ABB (Buy)

The Hindu Business Line - - STOCKS -

CMP: ₹1,390

Tar­get: ₹1,607

ABB Ltd is a hold­ing com­pany. The com­pany’s seg­ments in­clude elec­tri­fi­ca­tion prod­ucts, ro­bot­ics and mo­tion, in­dus­trial au­to­ma­tion, power grids, cor­po­rate and oth­ers.

Though ABB se­cured or­ders worth ₹1,930 crore in 3QCY17 (vs. ₹2,970 crore in 3QCY16), ad­just­ing for one-time large rail or­der in 3QCY16, fresh or­ders re­mained largely flat. Base or­ders were the key con­trib­u­tor with in­dus­try turn­ing to im­prov­ing op­er­a­tional ef­fi­cien­cies through tech­nol­ogy and dig­i­tal up­grades in­clud­ing ro­bot­ics au­to­ma­tion. Notably, con­tin­ued up­trend in over­seas busi­ness and or­der back­log of ₹12,130 crore au­gur well for ABB. Look­ing ahead, we ex­pect ABB’s earn­ings to wit­ness 34.5 per cent CAGR through CY16-18E, while RoE is ex­pected to im­prove to 15.4 per cent in CY18E from 11.5 per cent in CY16. On the back of strong pres­ence in power T&D space, we be­lieve ABB would con­tinue to com­mand higher mul­ti­ple, go­ing for­ward. Valu­ing at 50x CY18E (15 per cent dis­count to its mean mul­ti­ple of 60x over 200515) earn­ings of ₹32.1/share, we main­tain our ‘Buy’ rec­om­men­da­tion with an un­re­vised tar­get price of ₹1,607.

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