UBS Securities India has upgraded its rating on ABB India’s stock to ‘buy’ from ‘neutral’ and sees the stock rallying 21 percent from the current market price.
The global brokerage firm has also hiked its target price on the stock to Rs 5,000 from Rs 3,770 and upgraded it to ‘buy’ based on a higher peak price-to-earnings (PE) ratio of 70 times as compared to the previous 62 times. This means the brokerage firm is valuing the stock at a higher level to account for the potential for increased capital expenditure driven by stronger growth prospects.
At 11:25am, the stock was quoting at Rs 4,106.90, down 1.01 percent, on the BSE on June 12.
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“While consensus margin forecasts have risen 120 bps in the past 12 months, we think ABB's true potential from value-accretive electrification and motion has yet to be priced in,” the foreign brokerage firm said in a research report.
It expects a growing contribution from highly scalable new segments and products coupled with active capital expenditure to support ABB India’s growth and operating margin.
The rationale for upgrade given by UBS Securities is that short-cycle demand for ABB India's industrial products has been better than anticipated mainly due to the company’s wider reach in different geographical locations. The areas of electrification and motion are expected to improve the heavy electrical equipment profit margins, despite the fact that the company still relies on imports for process automation and robotics.
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Lastly, ABB's leadership in India is strongly committed to expanding market opportunities, particularly in the field of low voltage electrification. The brokerage firm pointed out that ABB India is extending its geographical reach in its leadership segments, such as motors, drives, low and medium voltage switches, and switchgears, which have a lot more room to grow profitably.
These reasons have cemented the brokerage firm’s view that ABB India’s earnings can grow at a high double-digit trajectory.
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