Order flow to keep ABB India pricey

ET Intelligence Group: The stock of ABB India has gained 56% over the past three months. The Indian arm of the Swiss-Swedish engineering major trades at a 60% premium to the average peer valuation, which is likely to sustain given the uptick in its core electrification and motion portfolio and rising share of new focus areas including food & beverage, data centre, electronics, pharma and renewable energy.The share of the in-focus sectors in ABB’s total revenue has increased to more than one-third from single digits about four years ago. This is due to increasing demand for automation and digitisation by clients. The company’s CFO TK Sridhar told ET that apart from the core “hard assets” or the product portfolio of the company, the importance of “soft assets” or value added services and solutions that accompany the products is rising faster among clients.For instance, along with selling a motor to food and beverages clients, ABB also provides sensors to measure its performance and take corrective steps to improve the process efficiency. The company expects the order momentum to pick up from the second half of 2021 following the government’s thrust on infrastructure development and macroeconomic recovery. Sridhar said that the company aims for 8-10% growth in order flow and 7-9% increase in revenue for 2021 after striking off the solar business that it sold in March 2020. The order inflow was Rs 5,932 crore in 2020 compared with Rs 6,970 crore in the previous year. The company follows calendar year as its accounting year.Analysts consider the company’s order flow forecast to be conservative. They expect at least 20% growth in the order book for the current and the next year.The company’s products business contributed nearly 75% to the revenue in 2020, a year-on-year gain of 200 basis points. The company has witnessed demand revival across sectors barring conventional power generation. The company is likely to benefit from the production linked incentive (PLI) scheme for sectors such as automobile, pharma and electronics. According to Credit Suisse, ABB India has an incremental opportunity worth Rs 400-800 crore per annum over 2021-25 from investment driven by PLI incentives. The company has increased localization and developed solutions for local needs such as metering skids, terminal automation software, and digitally connected smart shop floors. It will also benefit from the trend of global companies setting up manufacturing activities in India.The stock trades at 37 times 2022 projected earnings. The valuation premium is likely to sustain since companies with higher automation business tend to attract a richer valuation and also due to better growth prospects compared with its local peers.

from Economic Times https://ift.tt/3aRA1qh