Shares of ABB India Ltd. gained on Wednesday after Jefferies said it expects strong order inflow and execution to help increase the company's profit margin.
Key takeaways from ABB's analyst meet highlight:
Customer focus is on quality delivery as opposed to price negotiation.
The target market of $11-12 billion is growing across segments.
Growth is beyond Tier 1 cities and more broad-based.
ABB is exposed to 23 end markets in 18 business lines, comprising both the government and private sectors, where growth is being seen across segments, Jefferies said after the analyst meeting. New customer behaviour tends to look for reliable solutions and reliable suppliers who can deliver on commitments, it said.
The brokerage also noted that the food and beverage industry is showing strong growth, driven by production linked incentive schemes. Data centres and pharma industries have become larger as compared to earlier. These sectors will seek energy efficiency, putting ABB in a "sweet spot" given its electrification, motion, and automation portfolios, Jefferies said.
The market has become deeper as real wealth formation has taken place outside Tier 1 cities, according to the company's management. ABB's trailing four-quarters order flow has risen 21% year-on-year.
Jefferies On ABB India
Jefferies retains a 'buy' with a price target of Rs 5,260 apiece, implying an upside of 23% over the next 12 months.
Infrastructure and industrial capital expenditure are expected to see a 16% compound annual growth rate over FY23-26, as compared to the 6% growth over FY11-20.
Estimates the net profit margin to rise 11.9% by CY25. The company has already achieved an 11% net profit margin in the first half of the calendar year 2023.
Exports are likely to remain at 12-15% of sales as domestic market demand is strong, according to Jefferies.
In the long term, Jefferies expects margin surprises to be good given asset sweating at current low utilisation levels.
ABB India should benefit from the domestic infrastructure spend and from a pickup in exports from the Indian market, in a base case scenario as per Jefferies.
Shares of the company rose 1.90% to Rs 4,525.25 apiece, compared to a 0.02% advance in the NSE Nifty 50 as of 10:40 a.m. The share price advanced as much as 2.23% intraday to hit Rs 4,540 per share, the highest level since Aug. 14.
The stock has risen 69% on a year-to-date basis. Total traded volume stood at three times its 30-day average. The relative strength index was at 61.
Out of the 33 analysts tracking the company, 13 maintain a 'buy' rating, 13 recommend a 'hold,' and seven suggest a 'sell' on the stock, according to Bloomberg data. The average of 12-month price target given by analysts implies a potential downside of 2.2%.
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