4QCY2012 Result Update | Capital Goods

February 22, 2013

ABB India
Performance Highlights
Quarterly Highlights
(` cr) Revenue EBITDA (excl other op. inc) EBITDA margin (%) Reported PAT
Source: Company, Angel Research

SELL
CMP Target Price
Investment Period
4QCY12 2,082 37 1.8 17 4QCY11 2,200 78 3.6 64 % chg (yoy) (5.3) (52.4) (178) (73.8) 3QCY12 1,809 44 2.5 21 % chg (qoq) 15.1 (15.4) (65) (21.6)

`586 `487
12 Months

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Capital Goods 12,416 (128) 0.8 878/558 9,531 2 19,317 5,850 Abb.BO Abb@IN

For 4QCY2012, ABB India (ABB)s top-line and bottom-line performance was below our expectations. The top-line declined by 5.3% yoy to `2,082cr, mainly on account of an 18.1% yoy decline in revenue from the Power System segment to `599cr. Order intake during the quarter declined by 28.5% yoy to `1,579cr due to lack of large order (on account of a slowdown in investments). Order backlog stands at `8,672cr for 4QCY2012, down 4.7% yoy, implying order book coverage of 1.1x (trailing 4 quarter revenues). Margins below expectation: The EBITDA margin declined by 178bp yoy to 1.8%. The companys margins were below our expectations due to EBIT losses of `63cr and `1cr in Power Systems and Process Automation segment, respectively. Cost over-runs due to project delays and delay in payment by clients have resulted in margin erosion of project business. However, Power Products and Low Voltage Products posted higher margins yoy at 9.4% and 6.8% respectively. The company benefited to the tune of `7.5cr on account of a forex gain. However, the forex gain in 4QCY2012 is much lower than the `26cr forex gain during the corresponding quarter of last year. Consequently, the profit declined by 73.8% yoy to `17cr. Outlook and valuation: ABB continues to witness a decline in order inflow and order backlog. Although the company has taken steps like improving efficiency through supply chain initiatives and exit from rural electrification projects, its margin continues to remain under pressure. Currently, the stock is trading at 33.7x CY2014 EPS estimates. We believe the stock remains overvalued. Hence, we maintain our Sell recommendation on the stock with a target price of `487.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 75.0 12.9 3.5 8.6

Abs. (%) Sensex ABB

3m 4.3

1yr 6.5

3yr 19.0 (26.8)

(17.0) (32.3)

Key financials
Y/E December (` cr) Net sales % chg Net profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) CY2011 7,370 17.2 185 191.8 3.8 8.7 67.3 4.9 7.5 8.3 1.6 42.8 CY2012E 7,470 1.4 137 (25.5) 3.2 6.5 90.4 4.7 5.4 5.8 1.6 50.8 CY2013E 8,073 8.1 239 73.7 5.5 11.3 52.0 4.5 8.9 12.4 1.5 27.5 CY2014E 9,052 12.1 368 54.4 7.2 17.4 33.7 4.1 12.8 18.3 1.3 18.7
Amit Patil 022-39357800 Ext: 6839 amit.patil@angelbroking.com

S C A lR h Please refer to important disclosures at the end of this report

ABB India | 4QCY2012 Result Update

Exhibit 1: Quarterly performance

4QCY2012 Net Sales Other operating income Total income Stock adjustments Raw Material (% of total income) Employee Cost (% of total income) Other Expenses (% of total income) Total Expenditure EBITDA (excl. other op. income) (EBITDA %) Interest Depreciation Other Income PBT PBT (%) Total Tax (% of PBT) Reported PAT PAT Margins(%) EPS (`)
Source: Company, Angel Research

4QCY2011 2,170 30 2,200 20 1615 74.3 155 7.0 302 13.7 2,092 78 3.6 13 12 1 84 3.8 20 23.7 64 2.9 3.0

% yoy (5.4) (5.3) (6.7) (5.7) 6.3 (3.6) (52.4) 42.9 97.6 (68.6) (51.9) (73.8) (73.8)

3QCY2012 1,786 23 1,809 (28) 1293 69.9 150 8.3 328 18.1 1,742 44 2.5 12 24 1 32 1.7 10 32.3 21 1.2 1.0

% qoq 14.9 15.1 16.5 (2.4) (2.1) 15.7 (15.4) 57.6 2.3 (16.6) (6.3) (21.6) (21.6)

CY12 7,470 95 7,565 (1) 5,429 71.7 620 8.2 1,181 21.8 7,229 242 3.2 43 94 7 206 2.7 69 33.4 137 1.8 6.5

CY11 7,370 79 7,449 (85) 5,563 73.5 587 7.9 1,022 18.4 7,087 283 3.8 31 80 16 268 3.6 83 31.1 185 2.5 8.7

% yoy 1.4 1.6 (2.4) 5.6 15.6 2.0 (14.7) 40.9 18.3 (23.1) (17.3) (25.7) (25.5)

2,053 30 2,082 42 1507 74.4 146 7.0 321 15.4 2,016 37 1.8 18 25 3 26 1.3 10 36.4 17 0.8 0.8

Exhibit 2: Actual vs Estimates

(` cr) Revenue EBITDA (excl other op. inc.) PAT
Source: Company, Angel Research

Actual 2,082 37 17

Estimates 2,307 99 63

Var (%) (9.7) (62.6) (73.6)

February 22, 2013

ABB India | 4QCY2012 Result Update

Top-line declined by 5.3% yoy: For 4QCY2012, ABBs top-line declined by 5.3% yoy to `2,082cr, mainly on account of an 18.1% yoy decline in revenues from the Power System segment to `599cr. All segments witnessed a yoy decline except Low Voltage Products which registered a healthy growth of 16.1% yoy to `168cr.

Exhibit 3: Top-line declines yoy

2,500 9.0 2,000 1,500 1,000 2,072 1,793 1,713 1,744 2,200 1,790 1,884 1,809 2,082 4QCY13 500 0 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 21.5 29.2 17.0 6.2 (0.2) 10.0 3.7 (5.3) 40.0 30.0 20.0 10.0 0.0 (10.0)

Sales (` cr, LHS) Source: Company, Angel Research

Growth (yoy %, RHS)

Exhibit 4: Segment-wise performance

Y/E Dec. (` cr) Revenue Power Systems Power Products Process Automation Discrete Automation Low Voltage Products Total EBIT Power Systems Power Products Process Automation Discrete Automation Low Voltage Products Total EBIT Margin (%) Power Systems Power Products Process Automation Discrete Automation Low Voltage Products
Source: Company, Angel Research

4QCY12 599 584 410 493 168 2,255 (63) 55 (1) 65 11 67 (10.5) 9.4 (0.2) 13.1 6.8

4QCY11 731 595 426 527 145 2,424 (1) 40 (5) 78 8 119 (0.2) 6.7 (1.3) 14.8 5.7

%chg (yoy) (18.1) (1.8) (3.7) (6.4) 16.1 (7.0) 4,569.0 37.5 (84.0) (17.1) 38.9 (43.8)

3QCY12 506 515 314 417 154 1,905 (8) 44 (14) 30 13 64 (1.6) 8.5 (4.6) 7.3 8.2

%chg (qoq) 18.5 13.5 30.7 18.3 9.3 18.3 656.3 25.9 (94.0) 113.0 (8.7) 5.2

CY12 2,242 2,085 1,357 1,775 617 8,077 (15) 138 (15) 196 40 344 (0.6) 6.6 (1.1) 11.0 6.4

CY11 2,358 2,001 1,327 1,800 541 8,027 (1) 100 38 207 34 377 (0.0) 5.0 2.8 11.5 6.3

%chg (yoy) (4.9) 4.2 2.2 (1.4) 14.1 0.6 1,663.5 38.7 (140.4) (5.3) 16 (8.9)

February 22, 2013

ABB India | 4QCY2012 Result Update

Exhibit 5: Power Systems: Revenue and growth

800 640 480 320 160 0 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 2.8 (10.1) (14.5) (43.2) 48.9 49.6 21.7 39.4 15.2 (0.6) 12.0 (18.1) (7.4) 60 40 20 0 (20) (40) (60)

Exhibit 6: Power Products: Revenue and growth

640 480 320 160 0 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 40 7.0 (4.0) (6.4) 30 20 10 0 (10) (20) (30) 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1.4 (4.1) (11.5) (15.7) (8.8) 1.9 5.6 24.6 4.1 10.1 12.6 3.5 (1.8) 30 25 20 15 10 5 0 (5) (10) (15) (20)

Power Systems

Growth (yoy %, RHS)

Power Products

Growth (yoy %, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 7: Process Automation: Revenue and growth

640 480 320 160 0 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 14.0 3.6 (12.7) (27.8) (9.2) (7.1) (7.9) 15.1 30.1 27.5 12.1 12.8 (3.7) 40 20 0 (20) (40)

Exhibit 8: Discrete Automation: Revenue and growth

640 480 6.7 320 160 0 (13.8) (23.1) 28.4 14.7 5.4 15.4 26.1 (0.8) 8.1

Process Automation

Growth (yoy %, RHS)

Automation products

Growth (yoy %, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Margins below expectation: The EBITDA margin declined by 178bp yoy to 1.8%. The companys margins were below our expectations due to EBIT losses of `63cr and `1cr in Power Systems and Process Automation segments, respectively. However, Power Products and Low Voltage Products posted higher margins yoy at 9.4% and 6.8% respectively. Cost over-runs due to project delays and delay in payment by clients have resulted in margin erosion. The company benefited to the tune of `7.5cr on account of a forex gain. However, the forex gain in 4QCY2012 is much lower than the `26cr forex gain during the corresponding quarter of last year. Consequently, the profit declined by 73.8% yoy to `17cr.

February 22, 2013

ABB India | 4QCY2012 Result Update

Exhibit 9: Segment-wise EBIT margins

20 15 10 5 0 (5) (10) (15)
Power Systems Power Products Process Automation Automation products Low Voltage Products

4QCY09

1QCY10

2QCY10

3QCY10

4QCY10

1QCY11

2QCY11

3QCY11

4QCY11

1QCY12

2QCY12

3QCY12

Source: Company, Angel Research

Declining order book: Order intake during the quarter declined by 28.5% yoy to `1,579cr due to lack of large orders (on account of slowdown in investments). Order backlog stands at `8,672cr for 4QCY2012, down 4.7% yoy, implying order book coverage of 1.1x (trailing 4 quarter revenues).

Exhibit 10: Order inflow trend

3,000 2,500 2,000 1,500 1,000 500 0 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 (26.7) (41.5) 7.3 0.4 (41.3) 45.2 22.7 (3.7) 88.5 58.5 14.1 120.0 90.0 (32.6) (28.5) 60.0 30.0 0.0 (30.0) (60.0)

Exhibit 11: Order backlog trend

10,000 37.6 24.5 11.9 8,000 14.4 7.9 (0.5) (4.8) (1.4) (0.3) 0.0 8.4 9.0 (1.0) (4.7) 40.0

20.0

6,000 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

(20.0)

Order inflow (` cr, LHS)

Growth (yoy %, RHS)

Order backlog (` cr, LHS)

Growth (yoy %, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

February 22, 2013

4QCY12

ABB India | 4QCY2012 Result Update

Outlook and valuation

ABB continues to witness a decline in order inflow and order backlog. Although the company has taken steps like improving efficiency through supply chain initiatives and exit from rural electrification projects, its margin continues to remain under pressure. Currently, the stock is trading at 33.7x CY2014 EPS estimates. We believe the stock remains overvalued. Hence, we maintain our Sell recommendation on the stock with a target price of `487.

Exhibit 12: One Year Forward P/E Band

1,800 1,500 1,200 900 600 300 0 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Apr-12 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12
55x

Share price (`) Source: Company, Angel Research

25x

35x

45x

Exhibit 13: Peer Comparison

Company ABB* BHEL BGR Energy Crompton Greaves Jyoti Structures KEC International Thermax Reco. Sell Neutral Neutral Buy Buy Buy Neutral CMP 586 205 216 97 36 54 577 Tgt. price 487 129 49 75 Upside (16.9) 33.4 36.1 38.0 P/BV(x) FY13E 4.5 2.5 1.3 1.7 0.4 1.2 3.7 FY14E 4.1 2.2 1.1 1.6 0.4 1.0 3.2 P/E(x) FY13E 52.0 8.5 8.8 29.3 4.7 10.1 21.3 FY14E 33.7 9.9 8.2 14.1 3.3 6.4 19.1 FY2012-14E EPS CAGR 41.3 (15.3) (8.3) 8.7 (1.4) 1.8 (5.5) RoE (%) FY13E 8.9 32.9 30.7 5.8 9.6 17.0 18.5 FY14E 12.8 23.6 25.7 11.5 12.1 22.8 18.2

Source: Company, Angel Research. Note*: December year end

Company Background
ABB India (ABB) is the Indian subsidiary of Switzerland-based ABB Group, which is one of the world's leading power and automation engineering companies. The group provides solutions for energy-efficient power generation, power transmission and distribution (T&D) and process automation. The power-related segment is the company's major revenue contributor, accounting for ~52% of its total CY2012 revenue, while 40% is contributed by the automation segment.

February 22, 2013

Dec-12

ABB India | 4QCY2012 Result Update

Profit and loss statement

Y/E December (` cr) Operating income % chg Total Expenditure Raw Materials Personnel Costs Other Costs EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) % chg CY2010 6,287 0.8 6,203 4,802 490 911 84 (84.1) 1.3 52 32 (93.3) 0.5 17 86 85.3 100 (81.0) 0 100 37 36.9 63 63 63 (82.2) 1.0 3.0 (82.2) CY2011 7,370 17.2 7,087 5,479 587 1,022 283 238.0 3.8 80 204 534.1 2.8 31 95 35.4 268 167.1 0 268 83 31.1 185 185 185 191.8 2.5 8.7 191.8 CY2012 7,470 1.4 7,228 5,428 620 1,181 242 (14.6) 3.2 94 148 (27.4) 2.0 43 102 49.3 206 (23.0) 0 206 69 33.4 137 137 137 (25.5) 1.8 6.5 (25.5) CY2013E 8,073 8.1 7,629 5,845 646 1,138 444 83.6 5.5 113 331 123.9 4.1 52 78 21.9 356 72.8 0 356 118 33.0 239 239 239 73.7 3.0 11.3 73.7 CY2014E 9,052 12.1 8,400 6,418 724 1,258 652 46.8 7.2 127 525 58.7 5.8 57 82 14.9 550 54.4 0 550 181 33.0 368 368 368 54.4 4.1 17.4 54.4

February 22, 2013

ABB India | 4QCY2012 Result Update

Balance sheet
Y/E December (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Deferred Tax Asset Current Assets Cash Loans & Advances Inventories Debtors Others Current liabilities Net Current Assets Total Assets 998 232 766 58 17 5 4,926 587 354 698 2,926 361 3,348 1,579 2,424 1,462 294 1,168 84 51 22 4,960 264 367 926 3,083 321 3,751 1,209 2,535 1,662 388 1,274 50 52 22 5,154 76 386 905 3,377 409 3,928 1,226 2,624 1,887 501 1,386 50 52 22 5,127 144 386 928 3,347 323 3,874 1,254 2,764 2,112 628 1,484 50 52 22 5,791 200 406 978 3,845 362 4,366 1,425 3,033 42 0 2,381 2,424 0 0 0 2,424 42 0 2,492 2,535 0 0 0 2,535 42 0 2,582 2,624 0 0 0 2,624 42 0 2,721 2,764 0 0 0 2,764 42 0 2,991 3,033 0 0 0 3,033 CY2010 CY2011 CY2012E CY2013E CY2014E

February 22, 2013

ABB India | 4QCY2012 Result Update

Cash flow statement

Y/E December (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY2010 100 52 102 (86) (37) 131 (104) 0.1 86 (19) 0 (50) 0.3 (50) 63 524 587 CY2011 268 80 47 (95) (83) 216 (513) (33.9) 95 (452) 0 (74) (12) (74) (323) 587 264 (47) (188) 264 76 (99) 68 76 144 (99) 56 144 200 CY2012E 206 94 (205) (102) (69) (75) (166) (1.4) 102 (66) 0 (47) CY2013E 356 113 40 (78) (118) 314 (225) 0.0 78 (147) 0 (99) CY2014E 550 127 (115) (82) (181) 298 (225) 0.0 82 (143) 0 (99)

February 22, 2013

ABB India | 4QCY2012 Result Update

Key ratios
Y/E December Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets OB/Sales Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Pre-tax) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) (X) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to Equity Net debt to EBITDA Interest Coverage (0.2) (7.2) 1.8 (0.1) (1.1) 6.6 (0.0) (0.5) 3.4 (0.1) (0.4) 6.3 (0.1) (0.4) 9.2 6.7 41 168 181 61 6.0 40 149 172 48 4.8 45 158 182 51 4.5 41 152 163 51 4.5 38 145 151 47 1.3 1.8 2.6 8.3 10.5 7.5 5.8 6.4 5.4 12.4 13.3 8.9 18.3 20.0 12.8 0.5 63.1 3.4 1.7 1.1 (0.2) 0.8 2.8 68.9 3.7 10.1 7.0 21.1 (0.2) 9.6 2.0 66.6 3.2 6.3 4.2 0.0 (0.1) 3.8 4.1 67.0 3.2 13.1 8.8 0.0 (0.1) 8.2 5.8 67.0 3.4 19.6 13.1 0.0 (0.1) 12.1 3.0 3.0 5.4 2.0 114.4 8.7 8.7 12.5 3.0 119.6 6.5 6.5 10.9 1.9 123.8 11.3 11.3 16.6 4.0 130.4 17.4 17.4 23.4 4.0 143.1 196.4 108.1 5.1 0.3 1.9 141.0 4.9 1.3 67.3 47.0 4.9 0.5 1.6 42.8 4.8 1.4 90.4 53.6 4.7 0.3 1.6 50.8 4.7 1.3 52.0 35.3 4.5 0.7 1.5 27.5 4.5 1.2 33.7 25.1 4.1 0.7 1.3 18.7 4.0 1.1 CY2010 CY2011 CY2012E CY2013E CY2014E

February 22, 2013

10

ABB India | 4QCY2012 Result Update

Research Team Tel: 022 3935 7600

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

ABB India No No No No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 22, 2013

11