ABB Ltd.

Power Products

Power System

Automation & Motion

Low Voltage Product

Process Automation

ABB Ltd. Presence in India.

Mumbai

Bangalore

Vadodara

Nashik

Power Products
The product offering across voltage levels includes circuit breakers, switchgear, capacitors, instrument transformers, ormers, power distribution and traction transformers, as well as a complete range of medium voltage products. Key Project Completed Electrification solutions for metros Location Delhi and Bangalore

Power System
Turnkey solutions for traditional and renewable energy based power generation plants, transmission grids and distribution networks. These solutions play a key role in the optimization of electricity generation and the evolution of more flexible, reliable and smarter grids. Key Project Completed Distribution automation solution Location Delhi airport new terminal 3

Automation & Motion

Motors, generators, drives, mechanical power transmission, robotics, PLCs, wind converters, solar inverters, voltage regulators, rectifiers, ifiers, UPS systems, excitation systems, traction converters, fast DC chargers. Key Project Completed Robotics painting solution Location Tata Motors

Low Voltage Product

Products and solutions suitable for multiple electrical applications from residential home automation to industrial buildings, including low-voltage circuit breakers, switches, control products, wiring accessories, enclosures and cable systems designed to ensure safety and reliability.

Process Automation
Products, systems and services designed to optimize the productivity of industrial processes. Solutions include turnkey engineering, control systems, measurement products, life cycle services, outsourced maintenance and industry specific products (e.g., electric propulsion for ships, mine hoists, turbochargers and pulp testing equipment). Key Project Completed Automation solutions for steel plants in India Location Tata Steel

Investment Rationale
The Company has been making investments critical to sustained growth, setting up manufacturing lines, training centers and introducing new products in the market. A new semi-automated line of miniature circuit breakers (MCB) with an annual production capacity of 10 million poles was set up at the Nelamangala facility near Bangalore. Safe Link CB, a new compact secondary SF6 gas insulated outdoor Ring Main Unit (RMU) for secondary 12 kV distribution networks, was designed, developed and manufactured at Nasik. ABB launched MoCon Robust, a new range of crane drives for the industry segment that operate at a very high ambient temperature and dusty environments. Symphony TM Plus, the new generation of ABBs total plant automation for power and water industries and a state-of-the-art DCS550 drive were also launched last year. A new high voltage power products training center has been established in Vadodara. This training centre has started its operations with a pilot batch of ten ITI apprentices undergoing the Swiss Vocational Education & Training project (SVET) program.

Orders
The company received orders worth Rs.2,045 crores during the quarter ended June 30, 2012, compared with an order intake of Rs.1,792 crores for the same period last year, thereby registering a growth of 14%. While businesses catering to the power sector continued to reflect growth, a not so positive investment climate affected the automation businesses. The company received significant orders in areas such as renewables, projects to optimize energy efficiency in industries and power infrastructure..

Segment Wise Order Book

Revenue recorded in Power Product segment is up by 1%

Power product segment Summarized performance: 2012 Orders Order backlog Revenues Result
1977 2040 2085 138

2011
2257 2088 2001 100

Power Systems (PS) segment Summarized performance: 2012 2011 1750 3204 Orders Order backlog Revenues Result
4567 2242 (14) 5009 2362 (1)

Discrete Automation and Motion (DM) 2012 Orders Order backlog Revenues Result
1953 1445 1775 196

2011
1962 1254 1799 207

Low Voltage Products (LP) Orders Order backlog Revenues Result 2012 690 203 617 40 2011 565 123 540 34

Process Automation (PA) Orders Order backlog Revenues Result 2012 1053 1240 1357 (15) 2011 1145 1548 1322 38

Investment Rationale

The Company has been making investments critical to sustained growth, setting up manufacturing lines, training centers and introducing new products in the market. A new semi-automated line of miniature circuit breakers (MCB) with an annual production capacity of 10 million poles was set up at the Nelamangala facility near Bangalore. Safe Link CB, a new compact secondary SF6 gas insulated outdoor Ring Main Unit (RMU) for secondary 12 kV distribution networks, was designed, developed and manufactured at Nasik. ABB launched MoCon Robust, a new range of crane drives for the industry segment that operate at a very high ambient temperature and dusty environments. Symphony TM Plus, the new generation of ABBs total plant automation for power and water industries and a stateof-the-art DCS550 drive were also launched last year. A new high voltage power products training center has been established in Vadodara. This training centre has started its operations with a pilot batch of ten ITI apprentices undergoing the Swiss Vocational Education & Training project (SVET) program.

Orders
The Company secured orders valued Rs 6,966 crore in 2012 as against Rs 8,189 crore in the previous year. The decline in orders in the current year was mainly attributable to delayed decisions on a few large projects unlike in the last year wherein the Company had secured couple of landmark largeorders like HVDC project from Power Grid Corporation of India Limited for nearly Rs 600 crore and 765 kV substation order from Isolux for nearly Rs 800 crore. The base orders continued to be stable in a challenging market environment. The order backlog at the end of the year stood at Rs 8,672 crore which continued to give more visibility to the future revenue streams. The revenues for the Company for the year 2012 stood at Rs 7,565 crore as against Rs 7,449 crore in the previous year, reflecting stability of operations in an uncertain market situation. Profit before tax was at Rs 206 crore in 2012 as compared to Rs 268 crore in the previous year. Additional costs required executing the orders due to inordinate time delays in the infrastructure projects, unfavorable foreign exchange impact due to rupee volatility and higher interest costs resulted in lower profitability for the Company. Net profit after tax stood at Rs 137 crore for the current year as compared to Rs 185 crore in the previous year. Consequently the earnings per share for 2012 stood at Rs 6.48 per share as compared to Rs 8.71 in 2011. During the year, the Company received export orders worth Rs 903 crores reflecting growth of 2% over previous year. The export revenues during the year were Rs 942 crores, reflecting a growth of 8% over previous year. Orders were higher in Low Voltage products segment and Power Products segment.

Order Order backlog Revenues Profit before tax Net profit Earning per share

2012 6966 8672 7565 206 137 6.48

2011 8189 9129 7449 268 185 8.71

Major project orders booked during 2012 included: Turnkey solution including solar panels, inverters and switchgear for 2x25 MW Solar Power Plant from Megha Engineering, for Mahagenco Electrical balance of plant (eBoP) solution for 2x350 MW Thermal Power Plant from Edac Engineering, for KVK Nilanchal and for 2x300 MW Thermal Power Plant Phase-1 for Cethal Vessels, for SKS Ispat and Power Design, supply, installation and commissioning of essential power infrastructure for Stage-1 of the East-West corridor of Jaipur Metro Rapid Transportation System Export order from Ceylon Electricity Board for 132/33 kV substation at Galle, Sri Lanka

Current Book Order ABB Ltd. Currently booked an order worth more than $900 million from Power Grid Corporation of India Ltd., to deliver an ultrahigh-voltage direct current (UHVDC) transmission system. The link will supply hydropower from mountainous northeast India to the populous region of Agra in central India, 1,700 kilometers away.

Order backlog The companys order backlog stood at Rs.9,175 crores at the end of June 30, 2012 as against Rs.8,415 crores for the corresponding period in 2011. With a strong order backlog, revenues of the company for the coming quarters remain secured. Strong order inflows The firm posted net profit of 221.6 million rupees in the September quarter, a 93 percent jump, but it was much less than the consensus estimates of 564 million rupees, estimated by Reuters poll of 12 brokerages. It posted a 29 percent rise in its net sales to 17.26 billion rupees beating a Reuters poll estimate of 16.52 billion rupees. Strong track record makes ABB ltd. for project wins The state-of-the-art facility in Vadodara was a Greenfield development and commissioned in 1999. Since the start-up phase, the factory has demonstrated consistently good product performance. To date, it has supplied 35 power and traction transformers of varying capacity and complexity to major Indian utilities and industry. These include Punjab State Electricity Board (PSEB), Gujarat Electricity Board (GEB), Bhakra Beas Management Board (BBMB), Hindalco and the / Railways. As a result of its high-quality product output, it has recently been able to export transformers to the USA and Bangladesh and has also booked a major order from Syria. Ability to take on big-ticket projects ABB also reinforced its decision to designate India as its global sourcing base for 72.5 kV high voltage circuit breakers from Vadodara. In addition, the factory in Nashik will globally be responsible for 33 kV and 11 kV medium voltage outdoor live tank circuit breakers and magnetic actuators. This decision is in line with ABB's philosophy of global optimisation and sourcing. It is designed to better serve customers in India and abroad and also gives the company benefits from economies of scale.

Some significant projects and orders

Turnkey solution including solar panels, inverters and switchgear for 2x25 MW Solar Power Plant from Megha Engineering, for Mahagenco Export order from Ceylon Electricity Board for 132/33 kV substation at Galle, Sri Lanka eBoP solution 400/220 kV gas-insulated switchgear (GIS) at Navsari 765/400 kV substation at Agra and Wardha Traction electrification, power supply, power distribution and SCADA system for the Mumbai Metro Fourteen 500 megavolt ampere (MVA), single-phase 765 kV class auto transformers from PGCIL Jabalpur substation 765 kV circuit breaker and instrument transformer order from LandT for JP project Solar inverters from Megha Engineering and under KREDL, REC and Gujarat solar schemes.

North-East Agra
ABB has been selected by Powergrid Corporation of India Ltd. to deliver the worlds first multi-terminal UHVDC transmission link, worth $ 900 million. The link is called the 800 kV, 6,000 MW HVDC Multi Terminal NER/ER - NR/WR Interconnector I Project (NEA800 in short and also known as North East - Agra HVDC). The link comprises four terminals located at three converter stations with a 33% continuous overload rating and the power transmission system will thus have the possibility to convert 8,000 MW which is the largest HVDC transmission ever built.

City North-East Agra

Length 1728(km)

Period 2015

ABB will execute the project together with its partner Bharat Heavy Electricals Ltd. (BHEL), who will deliver the remainder of the contract, which is worth more than $1.1 billion in total. The partners have a turnkey responsibility for execution, including system engineering, design, supply and installation of three HVDC converter stations. The first stage of the system is scheduled to be operational in 2014 and the second stage in 2015. The North Eastern region of India has an abundance of hydro power resources, approximately 65 000 MW. The resources are scattered over a large area, whereas load centers are located several hundreds and even thousands of kilometers away. The power has to pass through the so called "chicken neck area"; a very narrow patch of land (22 km width x 18 km of length) in the state of West Bengal having borders with Nepal on one side and Bangladesh on the other side. During the year under review, your Company acquired 18,45,763 Non Participating Redeemable Preference Shares of Rs 10/- each of Baldor Electric India Private Limited, for a consideration of Rs 1.85 crore. The Consolidated Accounts have been prepared in accordance with the prescribed Accounting Standards and in line with the general exemption granted by Ministry of Corporate Affairs.

Acquired Baldor Pvt.Ltd. in 1.85 crore.

The country has an installed power generation capacity of around 200,000 megawatts (MW) and according to estimates of the International Energy Agency, India needs to invest more than $135 billion to add between 600 and 1,200 gigawatt (GW) of additional new power generation capacity by 2050 to provide universal access to electricity for its population.

Order to strengthen Western Indias power grid of Rs.175 Cr.

The substations will include seventeen 400 kilovolt (kV) bays and fourteen 132 kV bays in Solapur, and twelve 400kV bays and eight 132kV bays in Mauda. ABBs turnkey project scope comprises the design, engineering, supply, installation, commissioning and associated civil works for the substations. The project is scheduled for completion in 2016. Substations are key installations in the power grid that transform voltage levels and facilitate the safe and efficient transmission and distribution of electricity. They include equipment that protects and controls the flow of electrical power. ABB is the worlds leading supplier of turnkey air-insulated, gas-insulated and hybrid substations with voltage levels up to 1,100 kV. ABB, the leading power and automation technology group, has recently commissioned three 765 kV substations for Powergrid Corporation of India Limited (PGCIL). The substations are located in Wardha,Seoni and Bilaspur in the Indian states of Maharashtra, Madhya Pradesh and Chhattisgarh, respectively.

ABB commissions 765 kV substations in India

The projects form part of PGCILs plans for building a strong national grid by 2012. From the current inter-regional power flow capacity of 27950 MW, the utility aims to take the capacity up to , 80000 MW through four main regional transmission grids. An extensive 800 kV extra high voltage (EHV) network will form the backbone of this network. ABB executed the project on a turnkey basis with end-to-end power equipment supply and project management. The overall project scope comprised the design, engineering, manufacturing, testing, erection and commissioning of the 765 kV and 400 kV switchyards, including civil works.

 Huge installed customer base with long term contracts 2. Superior brand value has helped it in cross selling and gave a lot of aftermarket sale opportunities 3. ABB has resources all over the world and is geographically well spread 4. Significant portion of its revenue is from emerging markets which have a increasing demand for infrastructure

1.The management has a history of overpaying for acquisitions and not delivering synergies on previous deals 2.On the back of shortage of liquidity, the margin is not improving in the shorter term 3. Bad debts and Financial difficulties with customers have increased the debtor's provisions affecting profit

Strength

Weakness

Opportunity

Threat

1. Government initiatives in the infrastructure space will augment overall demand for power industry 2. It is financially strong with huge cash flows which will help in acquisitions, buybacks and dividends 3. Increase in demand for smart grids increase demand for any companies that manufacture, supply or build smart grid infrastructure

A bad outlook of the economy will affect the cash flows and growth of the economy 2. Governments are under pressure for cutting down the costs, which may slow down replacement sales and put overall sales at risk

Financial Outlook
Expect revenue CAGR of 19.20% over FY12-FY19 We expect ABB Ltd. revenues to grow at a 19.20% CAGR over FY12-FY19 FY12 to Rs 7995.03 Cr. driven by strong order momentum in all Segments. The company has witnessed continuous order accretion over the past year, the most recent being projects worth.

Revenues to grow at 19.20% CAGR over FY12 FY12-

Margins to hold above 7%

We expect the operating margin for the next 7 years to be in the range of 7% 7.2% as compared to 3%-4% in earlier years. The margin would remain range bound at these levels owing to the sharp rise in raw material costs. Volumes to drive PAT CAGR of We expect Unity to report a 43.5% CAGR in PAT to Rs 1.1bn in FY10.The increase in profit is likely to come from volume growth and stable margins. Higher capex will increase depreciation charges, but this will be offset by operating efficiencies and declining sub-contracting expenses.

Valuation
Peer comparison Company BHEL Siemens ABB Order book/sales 281.99 2.0286 24.602 EBITDA Margin (%) 23.4 10.9 52 M/Cap/sales 0.908 1.378 1.387 P/Bv(x) 1.721 4.489 3.927 FY13E P/E (x) 36.28 41.22 FY14E P/E (x) -

Target of Rs 531.10 represents upside of 18.18%; Buy

FCFE target of Rs 531.10; Buy We have an FCFE target price of Rs 531.10 for the company, at which the stock would trade at 17.8x on FY13E EPS.We initiate coverage on ABB Ltd. with a Buy and a target price of Rs 531.10 an upside of 18.18% % from current levels. Stock performance

10000

7564.99

7919.98

8386.30

8991.17

1000

336.49 137.41

596.029 380.10

631.12 402.48

676.64 431.51 Operating profit Net Income Sales

100

10

1 2012 2013 E 2014 E 2015 E

EBITA MARGIN (%)

900 800 700 600 500 400 300 200 100 0 2012 2013 E 2014 E 2015 E 343.54 EBITA MARGIN (%) 676.42 716.24 767.90

Initial risk profile of supplier

LOW 3% MEDIUM 23% EXT.HIGH. 32%

HIGH 42%

Consolidated financials PROFIT & LOSS STATEMENT

(Rs mn) REVENUE GROWTH (%) EBITDA GROWTH (%) DEPRICIATION EBIT GROWTH (%) INTREST OTHER INCOME EBT INCOME TAX EFFECTIVE TAX RATE (%) EXTRA ORDINARY ITEM REPORTED NET INCOME GROWTH(%) SHARE OUTSTANDING BASIC EPS (RS) FDEPS (RS) DPS (RS)

FY12 7,610.48 3 348.84 -11% 94.17 211.43 -21% 43.24 7.26 348.84 70.49 -19% 0 140.94 -24% 3996 6.65 -2863.808 0.0299989

FY13E 8,010.40 5 547.40 57% 72.08 424.66 101% 50.649225 97.60 547.40 138.64 97% 2.01 288.03 104% 3996 13.59 -6683.499 0.0463952

FY14E 8,588.17 7 586.88 7% 77.28 455.29 7% 54.302366 104.64 586.88 148.64 7% 2.15 308.80 7% 3996 14.57 -7708.569 0.0497415

FY15E 9,207.60 7 629.21 7% 82.86 488.13 7% 58.218994 112.18 629.21 159.36 7% 2.31 331.07 7% 3996 15.62 -8888.73 0.0533292

BALANCE SHEET STATEMENT

Rs (mn) FY12 CASH AND CASH EQ 76.67 ACCOUNT RECEIVABLE 3,264.38 INVENTORY 920.4 OTHERS CURRENT ASSEST CURRENT ASSEST 4,261.45 LONG-TERM INVESTMENT 52.47 NET FIXED ASSESTS 1,207.34 CWIP 117.01 INTANGIBLE ASSEST TOTAL ASSEST 2,925.73 ACCOUNT PAYABLE OTHERS CURRENT LIABILITIES 3,297.82 DEBT FUNDS 0 PROVISION 246.45 EQUITY CAPITAL 42.38 RESERVES 2,555.67 TOTAL LIABILITIES 2,925.73 BVPS(RS) 130.75 FY13E 238.12 3403.73 990.64 FY 14E 287.56 3649.23 1062.10 FY15E 340.58 3912.44 1138.70 -

4632.50 55.34 1183.17 122.99 2770.77 3854.12 0 257.15 42.38 2728.39 2770.77 139.49

4998.89 59.33 1221.56 131.87 2955.94 4132.10 0 275.70 42.38 2913.56 2955.94 148.85

5391.72 63.61 1262.73 141.38 3154.47 4430.14 0 295.58 42.38 3112.09 3154.47 158.90

CASH FLOW STATEMENT

(Rs MN) NET INCOME DEPRICIATION OTHER ADJUSTMENT,NET CHANGE IN WORKING CAPITAL CASH FLOW FROM OPERATION CHANGE IN INVESTMENTS LOAN & ADVANCES CASH FLOW FROM INVESTING FREE CASH FLOW DIVIDENT PAID CASH FLOW FROM FINANCEG OPENING CASH & CASH EQ CLOSING CASH & CASH EQ

FY12
140.94 94.17 -

FY13E
288.03 72.08 -

FY14E
308.80 77.28 -

FY15E
331.07 82.86 -

-166.20 -195.59 -1.77 -38.42 -130.64 -77.41 207.03 195.87 76.67

-53.90 670.57 -2.87 -56.31 -15.48 -115.31 -493.64 76.67 238.12

-124.55 315.33 -3.99 -64.05 -87.96 -123.63 -177.93 238.12 287.56

-133.54 338.08 -4.28 -68.67 -94.30 -132.54 -190.76 287.56 340.58

FINANCIAL RATIOS
FY12 EBITDA MARGIN (%) EBIT MARGIN (%) CURRENT RATIO(X) QUICK RATIO(X) INTEREST COVERAGE RATIO(X) DEBT/EQUITY(X) ROE (%) ROA (%) ROCE (%) EV/SALES(X) EV/EBITDA(X) P/E(X) P/BV(X) -21% 1 7% 5% -94% 2.125 49.19 122.30 6.624 -11% 1.292 1.276

FY13E
57% 101% 1.201 1.187

FY14E
7% 7% 1.209 1.195

FY15E
7% 7% 1.217 1.202

1 14% 10% -51% 3.178 49.19 47.76 5.066

1 15% 10% -50% 3.178 49.19 47.76 5.066

1 16% 10% -49% 3.178 49.19 47.76 5.066