Sell ABB India; target of Rs 5,330: ICICI Securities

ICICI Securitie's research report on ABB India

ABB’s order inflow has remained healthy in CY23 at INR 123bn (vs INR 100bn YoY), with orderbook growing 29% YoY to INR 83.4bn. However, the share of long lead orders has increased to 15% as of Dec’23 (vs 7% in CY22). Thus, assuming 15% long lead order inflow in CY24, adjusted order inflow has grown at 8% YoY to INR 108bn (vs headline growth of 29%).

Outlook

The order inflow for ABB came in strong at INR 61bn, +24% YoY, in H2CY23 led by long lead items. As a result, the share of long lead orders has increased substantially to 15% as of CY23 (vs 7% in CY22). Also, order inflow growth print over the next 1-2 quarters is shrouded by general elections led (Apr-Jun’24) uncertainty. Thus, we believe the growth print for order inflow over CY24E is likely to be sub–par. The margins may have peaked; weakness in revenue growth can reduce the levers for any further margin surprises. The stock price has jumped sharply at 45% over the last 2 months and is now trading at 81x CY25E EPS of INR 82/share as compared to average historical 2-year forward P/E of 60x. We note the PEG of the stock stands at 3x (vs its 2-year forward PEG of 2x). Thus, we downgrade ABB to SELL (from ADD) with target price of INR 5,330/share, valuing the stock at 65x CY25E EPS.