ABB Improving margins but valuations remain expensive

Improved execution, cost rationalization helping stabilize margins: ABB
reported sales of Rs22bn, up 7.4% YoY (PLe: Rs19.5bn). Execution in the power
product (up 10% YoY) and power system (up 13% YoY) segments continued to
improve, while sales for processes automation (down 16%) continued to be
subdued. EBITDA was up 303% YoY to Rs1.4bn. Gross margin improved 620bps
YoY and 10bps QoQ. EBITDA margin improved 500bps YoY to 6.8% (PLe: 6.5%).
Improved mix (in favour of products) and focus on cost control measures are
helping margin improvement. RM percentage sales ratio has stabilised at ~70%
over the last few quarters and management believes it is working on measures
to bring down the ratio further. PAT was up 2.5x to Rs586m (PLe: Rs515m).

Increasing focus on short cycle/base orders to counter slowdown: Order inflow
for the quarter was up 5% YoY and for CY13, was down 4% YoY. Base
orders/short cycle from a wider spectrum of customers and improved exports
helped offset dearth of large projects in domestic markets. Export order inflow
for CY13 (~15 of inflows) was up 30% YoY and management believes this growth
is sustainable even for CY2014. The company continues to tap sectors like
renewable energy, data centre, railways, grid stability, mining and oil & gas
which look increasingly promising. Order book at the end of CY13 was down
11% YoY to Rs77bn.]

Outlook and Valuation: ABB has been investing in capacities in India as they
remain optimistic on the long-term outlook for Indian markets. We believe ABB
should benefit from the capacities created and cost rationalization measures as
demand environment improves over the next few years. Despite factoring in
50% earnings CAGR over CY13-15E, the stock is still trading at an expensive
valuation of 36x CY15E earnings. We believe expensive valuation and uncertain
outlook in the near term will restrict any meaningful upside on the stock in the
near term.

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SALES TRADERS COMMENTARY

The Indian market settled on a buoyant note on Tuesday on account of positive global cues, led
by gains in banking, capital goods and power stocks, whereas FMCG stocks dipped.
The Sensex ended 170 points higher at 20634, while the Nifty jumped 46 points to 6127.
Major gainers were Jindal Steel & Power (6.93%), Housing Development Finance Corporation
(2.99%), ICICI Bank (2.80%), Maruti Suzuki India (2.57%), Tata Power Company (2.45%) and
Larsen & Toubro (2.02%).
Major losers were GAIL (India) (1.45%), Bharti Airtel (0.95%), ITC (0.80%), Wipro (0.68%), Coal
India (0.55%) and Cipla (0.53%).
The Bankex was at 12074.22, up 275.85 points or 2.34%. Major gainers were Canara Bank
(1.86%), H D F C Bank (1.54%), Bank of India (1.45%), Bank of Baroda (0.74%) and Federal Bank
(0.2%).
The Capital Goods index was at 9620.47, up 196.52 points or 2.09%. Major gainers were A B B
India (12.8%), AIA Engineering (3.32%), Alstom India (3.09%), Bharat Heavy Electricals (1.42%)
and BEML (0.66%).
The Power index was at 1545.95, up 26.24 points or 1.73%. Major gainers were A B B India
(12.8%), Adani Power (5.26%), Reliance Infrastructure (3.55%), Bharat Heavy Electricals (1.42%)
and C E S C (1.36%).
On the other hand, the FMCG index was at 6386.74, down 18.16 points or 0.28%. Major losers
were Dabur India (0.87%), Colgate-Palmolive (India) (0.8%), I T C (0.8%) and United Breweries
(0.63%).
Globally, Asia was trading higher—while Nikkei was up 450 points to 14844, Hang Seng jumped
52 points to 22587; European indices were also trading lower
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2014-2015 Budget Highlight

Indian Finance Minister P. Chidambaram presented the interim budget for the fiscal year 2014/15 on Monday to cover expenditure until the government's term ends in May.
• GDP expansion in 2013/14 third and fourth quarters will be at least 5.2 percent 
• Fiscal deficit seen at 4.6 percent of GDP in 2013/14 
• Fiscal deficit seen at 4.1 pct of GDP in 2014/15 
• Need to bring down fiscal deficit to 3 percent of GDP by 2016/17
• Current account deficit for 2013/14 projected at $45 billion 
• Forex reserves to rise by $15 billion by end of 2013/14 
• Merchandise exports seen at $326 billion in 2013/14, up 6.3 percent year on year. 
• Agriculture exports expected to touch $45 billion in 2013/14, up from $41 billion in 2012/13 
• Plan expenditure for 2014/15 seen at same level as previous year 
• Non plan spending estimated at about 12.08 trillion rupees in 2014/15 
• Total spending on food, fertilisers and fuel at 2.5 trillion rupees in 2014/15 
• Spending raised to 2.24 trillion rupees in 2014/15, up 10 percent year on year 
• Govt to provide 112 billion rupees capital infusion in state run banks in 2014/15 
• No major changes in tax rates. 
• To cut excise duty on small cars, two wheelers, commercial vehicles to 8 pct from 12 pct 
• To reduce factory gate tax rate to 10 pct from 12 pct on some capital goods, consumer durables in 2014/15 
• Proposes to restructure factory gate tax for manufacturing of mobile handsets 
• Customs duty on non-edible grade industrial oil cut to 7.5% 
• Customs duty on fatty acids, fatty alcohol cut to 7.5% 
• Excise duty on goods under Chapter 84-85 cut to 10% vs 12% 
• To rationalize excise duty on soaps to up local production

INR TOUCHES 3-WEEK HIGH ON POSITIVE ECONOMIC DATA

THE WEEK THAT WAS...

•  Indian Rupee continued its winning streak and hit a three week high last Friday. The local currency closed with a gain of 0.57% last week against the US dollar. Gains were seen mostly on the back of better than expected economic data like WPI and CPI. Above all, positive CAD for January makes Rupee relatively better currency in the EM pack. Rupee’s out-performance continued on the back of positive domestic as well as Asian stocks and weak economic data out of the US. But month-end dollar demand by Oil Importers, coupled with their repayment of swap dues to RBI on or before 31st May will likely keep Rupee under some pressure. Markets are looking forward to a pragmatic interim budget from the Finance Minister on Monday.
•  US Dollar lost ground against most major world currencies on Friday amid mixed US economic data on industrial production and consumer sentiment. Chinese inflation data boosted the Aussie and the Euro advanced amid a report showing pick-up in Eurozone economic recovery. The US markets will be closed on Monday in observance of Presidents Day.

CURRENCY OUTLOOK FOR THIS WEEK

 Indian Rupee is likely to trade with a positive bias for the week on the back of strong economic data released last week. US markets will remain shut on Monday on account of US presidents day. So, trading in Indian currency markets will be slightly subdued on Monday and the rupee could trade range bound

CURRENCY INSIGHTS

• Declining US bond yields are seen as positive for the rupee amid lingering fears that the impending QE tapering could result in outflows of foreign capital from the Emerging Markets.
•  As per charts, USDINR saw a breakdown on Friday but was not able to sustain. Also, currently USDINR is trading below short-term moving average, pointing to some marginal weakness in the local unit in coming sessions. The currency has to breach 60.90 in spot to continue its southward journey towards 60 and below.
•  For the coming week, USDINR is likely to trade in a range of 63.00-61.00 in spot market

CURRENCY OUTLOOK FOR THE DAY

•  Rupee is likely to trade with a positive bias on the back of weak USD and positive local equity markets. Positive trend in Euro and Pound will likely keep USD under pressure against the rupee.
•  In the spot market, USDINR is likely to open lower at 61.80 versus the closing of 61.93 on Friday. USDINR February futures are likely to open at 62.00 versus Friday’s closing of 62.10.

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WEDNESDAY'S LEADERS

* Interim Railway Budget.
* Earnings==> BPCL, Cipla, Coal India, Apollo Tyres.
* Data alert==> CPI for combined, rural and urban for
January by CSO; IIP; Japan machine tool orders; Eurozone
 industrial output; US mortgage applications, petroleum
stocks.
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Saudis cut oil price for Asia

Saudis cut oil price for Asia, may have to do more: Clyde Russell 
--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Feb 6 (Reuters) - Saudi Arabia's decision to cut March oil prices for Asian customers by more than expected appears to be a three-pronged move to maintain market share, boost refining margins and stave off demand destruction.
Saudi Aramco, the world's biggest oil exporter, cut the official selling price (OSP) for its benchmark Arab Light grade to a premium of $1.75 a barrel over Oman/Dubai, down from $2.45 in February and lowest since July last year.

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Asia stocks slip, euro stuck near 10-wk lows
SYDNEY, Feb 3 (Reuters) - Asian shares were slowly giving ground as strains in emerging markets show little sign of abating, while growing pressure for another policy easing in Europe shoved the euro to 10-week lows.
"Manufacturing conditions continue to improve in Korea, boosted by stronger new orders on the external front," said HSBC economist Ronald Man. "This suggests that Korea is on track for a gradual export-led recovery."

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