Accumulate ABB India Ltd For Target Rs. 5,860- Elara Capita
Topline, margins surge; inflows slow down
ABB India (ABB IN) witnessed a robust topline growth in Q4CY24, led by strong segmental demand. Margin continued to improve YoY, led by better-priced orders and operating leverage. However, inflows declined due to a slowdown in private capex. We lower our TP to INR 5,860 on 60x CY26E P/E, factoring in slower-than-expected growth momentum in government and private capex. But we reiterate Accumulate as the stock has underperformed the Nifty by 20% in the past three months.
Strong segmental performance drives topline: ABB’s revenue grew 22% YoY in Q4CY24, led by strong performance across all the segments, except process automation. Segment-wise, the electrification segment (44% of Q4CY24 sales) grew 33% YoY to INR 15bn, led by a rise in orders and uninterrupted execution. Robotics & motion (37% of sales) grew 23% YoY to INR 12.6bn, led by higher contribution from traction motors, system drives & drives products and strong backlog. The process automation segment (20% of sales) declined 1% YoY to INR 6.3bn, due to deferral of large orders expected from the private sector. CY24 revenue rose 17% YoY to INR 122bn.
Inflows dropped led by order deferrals, high base: Order inflows slowed down in Q4CY24, falling 14% YoY to INR 27bn due to a large order received in the base quarter in transportation. Excluding that, base orders grew 4% YoY. Inflows for the electrification segment fell 1% YoY to INR 10bn, and from process automation 18% YoY to INR 5.7bn. Inflows from robotics & motion fell 23% YoY to INR 11.2bn due to a large equipment order in the base quarter. ABB expects ordering momentum to sustain in the upcoming quarters despite muted macro commentary on private and government capex. Also, it expects to execute 65-70% of the existing backlog in CY25 (balance executed in CY26).
Margin continues to expand led by better orders, higher service mix: ABB continues to witness strong margin expansion, with Q4 EBITDA margin up 440bps YoY to 19.5%. Margin improvement was led by the receipt of better orders (on pricing), operating leverage and rising contribution of services. Segment-wise, EBIT margin from electrification expanded 460bps YoY to 23.6%, with robotics & automation margin at 19.7%, up 260bps YoY, led by better realization, and process automation at 19.4%, up 640bp YoY. ABB seeks to maintain 12-15% PAT margin, going forward.
Reiterate Accumulate with a lower TP of INR 5,860: We lower our earnings by 2% for CY25E and 8% for CY26E, due to margins likely having peaked out and now moving towards gradual normalization. We introduce CY27E estimates. We cut our TP to INR 5,860 from INR 6,660, on 60x (from 65x) December CY26E P/E, factoring in slower-thanexpected growth momentum given lower budgetary allocation to infra. But we reiterate Accumulate as the stock has underperformed the Nifty by 20% in the past three months. We expect an earnings CAGR of 8% in CY24-27E with an average ROE and ROCE of 24% each in CY25-27E
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