PL Stock Report: ABB India (ABB IN) - Q2CY23 Result Update - Robust demand outlook to propel growth - Accumulate

ABB India (ABB IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs4,511 | TP: Rs5,013

Q2CY23 Result Update - Robust demand outlook to propel growth

Quick Pointers:

♦ Order inflow came in strong at Rs30bn, up 10% YoY, despite high base.

♦ Higher volumes, better price realization, product mix and efficient capacity utilization drives EBITDA margins expansion of 422bps YoY.

We revise our estimated for CY23/24/25E by 9.5%/11.3%/11.7%, factoring in strong domestic demand outlook, favorable product mix, better price realizations, increasing adoption of ABB’s energy efficient products and sourcing by parent from ABB India to serve exports markets. ABB India (ABB) reported a robust quarterly performance, with revenue growth of 22.2% YoY and EBITDA margin expansion of 422bps YoY to 13.9%. Demand from core sectors (Cement, Metal, mining etc), high growth sector (food & beverages, pharma, automotive, water etc.) and new initiatives (data centers, railways, renewables etc) to propel stronger growth in medium term. Strong growth witnessed in short cycle orders across segments, coupled with increasing distribution reach (tier2/3 cities) fueled LV/MV product growth leading to better volumes and strong operating leverage playing in.

We remain positive on ABB given 1) increasing traction for energy efficient products, 2) changing customer preference towards value added products, 3) ABB’s diversified business model, 4) focus on high growth segments (Electronics, Data center etc), 4) strong order pipeline 5) organic/inorganic growth. The stock is trading at PE of 90.5x/73.5x/61.2x CY23/24/25E. We roll forward to CY25 estimates and maintain ‘Accumulate’ rating on stock with revised TP of Rs5,013 (Rs4,119 earlier), valuing it at 68x CY’25E (same as earlier).

Higher volumes and reducing commodity prices drive EBITDA margins: Sales grew 22.2% YoY to Rs25.1bn (PLe ~Rs24.6bn), driven by high focus on execution, revenue mix and capacity utilization. Motion segment revenue grew 10% YoY to Rs9.2bn; Electrification grew 20% YoY to Rs10bn; Process Automation grew 37.6% YoY to Rs5.1bn; and Robotics grew 154.5% YoY to Rs1.2bn. EBITDA grew 75.4% YoY to Rs3.5bn (PLe ~Rs2.7bn), with EBITDA margins expanding by 422bps YoY to 13.9% (PLe 10.8%), driven by lower other expenses as % of sales (15.9% vs 19.4% in Q2CY22). Operational EBITA margin expanded 253bps YoY to 13.6%. Adj. PAT grew ~101% YoY to Rs2.95bn (PLe ~Rs2.1bn), partially aided by higher other income (up 196% YoY to Rs750mn).

Strong order inflows of Rs30bn: Despite high base, order inflow grew 10% YoY to Rs30bn, with base orders growing ~4% YoY. Order inflows growth was witnessed across business verticals except for Robotics division. Bagged large order from metal sector (Rs1.6bn). Order book stands strong at Rs77.3bn (0.8x TTM revenue).

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