Moneycontrol
Last Updated : May 10, 2018 03:52 PM IST | Source: Moneycontrol.com

ABB: Earnings visibility well captured in valuation

The management expects projects from Power Grid to slowdown but at the same time is hopeful of fresh orders from state utilities and transmission.

Jitendra Kumar Gupta @jitendra1929

Despite subdued demand and slowdown in industrial capex, ABB was able to post 10 percent year-on-year (YoY) growth in order inflows taking its total order book to Rs 11,628 crore by March-end. Its current order book is 1.25 times its sales and provides highest revenue visibility. Ongoing capex in the power sector, particularly the government’s power infrastructure upgradation, is seen to be helping. That apart, marginal recovery in the process industry, robotics, automation, transportation and renewable is contributing to overall order book growth.

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Right product mix drives growth

The company’s growing order book is helping it book higher revenues led by better execution. During the March quarter, the company reported close to 17 percent YoY increase in sales at Rs 2,525 crore. Its power grid business saw a strong 42 percent YoY growth, followed by 20 percent YoY growth from robotics and motions. Both these segments accounts for close to 60 percent of its total revenue, negating the muted growth reported by the industrial and electrification division. Operating margins improved (although marginally) on higher contribution from value-added segments like robotics, which helped the company clock a profit growth of 14 percent YoY.

Valuations

ABB’s product portfolio offerings are niche and in high demand. The company is hopeful that despite weakness in the industrial and electrification vertical, segments like power transmission, railways, automation, renewables and transportation would continue to drive growth.

The management expects projects from Power Grid to slowdown but at the same time is hopeful of fresh orders from state utilities and transmission. Within industry, consumer facing businesses are doing well and there is demand for brownfield projects and debottlenecking of capacity.

It is upbeat about opportunities in Industrial digitisation, solar, railways, smart city projects, port development, Bharatmala projects and smart charging solutions. This will augur well for growth and reflect in its financial performance in coming months. At current valuations of 40 times FY19e earnings, part of this is already discounted, thus limiting scope for appreciation from current levels of Rs 1,269 per share.
First Published on May 10, 2018 03:52 pm
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