Buy ABB India Ltd for the Target Rs 7,600 by Emkay Global Financial Services Ltd
We assume coverage on ABB with REDUCE and TP of Rs7,600, as we value ABB on 1HCY28E and assign PER of 65x. ABB’s 2QCY26 operational performance was above our estimates; however, the company missed consensus’ estimates on the profitability front. Revenue at Rs35.6bn (+21% yoy) beat our/consensus’ estimates, supported by execution pick up in the Electrification segment (+31% yoy), though profitability remained under pressure on account of higher material costs, adverse revenue mix, and rise in employee expenses. Ordering momentum stayed healthy, seeing the highest-ever quarterly inflow of Rs43.6bn (+50% yoy) and leading to a strong order book position of Rs119bn (+22% yoy). Business outlook remains optimistic as the company is witnessing healthy revival in aggregate demand across its key businesses; however, given the premium valuations, we await a better entry point to upgrade the stock
Revenue booking gains momentum, with traction in key end-user markets
ABB’s 2QCY26 revenue at Rs35.6bn grew 21% yoy, above our/consensus’s estimates, supported by strong execution in the Electrification division (+31% yoy to Rs18bn) driven by export revenue pick up and efficient execution of orders. Motion business revenue stood at Rs12.7bn (+17% yoy), on the back of export revenue pick up along with better service revenue booking. Automation revenue was up 7% yoy, at Rs5.2bn. The strong performance in short cycle and retrofit orders aided revenue conversion and points to business normalization.
Margin weakness continues; near-term pressure to persist
ABB’s gross margin for the quarter contracted by 270bps yoy to 37.1%, impacted by higher material costs, execution of low-margin orders, increased import content, and heightened competition in the Electrification and Motion businesses. EBITDA stood at Rs4.5bn (+11% yoy), impacted by the weak gross margin profile, higher staff costs, and other expenses; this led to a 100bps yoy fall in EBITDA margin to 12.6%. Margin contraction was seen across all segments—around 440bps for Motion, 120bps for the Electrification segment, and decline to the tune of 260bps yoy in Automation.
Healthy order inflow in the quarter; backlog stands at Rs119bn (+22% yoy)
ABB clocked the highest quarterly net order inflow in 2QCY26, at Rs43.6bn (+50% yoy) supported by sharp improvement in base ordering. Electrification/Motion segment order inflow surged 77%/ 26% yoy, respectively, led by sustained industrial activity. Also, automation ordering registered a strong 24% yoy growth. Order backlog was strong at Rs119bn (+22% yoy), providing 0.9x its TTM revenue visibility leading to healthy nearterm revenue prospects.
View and valuation
The business outlook remains optimistic as the company is seeing healthy revival in aggregate demand across its key businesses. However, given the premium valuations, we assume coverage on ABB with REDUCE and await a better entry point for upgrading the stock.
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