Yantai Bonway Manufacturer

Shares of ABB India Ltd opened with gains of over 5% on Wednesday, March 27. This surge follows a forecast by the global brokerage firm UBS, which anticipates a potential upside of up to 27% from the previous day's closing price. UBS highlighted the engineering services company's good quality electrification and mobility growth.

UBS expects ABB India's share price to reach ₹7,550 in the next 12 months. The foreign brokerage has retained its 'Buy' recommendation on ABB India and raised its price target on the stock to ₹7,550 from ₹5,380 earlier.

More upside to consensus on margins

Going ahead, the brokerage believes that ABB India's electrification and motion will drive growth and margins. "We maintain our above-consensus forecasts on revenue growth and more importantly margins, and believe that ABB is the best play on the emerging infrastructure scale-up in low/medium-voltage electrification."In a note, UBS stated that a strong cyclical tailwind has led to robust growth and higher margins for most companies, including CG Power, ABB and SIEM, in recent quarters.

"While the consensus margin forecast for ABB has already been raised 210 basis points for 2024 in the past 12 months, along with a 3% upgrade in new order intake, we think there is ample scope for ABB to deliver on profitability, led by low/medium-voltage electrification and motion, both of which are enjoying strong demand, with ABB sharpening its focus on product range expansion and availability," it said.

ABB's low- and medium-voltage product suite is expanding in both range and geographical exposure, covering both conventional and emerging market segments. "There is a clear focus among global firms, like SIEM and Schneider, along with ABB, on capturing the long-term growth in electrification," UBS noted.

On the motion side, UBS highlighted that mobility, including semi-highspeed rail, conventional rail, and metro, has led the step-up in order inflow run rate, which it thinks is sustainable on an annual basis, given that ABB is focusing on expanding capacity commensurately to tap the growth opportunities.

How is ABB's growth story different?

While CG Power offers growth via exports and inorganic expansion, the business overlap between ABB and CG Power is largely limited to the motors segment, and within that only to low-tension motors, UBS said.

Further, the brokerage said that ABB India's revenue overlap with SIEM and Schneider is more prominent. "We think there is significant scope for ABB to ramp up its low/medium voltage electrification portfolio where it trails Schneider and SIEM."

Despite near-term concerns, UBS thinks there is plenty of scope for ABB India to scale up its new order growth across motion and low- and medium-voltage electrification product expansion, which augurs well for margins even from current levels.

UBS has also increased its 2024E and 2025E profit after tax by 12% and 14%, and its target price-earnings from 65 times to its historical peak of 75 times, as it believes ABB will continue to expand its product suite and capacity, especially in the highly scalable electrification segment, and gain market share in the mobility segment.

Shares of ABB India settled half-a-percent lower at ₹5,939 apiece on the NSE. The stock has rallied nearly 27% so far in 2024.