HOW ABB INDIA BECAME A STOCK MARKET DARLING
The industrial products maker’s stock has gained about 450% in the last five years. Why are investors so enthused?
to gain productivity, you have to participate in new technologies. That attitude is coming to India,” he said.
To drive the point home, Sharma gave the anecdote of an Indian carmaker looking to invest in ABB’s new PixelPaint spray technology that has only recently been piloted with an American carmaker. This technology speeds up the process of achieving dual-tone paint on cars as it doesn’t require covering and uncovering painted areas to prevent the cross-contamination of two colours. While the technology was developed for the US and European markets, Sharma was pleasantly surprised to find an early customer in India.
FINALLY, THE FRUIT
ABB India clocked revenue of ₹10,447 crore in 2023, nearly rescaling the pre-divestment peak of 2018, when it had a top line of ₹10,862 crore.
The wider customer and product base also meant that the company’s new orders have surpassed the 2018 levels. The company received ₹12,319 crore worth of orders in 2023 compared to ₹10,115 crore in 2018.
ABB’s 2023 profit of ₹1,242 crore was more than double the 2018 profit of ₹511 crore. Earnings per share went up from ₹24 to ₹59 during this period. We compared the numbers to 2018 as the company’s performance dipped in 2019 before restructuring and the covid-19 pandemic impacted performance in 2020.
ABB is flush with cash that is sufficient to handle its present and future capital expenditure needs, analysts have noted. The company is investing in organic growth across its operations; the new Nashik factory being one example. At the same time, it is scouting for acquisition opportunities.
“We have informed all our divisions that cash is held by the corporate. You find the targets for us. Micro, small, medium or large–we will fund it for you as long as it makes sense for our customers and adds more value to the portfolio,” Sharma said.
ABB, meanwhile, has distributed a part of the higher earnings to shareholders as dividends. Its dividends went up from ₹4.8 per share in 2019 to ₹11 per share in 2023, including a special dividend of ₹5.5 per share. In February this year, the company declared a special dividend of ₹23.8 per share, the highest-ever in its history.
Investors have appreciated the turnaround and the dividends, with the ABB
India stock becoming a favourite on the bourses. The stock has gained nearly 450% in the last five years to close at ₹7,184 on Wednesday. It has gained over 50% since the beginning of 2024.
To be sure, a growing middle India and buoyant stock markets have also helped the company’s business and stock price. Its peer, Siemens India, which is into several businesses that ABB India is in, has seen an identical stock market performance over the last five years, gaining over 460% during this period. Meanwhile, the stocks of CG Power and Havells India, who also compete with ABB, have given returns in excess of 1,400% and 100%, respectively, over the same period.
MIXED FEELINGS
e remain positive on ABB given increasing traction for energy efficient products, changing customer preference towards premium quality products, diversified business model, focus on high growth segments such as data centres, electronics, rail and metro, renewables, etc., and strong domestic order pipeline,” analysts at Prabhudas Lilladher noted in February.
However, analysts at ICICI Securities hold a more muted outlook on the prospects of the stock. In a note released in April, the ICICI Securities analysts noted that while the company’s order inflows in 2023 grew at a healthy clip of 29%, the share of long lead time orders has increased to 15% of the total order book compared to 7% a year ago. “Thus, assuming 15% long lead order inflow in CY24, adjusted order inflow has grown at 8% year-on-year to ₹108 billion vs headline growth of 29%,” the analysts noted.
Coupled with uncertainty due to the ongoing general elections, the analysts expect order inflow in the first half of 2024 to remain subdued on the high base of last year. “Thus, we expect revenue growth to remain muted in CY24E,” the ICICI Securities
noted.
“Moreover, we believe operating margin may have peaked as most gains pertaining to easing raw material cost have been realized,” they added.
SHARMA’S RUMINATION
Sharma agrees that while the company has increased its focus on the highgrowth market of smaller companies ordering its FMIG products, 40-45% of the company’s business still comes from the low-growth segment of large companies. These orders typically have a longer lead time, although the specifics vary from order to order. But he remains bullish. “The high growth segments are the ones which give us accelerated volumes. And in the low growth segments, the moment there is a turnaround, they come up with a very large project. As this capex comes in, it will add to our growth story, going forward,” he said.
Back in Nashik, the relaxed pace of activity at the company’s Satpur plant belies the company’s frantic pace of business expansion. The plant works a single shift and production is anything but rushed. The plant has been set up keeping in mind the demand anticipated in the coming 10 years.
Sitting at the company’s first plant at Nashik, a 44-year-old unit not far from the company’s new plant, Sharma ruminated on the company’s performance over the last four years.
What keeps him up at night is not how to bring in more business, but how to train the next tier of leadership; how to maintain the company’s culture with its expanding roster.
“As we expand our workforce, integrity is the most important element. We have zero tolerance to bribing and influencing anybody to get business,” he said, adding that it was his top priority to imbibe this culture in the company’s 10,000-strong workforce in India.
In December 2022, the ABB group reached a settlement with the National Director of Public Prosecution in South Africa, the US department of justice, the US Securities and Exchange Commission, and the Office of the Attorney General of Switzerland, over its role in a corruption scheme in South Africa. The settlements totalled $327 million.
Sharma’s cultural tutoring could help ABB India stay clean.