Buy ABB India; target of Rs 6000: Motilal Oswal

Motilal Oswal's research report on ABB India

ABB India’s 2QCY25 results were lower than our estimates as margins contracted significantly owing to forex fluctuations, quality control order (QCO) implementation and competitive pricing. Order inflows declined 12% YoY, while base ordering was strong. Demand remained sluggish across segments during 2QCY25 and is still far off from the highs seen two years ago. We cut our estimates by 15%/8%/2% for CY25/26/27 to bake in lower margins. ABB is currently trading at 63.7x/53.6x/45.6x on CY25E/CY26E /CY27E earnings. We believe that in the near term, ABB can underperform due to margin pressure and sluggish ordering activity in the private and government sectors. However, in the long run, we expect ABB to 1) improve its margins once the QCO implementation is over in the next few quarters and 2) improve its revenue once ordering activity starts ramping up. We, thus, maintain BUY with a revised DCF-based PT of INR6,000, implying 55x Sep’27E earnings. Scope of rerating back to higher multiples will emerge once inflows and margins start showing an improving trend.

Outlook

We believe that in the near term, ABB can underperform due to margin pressure and sluggish ordering activity in the private and government sectors. However, in the long run, we expect ABB to improve its margins once the QCO implementation is over in the next few quarters and revenues once ordering activity starts ramping up. We, thus, maintain BUY with a revised DCF-based TP of INR6,000, implying 55x Sep’27E earnings. The scope of re-rating back to higher multiples will emerge once inflows and margins start showing an improving trend.