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Ticking the right boxes

ABB India (ABB)’s 3QCY26 result wasin line with our estimate. Results reflected continued ordering improvement and recovery in margin performance, thereby increasing our confidence in revenue growth and margin improvement going forward. Order inflows stood at INR47.3b (up 56% YoY), taking the order book to INR129b (up 36% YoY). This was driven by a sharp growth in orders from data centers, utilities, metals and mining, F&B, cement, and building and infrastructure. We believe that the impact of price hikes taken in the past few quarters will support healthy revenue growth and has already started boosting margins across segments. We thus revise our estimates by 6%/7% for CY27/28 and upgrade our rating on the stock to BUY from Neutral, driven by 1) a sustained run rate of healthy inflows, 2) revenue growth, and 3) the bottoming out of its margin in the previous quarter. Since our last downgrade, ABB India has remained flat vs. a 6% gain in the BSE Sensex, and it has also corrected 11% from its yearly highs. Our estimates bake in a revenue/EBITDA/PAT CAGR of 23%/32%/31% over CY26-28, with an EBITDA margin of 13.9%/15.2%/16.2% over the same period. We arrive at our revised TP of INR8,200, implying 60x Dec’28E P/E.

In-line revenue and PAT, while margins beat our estimates

ABB’s 3QCY26 result was broadly in line on revenue and PAT, while the margin came in ahead of our estimate. Ex-Robotics, revenue grew 19% YoY to INR37.4b, driven by growth across all segments barring Automation. Gross margin at 37.1% was broadly in line. Absolute EBITDA was up 14% YoY to INR5.5b, leading to an EBITDA margin of 14.8%. Margin was ahead of our estimate due to a better-than-expected margin in the electrification division. YoY contraction in margin mainly reflects higher commodity and logistics costs, currency volatility, pricing pressure in select markets, and lower volumes in certain businesses. Adj. PAT rose 10% YoY to INR4.4b. For 9MCY26, revenue was up 15% YoY, while EBITDA/PAT dipped 3%/ 5% YoY, and margin contracted 250bp YoY to 13.4%.

Segmental outlook improving across electrification and motion

Order inflows during the quarter rose 56% YoY to INR47.3b. Continued strength has been evident in electrification segment inflows over the past three quarters, with 9MCY26 inflows rising 72% YoY and 9MCY26 revenue growing 29% YoY. With improving traction across key growth areas and price hikes, we expect the strong execution momentum to continue for the electrification segment. Ex-Robotics, motion segment inflows also grew 21% YoY for 9MCY26, indicating market strength in both demand and pricing. With an improvement in private capex and select areas such as railways and the services segment, we expect the motion segment’s revenue growth to recover to 16-18% going forward, driven by demand and pricing improvement. Industrial automation segment growth remains muted in both inflows and revenue, which we believe will take some time to recoup.

Sequential improvement in segmental margins led by price hikes

Though EBIT margins are down YoY across segments due to higher commodity and logistics costs and currency volatility, sequential improvement in the segment margins of the electrification and motion segments reflects the impact of price hikes. EBIT margins of the electrification and motion segments improved 330bp and 100bp QoQ, respectively. ABB’s EBIT margin is still much below the highs seen in CY23/CY24/CY25 and has scope to improve going forward due to operating leverage and price hikes. We raise our EBIT margin assumptions for the electrification and motion segments for CY27 and CY28, but our estimates remain below the CY23 margin levels in both segments.

Outlook

ABB now has a strong backlog, providing visibility for the coming quarters. We expect the company to continue to benefit from investments in data centers, grid modernization, renewable energy integration and energy-transition projects, alongside ongoing capex plans across metals, cement, rail, and buildings. ABB has indicated that it is implementing continuous efficiency measures and disciplined capacity expansions to support profitable growth.

Financial outlook

We raise our estimates by 6%/7% for CY27/28 to factor in the impact of price hikes and strong order inflows in the past few quarters. Consequently, we expect a revenue/EBITDA/PAT CAGR of 23%/32%/31% over CY26-28, with an EBITDA margin of 13.9%/15.2%/16.2% during the same period.

Valuation and recommendation

At CMP of INR7,045, the stock is trading at 63.0x/51.7x P/E on CY27/28 estimates. We upgrade our rating on the stock to BUY from Neutral, driven by 1) a sustained run rate of healthy inflows, 2) revenue growth, and 3) the bottoming out of its margin in the previous quarter. Since our last downgrade, ABB India has remained flat vs. a 6% gain in the BSE Sensex, and it has also corrected 11% from its yearly highs. Our revised TP of INR8,200 implies 60x Dec’28E P/E.

Key risks and concerns

Slowdown in order inflows, pricing pressure across segments, increased competition, supply chain issues, and geopolitical risks could affect our estimates and valuations.

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