ABB India Gets Its Highest Target Price After UBS Upgrade
It revised the target price from Rs 3,770 to Rs 5,000, implying an upside return potential of 20.68%.
UBS Research has upgraded ABB India Ltd. to 'buy' from 'neutral', citing the short-cycle demand of its industrial product being stronger-than-expected on the back of its deeper geographical penetration.
The brokerage revised the target price of the engineering services firm to Rs 5,000 from Rs 3,770, implying an upside return potential of 20.68%.
Despite the moderation in global growth, ABB has seen a 13% upgrade in consensus earnings in the past three months, reflecting a strong outlook beyond pent-up demand, according to the research house.
"ABB's ability to win more mandates from its parent (such as the recent low-voltage products), deepening tier 2/3 market penetration and significant scope to expand its addressable market in low-voltage electrification add to our confidence that earnings can grow at a high double-digit trajectory," the brokerage said in a note dated June 12.
Shares of the company were trading 0.36% lower at Rs 4,134.05 apiece, compared to a 0.14% gain in the NSE Nifty 50 as of 1:01 pm on Monday. The relative strength index was at 67.48, which suggest the stock is close to overbought area.
Of the 35 analysts tracking the company, 17 maintain a 'buy' and 11 suggest a 'hold' and seven suggest a 'sell' on the stock. The average of 12-month target price implies a downside return potential of 9.7%.
Geographical Reach
With wide innovation-driven moats and high value-added products, the company is extending its geographical reach in its leadership segments, such as motors, drives, low and medium-voltage switches, and switchgears. The research firm sees a lot more room for growth in profitability.
Bullish On Performance
UBS remains bullish on industrial automation and low-voltage electrification demand, and sees an improving case for growth in the operating profit margin.
The research firm lifted margins by 130 basis points and earnings by 10–17% for CY23–25E, which it said realistically reflects the sustainability of margins, driven by volume and revenue mix benefits from electrification and motion.
The company's outperformance versus the benchmark index in the past 18 months captures a better-than expected pick-up in new orders, on par with its peers, according to the research house.
"Markets seem to be factoring better domestic growth, while not fully appreciating optimal Ebitda margin levels (consensus at 11–12%) that ABB could achieve of 12–13% with ongoing strategies, revenue mix and growth delta from huge untapped low/medium voltage market," it said.
