ABB India's Earnings Acceleration Sustainable With Plenty Of Growth Levers, Says UBS

ABB India Ltd. can scale up its new order growth across mobility-led positioning and low, medium-voltage electrification product expansion, which augurs well for margins, according to UBS Research. Shares of the company jumped over 6% to hit a life high on Wednesday.

The research firm has retained a 'buy' rating on the stock while raising target price to Rs 7,550 apiece from Rs 5,380 apiece earlier. This implies an upside return potential of 21%.

ABB's low, medium-voltage product suite is expanding in both range and geographical exposure, covering both conventional and emerging market segments, the research firm said in a March 26 note.

"There is a clear focus among global firms, like SIEM and Schneider, along with ABB, on capturing the long-term growth in electrification," the note said.

UBS raised the 2024E/25E PAT estimate by 12%/14%, and the target PE from 65 times to its historical peak of 75 times, as ABB will continue to expand its product suite and capacity, especially in the highly scalable electrification segment, and gain market share in the mobility segment, it said.

A strong cyclical tailwind has led to robust growth and higher margin for most companies, including CG Power and Industrial Solutions Ltd., ABB and SIEM, in recent quarters, UBS noted.

The consensus margin forecast for ABB has already been raised 210 basis points for 2024 in the past 12 months, along with a 3% upgrade in new order intake, UBS said. "We think there is ample scope for ABB to deliver on profitability, led by low/medium-voltage electrification and motion, both of which are enjoying strong demand, with ABB sharpening its focus on product range expansion and availability."

UBS maintained the above-consensus forecasts on revenue growth and margins. ABB is the best play on the emerging infrastructure scale-up in low/medium-voltage electrification, according to it.

While CG Power offers growth via exports and inorganic expansion, the business overlap between ABB and CG Power is largely limited to the motors segment, and within that, only to low-tension motors (excluding the IE3 and IE5 motors where ABB has a global edge).

ABB's revenue overlap with SIEM (low/medium-voltage electrification products, low/high-tension motors, drives, PLCs, SCADA systems) and Schneider is more prominent. "We think there is significant scope for ABB to ramp up its low/medium voltage electrification portfolio, where it trails Schneider and SIEM".

Shares of ABB India Ltd. rose 6.57%, before paring some gains to trade 6.09% higher at 9:44 a.m., compared to 0.47% advance on NSE Nifty 50.

The stock has risen 89.28% in 12 months. Total traded volume so far in the day stood at 4.8 times its 30-day average. The relative strength index was at 76, indicating that the stock may be overbought.

Of the 29 analysts tracking the company, 15 maintain a 'buy' rating, eight recommend a 'hold,' and six suggest 'sell', according to Bloomberg data. The average 12-month analysts' price target implies a downside 16%.