ABB India makes rapid strides to new highs but analysts see little room for fresh rally

The ABB India stock has shot up nearly 50 percent since December-end and surged over 77 percent in the past year and over 360 percent in the past three years. At the close of the market hour on May 12, the stock settled 2.1 percent higher at Rs 3,942.65 after hitting a 52-week high of Rs 3,955. What keeps analysts at crossroads over ABB India despite foreign institutional investors slobbering over the stock? From consolidation to retracement and higher risks – the analysts have a host of arguments.

For brokerages, a lukewarm rating comes from the view that there’s little room left for the stock to rally. ABB India has given a major double-top breakout at Rs 3,440, which led to recent gains, said Milan Vaishnav, CMT, MSTA, founder and technical analyst, Gemstone Equity Research and ChatWizard FZE. He believes that at the current levels, the scrip could witness some consolidation or retracement. It is not a good time for traders to make a fresh entry into the stock as the risk-reward ratio looks unfavourable, while the existing investors may look at booking profits partially, Vaishnav said.

Quarterly show The company delivered a strong set of numbers for the January-March period. It clocked the highest order growth in the first quarter of CY23 in the last five years, up by 36 percent on-year, backed by an order book of Rs 3,125 crore. Although the company’s net profit shrank more than 33 percent over the last year to Rs 245 crore in the March quarter, its revenue increased to Rs 2,411 crore from Rs 1,968 crore last year. The earnings were driven primarily by other incomes and partly by faster cash conversion, said Kotak Institutional Equities.

It added that ordering was healthy at 1.3 times revenues. ABB India has a consistently growing order backlog as of March 31, 2023, at Rs 7,170 crore, which provides revenue visibility and is well aligned to support growth plans in the coming quarters. ABB India expands Bengaluru facility for production of energy-efficient drive modules The electrification segment was the key outperformer on both ordering (up 44 percent on-year) and segment margin (19.5 percent as against the blended segment margin of 15 percent). Segmentally, revenues of both key segments – motion and electrification – grew 4 and 5 percent year-on-year, defying seasonality, while the process automation segment declined 18 percent on-quarter due to seasonality.

The company continues to invest in its facilities to meet the growing demand. ABB is a technology leader in electrification and automation, enabling a more sustainable and resource-efficient future. Some analysts also see ABB India benefiting from global supply chain diversification and acting as a major supplier to global markets. Here’s what fails to cheer analysts Even as Kotak Institutional Equities increased its target price by 2 percent to Rs 3,500, it favours waiting for better price points to enter the stock.

The brokerage firm has retained its “reduce” call on the stock. “We lower our ordering growth at a CAGR of around 17 percent over CY2023-25 and maintain margin assumptions in the 12.2-12.6 percent range versus 11.8 percent reported in 1QCY23,” it added. Nuvama Institutional Equities sees little room for upside despite factoring in the best-case scenario. Considering the impressive growth across segments over the past two years, the brokerage firm sees challenges to the upside.

High royalty fees as compared with multinational peers and unsustainable growth in order inflow or operating margin are lingering concerns, according to the brokerage firm. “While we appreciate ABB’s short-cycle business model leading to a faster conversion of order book to earnings, we believe the CMP (current market price) factors in the bull case of 14-15 percent OI (order inflow) inflow with 11-12 percent margins,” Nuvama said. More than 50 small-caps fetch double-digit returns as market posts smart gains The brokerage firm has retained its “hold” rating on the stock but hiked EPS estimates by 8 percent for CY23, 7 percent for CY24 and 18 percent for CY25, which has led to the brokerage raising its target price to Rs 3,750 from Rs 3,400. PhillipCapital has raised earnings estimates by 10 percent for CY24 and 9 percent for CY25, given the visibility of structural tailwinds and Q1 earnings beat.

Yet, the brokerage firm has maintained its “neutral: rating on the stock, as it trades at 60 times and 50 times CY24 and CY25 earnings. Though it has increased its target price to Rs 3,972 from Rs 3,543. Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.