ABB India: Expensive valuations to weigh on stock's performance

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26 Aug, 2025 12:21

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Jitendra Kumar GuptaMoneycontrol Research

Efforts to diversify into emerging markets and businesses has helped ABB India (ABB) consistently deliver robust revenue growth over the last few quarters. This is quite impressive in the light of the slow growth faced by most engineering companies in India. During the June quarter, the company reported 21 percent year-on-year growth in sales to Rs 2,713 crore. Its order book growth trajectory remains strong, up 11 percent at Rs 10,717 crore.

Result at a glance
ABB, which operates in different segments, witnessed strong traction in its overall business portfolio. Among segments, robotics and automation saw robust (34 percent) revenue growth followed by power grid business which grew 41 percent. Electrification and industrial automation continues to be a drag on overall growth.

Due to cost saving and improvement in product mix towards smart products like power grid and robotics, it saw a 150 basis points improvement in operating profit. During the quarter gone by, earnings before interest, tax, depreciation and amortisation (EBITDA) margin stood at 5.7 percent as against 4.2 percent YoY. It was able to post a robust 65 percent growth in operating profit to Rs 155 crore on higher margins.

This is also the reason why it saw a 35 percent spurt in profit to Rs 102 crore, recording a net profit margin of 3.8 percent as against 3.4 percent YoY.

Growth drivers
Strong order book will continue to propel growth. The management is optimistic about opportunities in automation, digitisation and robotics. Within infrastructure, railways, electric vehicle and water will drive growth. In transmission, the company is working on smart distribution projects that offer integrated solutions for power generated from different sources such as thermal, hydro and renewable energy. This is expected to yield positive results in terms of driving its order book higher in coming months.

ABB has started to see gradual traction in aviation and smart city projects, which is crucial for its smart product applications. It continues to remain cautious about growth in the industrials segment but believes that growth from other segments, particularly exports, should help mitigate slowdown in one or two segments. During Q1, export orders grew 68 percent YoY.

Valuations in expensive territory
At 35 times FY20e earnings, the stock is trading at expensive valuations. While investors ascribe a premium to its global parentage, product know-how and leadership in emerging engineering categories like robotics, given the marginal growth and return ratios (return on equity of 14.3 percent in FY18), valuations hardly justify investments at the current juncture.

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