Accumulate ABB India Ltd For Target Rs. 5,580 By Elara Capital
Signs of slowdown in capex momentum
ABB India (ABB IN) witnessed a muted topline growth in Q1CY25, due to slowdown in order inflows on account of a high base in Q1CY24, sluggishness in large project orders and deferred capex in various sectors (given geopolitical tensions). Margin continued to improve YoY, led by better-priced orders and operating leverage. We downgrade ABB to Reduce (from Accumulate) with a lower TP of INR 5,580 on 60x March CY27E P/E, factoring in slower-thanexpected growth momentum in government and private capex and slow normalization in margin. We expect an earnings CAGR of 7% in CY24-27E with an average ROE and ROCE of 23% each in CY25E-27E.
Muted growth due to slowdown in order inflows: Revenue grew just 3% YoY in Q1CY25, due to muted growth in electrification and a drop in the process automation segment on account of lower revenue from systems and process industries. Segment-wise, electrification (42% of Q1CY25 revenue) grew 5% YoY to INR 13.6bn due to slower order inflows, robotics & motion (39%) grew 11% YoY to INR 12.5bn led by execution of high value projects, even as process automation (18%) fell 19% YoY to INR 5.9bn due to a change in delivery schedule of customers. Services accounted for 12-13% of the topline, with ABB looking to ramp it up to 15%.
Inflows dropped led by order deferrals, high base: Order inflows decelerated in Q1CY25, with ABB indicating muted momentum due to slow decision-making for large orders and deferred capex in process industries, oil & gas and power generation (on account of global uncertainties and certain domestic issues). In Q1CY25, inflows grew 4% YoY due to a higher base, while order backlog expanded 6% QoQ. Inflows for the electrification segment fell 2% YoY to INR 17.6bn, and from process automation dropped 16% YoY to INR 4.5bn. Inflows from robotics and motion grew 19% YoY to INR 15.8bn due to a large order for traction solutions from the Railways (in motion) and strong inflows in robotics.
Margin continued to expand led by better orders, higher service mix: Margin continued to expand – Q1 EBITDA margin rose 10bps YoY to 18.4%. Margin improvement was led by the receipt of better orders (on pricing), operating leverage and rising contribution of services. Segment-wise, EBIT margin in electrification expanded by 100bps YoY to 24.7%, led by product mix. Margin in robotics and motion was flat at 20.8%, and from process automation rose 10bps YoY to 16.4%, due to higher service contribution. ABB seeks to maintain 12-15% PAT margin, going forward.
Downgrade to Reduce with lower TP of INR 5,580: We lower our earnings by 6% for CY25E and by 5% for CY26E, due to a slowdown in capex momentum likely leading to lower inflows and topline growth. We downgrade ABB to Reduce from Accumulate with a lower TP of INR 5,580 from INR 5,860, on 60x (unchanged) March CY27E P/E, due to lower sales growth and margins likely having peaked (and now moving towards gradual normalization). We expect an earnings CAGR of 7% in CY24-27E with an average ROE and ROCE of 23% each in CY25E27E.
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