Here’s how ABB’s global exit from power grid business will benefit Indian investors

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

Jitendra Kumar GuptaMoneycontrol Research

ABB’s decision to exit the power grid business globally will see ABB India exit this business as well. How the India business is valued will determine the extent to which local investors will benefit. The risk is the methodology used to price the global business may undervalue the Indian business relative to local benchmarks.

The exit of ABB in an $11 billion deal affirms investor apprehensions about how pricing power could erode, as a result of competition and shrinking market opportunities.

How does this exit impact ABB India? At ABB India, the power grid business accounts for 40 percent of its revenue and 30 percent of its earnings before interest and tax (EBIT). That highlights the significance of the power grid business to ABB India. Investors will naturally expect a handsome compensation for the business, considering how vital it is to the company.

Growth deficit

During the first half of the current year, ABB India’s power grid business posted a 41 percent growth in revenues, far better than the 5 percent growth posted by industrials and 3 percent decline by electrification products. The Robotic business grew at 27 percent and contributes 22 percent to its overall revenue.

In this situation, a revival of sales growth at its electrification and industrials businesses, and a substantial contribution from futuristic products and solutions such as robotics, automation and e-charging become critical for future growth.

Will investors get a good deal?

Meanwhile, investors should be happy at ABB’s announcement of cash of $7.6-$7.8 billion from this deal being paid back to shareholders. ABB India’s shareholders too can expect a payout, in some form. The uncertainty lies in the valuation.

ABB is exiting the global power grid business at a valuation of 1 time its 2017 annual sales and 13 times EBIT, which is in sharp contrast to the Indian business which trades at 3.3 times its 2018 annual estimated sales and 38 times EBIT.

ABB India’s shareholders would benefit more if the domestic power grid business reflects local valuations. Our calculations suggest the India business being sold would be worth about Rs 17,500-18,000 crore. But if the global benchmark is used, it would fetch a much lower amount of about Rs 5,500-5,700 crore. That would be detrimental to the interest of investors in the Indian company.

Follow @jitendra1929

For more research articles, visit our Moneycontrol Research Page.