Strong operational performance

ABB India Equity Research Engineering & Capital Goods February 8, 2016 Result Update Emkay Your success is our success Strong operational performance CMP Target Price Rs1,134 Rs1,407 ( ) Rating Upside BUY ( ) 24.1 % Result highlights ABB Q4CY15 operational results exceeded our expectations - (i) 8.3% YoY growth in revenues to Rs24bn and (ii) 280bps YoY improvement in EBIDTAM to 10.9%. Order intake decline by 17%YoY to Rs20bn. Base orders increase by 10% YoY. Order flow from renewables and railways more than double during CY15. Localization strategy yielding results Maintain Buy Steady revenue growth ABB reported steady revenues at Rs24bn (+8.3% YoY, +23.2% QoQ). Except for the power systems, all other segments reported YoY growth. Revenues in the power systems declined by 19.2%YoY to Rs5.2bn while the power products / process automation / discrete automation / low voltage products reported revenue growth of 17.7% / 13.5% / 6.4% / 16.1% YoY respectively. The services business grew at 12% to ~Rs10bn during CY15. Robust margins ABB s focus on localization enabled it to develop country relevant products at competitive prices - driving downs costs through material cost savings. The benefits of localization were more profound in power products segment. EBIDTAM improved to 10.9% (+280bps YoY, +290bps QoQ). EBITM in the power systems / power products / process automation / low voltage products improved to 11.4% (+600bps YoY, + 770bps QoQ) / 12.3% (+340bps YoY, + 190bps QoQ) / 12.2% (+390bps YoY, + 310bps QoQ) / 8.2% (+360bps YoY, - 260bps QoQ) respectively. The discrete automation segment reported decline in EBITM to 7.8% (-200bps YoY, -100bps QoQ). Lower order intake Order intake during Q4CY15 had declined on account of poor utilization rates in core sectors like steel, cement pulp and paper etc., However the base orders increased by 10% for both the quarter as well as for CY15. Order inflow declined during Q4CY15 to Rs21bn (- 17%YoY) while it marginally increased by 2.4% to Rs81bn for CY15. The order inflow from renewables (wind + solar) and railways more than doubled during CY15 and is expected to gain strong traction, going forward. Maintain Buy Larger share of ABB revenues is derived from products and the company s exposure to important sectors like T&D, renewable power, railways and industrials would benefit the company during the early to mid-cycle capex. We expect ABB to post 11% revenue CAGR (CY14-18E) and 39% PAT CAGR (CY14-18E). At the CMP, the stock trades at 28xCY18E earnings. We recommend Buy with a target price of Rs1407 based on 35xCY18E earnings. Financial Snapshot (Standalone) (Rs mn) CY14 CY15 CY16E CY17E CY18E Net Sales 76,039 80,896 91,783 101,763 116,399 EBITDA 5,557 7,125 9,215 11,619 14,824 EBITDA Margin (%) 7.2 8.8 10.0 11.4 12.7 APAT 2,285 2,999 4,533 6,207 8,538 EPS (Rs) 10.8 14.2 21.4 29.3 40.3 EPS (% chg) 29.2 31.2 51.2 36.9 37.6 ROE (%) 8.3 10.3 14.4 17.9 22.0 P/E (x) 105.1 80.1 53.0 38.7 28.1 EV/EBITDA (x) 43.5 33.8 26.0 20.6 16.1 P/BV (x) 8.5 8.0 7.3 6.6 5.9 Source: Company, Emkay Research Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. Change in Estimates EPS Chg CY16E/CY17E (%) NA Target Price change (%) NA Previous Reco BUY Emkay vs Consensus EPS Estimates CY16E CY17E Emkay 21.4 29.3 Consensus 20.5 26.2 Mean Consensus TP Rs 1,031 Stock Details Bloomberg Code ABB IN Face Value (Rs) 2 Shares outstanding (mn) 212 52 Week H/L 1,526 / 955 M Cap (Rs bn/usd bn) 240 / 3.55 Daily Avg Volume (nos.) 453,191 Daily Avg Turnover (US$ mn) 7.4 Shareholding Pattern Dec '15 Promoters 75.0% FIIs 4.4% DIIs 12.4% Public and Others 8.3% Price Performance (%) 1M 3M 6M 12M Absolute 4 (9) (17) (10) Rel. to Nifty (3) (2) (5) 5 Relative price chart 1475 Rs % 20 1370 12 1265 4 1160-4 1055-12 950-20 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 ABB India (LHS) Rel to Nifty (RHS) Source: Bloomberg John Perinchery john.perinchery@emkayglobal.com +91 22 66121374 Emkay Global Financial Services Ltd.

Exhibit 1: Quarterly Standalone Table Rs mn Q4CY14 Q1CY15 Q2CY15 Q3CY15 Q4CY15 YoY (%) QoQ (%) Revenue 22,384 18,146 19,316 19,690 24,251 8.3 23.2 Expenditure 20,584 16,710 17,816 18,132 21,620 5.0 19.2 Consumption of RM 14,286 10,836 11,420 11,741 14,339 0.4 22.1 as % of sales 63.8 59.7 59.1 59.6 59.1 Employee Cost 1,954 1,828 1,840 1,876 1,955 0.0 4.2 as % of sales 8.7 10.1 9.5 9.5 8.1 Other expenditure 4,344 4,046 4,556 4,515 5,326 22.6 17.9 as % of sales 19.4 22.3 23.6 22.9 22.0 EBITDA 1,800 1,436 1,500 1,557 2,632 46.2 69.0 Depreciation 292 422 375 359 442 51.3 23.1 EBIT 1,508 1,014 1,125 1,198 2,190 45.2 82.7 Other Income 147 7 10 5 108-26.6 1973.1 Interest 300 208 246 250 207-30.8-17.0 PBT 1,355 813 889 954 2,090 54.2 119.1 Total Tax 514 270 315 366 796 54.9 117.3 Adjusted PAT 842 543 575 587 1,294 53.8 120.3 Extra ordinary items 0 0 0 0 0 - - Reported PAT 842 543 575 587 1,294 53.8 120.3 Adjusted EPS (Rs) 4.0 2.6 2.7 2.8 6.1 53.8 120.3 Margins (%) (bps) (bps) EBIDTA 8.0 7.9 7.8 7.9 10.9 280 290 EBIT 6.7 5.6 5.8 6.1 9.0 230 290 EBT 6.1 4.5 4.6 4.8 8.6 260 380 PAT 3.8 3.0 3.0 3.0 5.3 160 240 Effective Tax rate 37.9 33.2 35.4 38.4 38.1 20-30 Source: Company, Emkay Research Emkay Research February 8, 2016 2

Exhibit 2: Quarterly Segmental Performance Rs mn Q4CY14 Q1CY15 Q2CY15 Q3CY15 Q4CY15 YoY (%) QoQ (%) Segment Revenues Power systems 6,484 4,576 4,547 4,342 5,243-19.2 20.7 Power Products 6,578 5,394 6,238 6,620 7,741 17.7 16.9 Process Automations 3,452 2,698 3,123 2,765 3,917 13.5 41.7 Discrete Automation & Motions 5,755 4,647 4,788 5,064 6,125 6.4 21.0 Low Voltage Products 1,901 1,770 1,920 2,110 2,206 16.1 4.6 Unallocated 129 128 121 127 130 0.3 2.0 Total 24,300 19,212 20,738 21,028 25,362 4.4 20.6 Less: Intersegment Revenues 1,916 1,066 1,421 1,338 1,110-42.0-17.0 Total 22,384 18,146 19,316 19,690 24,251 8.3 23.2 Segment Results Power systems 350 229 245 162 598 71.0 269.6 Power Products 590 248 503 691 954 61.6 38.0 Process Automations 286 264 276 252 479 67.2 90.2 Discrete Automation & Motions 560 390 401 443 476-15.1 7.3 Low Voltage Products 88 174 152 227 181 106.8-20.2 Total 1,874 1,305 1,576 1,775 2,687 43.4 51.4 Add- Unall Income / (Exp) 218 284 440 571 390 78.6-31.7 Less- Interest Exp 300 208 246 250 207-30.8-17.0 PBT 1,355 813 889 954 2,090 54.2 119.1 Segment Capital Employed Power systems 8,316 9,669 10,222 10,459 10,947 31.6 4.7 Power Products 8,068 8,131 7,950 8,447 7,150-11.4-15.4 Process Automations 3,075 3,625 3,636 3,777 3,349 8.9-11.3 Discrete Automation & Motions 3,544 4,026 3,747 4,389 3,326-6.2-24.2 Low Voltage Products 2,735 2,847 2,804 3,007 2,556-6.5-15.0 Unallocated 2,382 275 789-392 2,758 15.8-803.5 Total 28,120 28,573 29,148 29,688 30,086 7.0 1.3 Segment Margin (%) (bps) (bps) Power systems 5.4 5.0 5.4 3.7 11.4 600 770 Power Products 9.0 4.6 8.1 10.4 12.3 340 190 Process Automations 8.3 9.8 8.9 9.1 12.2 390 310 Discrete Automation & Motions 9.7 8.4 8.4 8.8 7.8-200 -100 Low Voltage Products 4.6 9.8 7.9 10.8 8.2 360-260 Average 7.7 6.8 7.6 8.4 10.6 290 220 Source: Company, Emkay Research Emkay Research February 8, 2016 3

Key Financials (Standalone) Income Statement Y/E Dec (Rs mn) CY14 CY15 CY16E CY17E CY18E Net Sales 76,039 80,896 91,783 101,763 116,399 Expenditure 71,776 74,278 82,568 90,144 101,575 EBITDA 5,557 7,125 9,215 11,619 14,824 Depreciation 1,128 1,598 1,273 1,359 1,444 EBIT 4,429 5,527 7,942 10,261 13,379 Other Income 173 130 198 230 248 Interest expenses 1,050 912 1,375 1,430 1,430 PBT 3,552 4,746 6,765 9,061 12,198 Tax 1,267 1,747 2,233 2,854 3,659 Extraordinary Items 0 0 0 0 0 Minority Int./Income from Assoc. 0 0 0 0 0 Reported Net Income 2,285 2,999 4,533 6,207 8,538 Adjusted PAT 2,285 2,999 4,533 6,207 8,538 Balance Sheet Y/E Dec (Rs mn) CY14 CY15 CY16E CY17E CY18E Equity share capital 424 424 424 424 424 Reserves & surplus 27,696 29,662 32,414 36,078 40,548 Net worth 28,120 30,086 32,838 36,502 40,972 Minority Interest 0 0 0 0 0 Loan Funds 3,711 6,000 6,500 6,500 6,500 Net deferred tax liability (152) (490) (490) (490) (490) Total Liabilities 31,678 35,596 38,849 42,513 46,982 Net block 13,995 13,427 13,654 13,796 13,851 Investment 165 164 164 164 164 Current Assets 53,585 60,008 66,184 72,014 80,018 Cash & bank balance 2,260 5,736 7,140 7,879 8,330 Other Current Assets 4,022 3,964 3,964 3,964 3,964 Current liabilities & Provision 36,386 38,003 41,154 43,461 47,051 Net current assets 17,199 22,005 25,031 28,553 32,967 Misc. exp 0 0 0 0 0 Total Assets 31,678 35,596 38,849 42,513 46,982 Cash Flow Y/E Dec (Rs mn) CY14 CY15 CY16E CY17E CY18E PBT (Ex-Other income) (NI+Dep) 3,379 4,616 6,567 8,831 11,949 Other Non-Cash items 506 (241) 0 0 0 Chg in working cap 158 (1,667) (1,622) (2,783) (3,964) Operating Cashflow 5,300 3,469 5,361 5,982 7,201 Capital expenditure (1,053) (710) (1,500) (1,500) (1,500) Free Cash Flow 4,247 2,759 3,861 4,482 5,701 Investments 1 1 0 0 0 Other Investing Cash Flow (1,108) 0 0 0 0 Investing Cashflow (1,987) (579) (1,302) (1,270) (1,252) Equity Capital Raised 0 0 0 0 0 Loans Taken / (Repaid) (2,490) 2,289 500 0 0 Dividend paid (incl tax) 744 1,129 1,780 2,543 4,068 Other Financing Cash Flow (1,424) (1,921) (3,560) (5,086) (8,137) Financing Cashflow (4,220) 586 (2,655) (3,973) (5,498) Net chg in cash (907) 3,476 1,404 740 451 Opening cash position 3,166 2,260 5,736 7,140 7,879 Closing cash position 2,259 5,736 7,140 7,879 8,330 Emkay Research February 8, 2016 4

Key Ratios Profitability (%) CY14 CY15 CY16E CY17E CY18E EBITDA Margin 7.2 8.8 10.0 11.4 12.7 EBIT Margin 5.7 6.8 8.7 10.1 11.5 Effective Tax Rate 35.7 36.8 33.0 31.5 30.0 Net Margin 3.0 3.7 4.9 6.1 7.3 ROCE 14.3 16.8 21.9 25.8 30.5 ROE 8.3 10.3 14.4 17.9 22.0 RoIC 15.3 18.9 25.9 31.1 36.7 Per Share Data (Rs) CY14 CY15 CY16E CY17E CY18E EPS 10.8 14.2 21.4 29.3 40.3 CEPS 16.1 21.7 27.4 35.7 47.1 BVPS 132.7 142.0 155.0 172.3 193.4 DPS 4.4 4.4 7.0 10.0 16.0 Valuations (x) CY14 CY15 CY16E CY17E CY18E PER 105.1 80.1 53.0 38.7 28.1 P/CEPS 70.4 52.3 41.4 31.8 24.1 P/BV 8.5 8.0 7.3 6.6 5.9 EV / Sales 3.2 3.0 2.6 2.3 2.0 EV / EBITDA 43.5 33.8 26.0 20.6 16.1 Dividend Yield (%) 0.4 0.4 0.6 0.9 1.4 Gearing Ratio (x) CY14 CY15 CY16E CY17E CY18E Net Debt/ Equity 0.1 0.0 0.0 0.0 0.0 Net Debt/EBIDTA 0.3 0.0 (0.1) (0.1) (0.1) Working Cap Cycle (days) 70.5 72.9 71.1 74.2 77.3 Growth (%) CY14 CY15 CY16E CY17E CY18E Revenue 0.0 6.4 13.5 10.9 14.4 EBITDA 18.3 28.2 29.3 26.1 27.6 EBIT 20.8 24.8 43.7 29.2 30.4 PAT 29.2 31.2 51.2 36.9 37.6 Quarterly (Rs mn) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Revenue 22,384 18,146 19,316 19,690 24,251 EBITDA 1,800 1,436 1,500 1,557 2,632 EBITDA Margin (%) 8.0 7.9 7.8 7.9 10.9 PAT 842 543 575 587 1,294 EPS (Rs) 4.0 2.6 2.7 2.8 6.1 Shareholding Pattern (%) Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Promoters 75.0 75.0 75.0 75.0 75.0 FIIs 4.8 4.7 4.8 4.6 4.4 DIIs 12.2 12.4 12.4 12.5 12.4 Public and Others 8.0 7.9 7.8 7.9 8.3 Emkay Research February 8, 2016 5

Emkay Rating Distribution BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months. ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months. HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months. REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months. SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months. Emkay Global Financial Services Ltd. CIN - L67120MH1995PLC084899 7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com DISCLAIMERS AND DISCLOSURES: Emkay Global Financial Services Limited (CIN-L67120MH1995PLC084899) and its affiliates are a full-service, brokerage, investment banking, investment management and financing group. Emkay Global Financial Services Limited (EGFSL) along with its affiliates are participants in virtually all securities trading markets in India. EGFSL was established in 1995 and is one of India's leading brokerage and distribution house.egfsl is a corporate trading member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited(NSE), MCX Stock Exchange Limited (MCX-SX).EGFSL along with its subsidiaries offers the most comprehensive avenues for investments and is engaged in the businesses including stock broking (Institutional and retail), merchant banking, commodity broking, depository participant, portfolio management, insurance broking and services rendered in connection with distribution of primary market issues and financial products like mutual funds, fixed deposits. Details of associates are available on our website i.e. www.emkayglobal.com EGFSL is registered as Research Analyst with SEBI bearing registration Number INH000000354 as per SEBI (Research Analysts) Regulations, 2014. 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Please ensure that you have read Risk Disclosure Document for Capital Market and Derivatives Segments as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report includes current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Emkay Research February 8, 2016 www.emkayglobal.com 6