Despite near-term concerns, analysts upbeat on ABB India's stock

ABB India (ABB) suffered a miss during the April-June quarter (Q2) of CY25 due to higher competitive intensity and new quality control order (QCO) guidelines.

 

Weakening order inflow may also impact operations, going forward.

 

However, ABB gained share in base orders in Tier III and IV cities and is well-placed to benefit from a return of investment. It could remain a market leader despite competition.

 

ABB India’s Q2CY25 (the company has a December year ending) results disappointed with order inflows down 12 per cent year-on-year (Y-o-Y).

 

For Q2CY25, revenue grew by 12 per cent to ₹3,170 crore, while earnings before interest, taxes, depreciation and amortisation (Ebitda) fell by 24 per cent to ₹410 crore and PAT slipped 20 per cent to ₹350 crore.

 

Ebitda margin was down 610 basis points (bps) at 13 per cent.

 

Electrification revenue growth was strong, but other segments were weak. Gross margin declined 350 bps quarter-on-quarter (Q-o-Q) and 470 bps Y-o-Y. 

 

The Ebitda margin contracted 620 bps Y-o-Y to 13 per cent with sharp contraction in electrification and robotics & motion segments, which were affected by competitive pricing and forex loss.

 

Order inflows were down 12 per cent at ₹3,040 crore. Base orders formed ₹3,020 crore (up 5 per cent). The order book moved to ₹10,060 crore. The company expects a revival in the second half of CY25.

 

Ebitda margin decline was due to contraction in the electrification and motion segments.

 

Forex fluctuations worth ₹56.5 crore were recognised due to Euro and Swiss franc appreciation.

 

Also, in order to adhere to the QCO implementation timeline, ABB India had to import a lot of components, resulting in higher impact of forex fluctuations and larger inventories.

 

ABB may have to rely on importing for a few more quarters for certain components.

 

Electrification segment saw 23 per cent Y-o-Y revenue growth in Q2CY25, while earnings before interest, taxes (Ebit) margin declined 700 bps Y-o-Y to 16.1 per cent due to higher import content and a one-time impact of ₹39.5 crore.

 

Order inflow declined 4 per cent owing to high base. Demand remains strong across renewables, data centres, smart buildings, and infrastructure. PBIT margin recovery is a key monitorable.

 

In motion & robotics, revenue growth was healthy but order inflows were weak despite rising adoption.

 

Robotics revenue grew 181 per cent, margins contracted to 6.5 per cent (14.6 per cent in Q2CY24) and order inflow dropped 24 per cent to ₹120 crore.

 

In motion, revenue inched up 1 per cent, and order inflows declined 17 per cent. Analysts expect sharp margin recovery.

 

Process automation remained under pressure as both order inflows (down 12 per cent) and revenue (down 22 per cent) declined.

 

But Ebit margin held up at 17.2 per cent (16.2 per cent in Q2CY24), supported by good service mix, operational efficiencies, and project closures. ABB expects near-term pressure to persist. 

 

The company remains a market leader and its execution momentum is intact.

 

The order book ensures revenue visibility over the next six quarters.

 

The management says the overall pipeline has not reduced but is facing delays in decision making and there is increased Chinese competition in process automation and heavy industries.

 

Valuations are always high for ABB and it’s trading about PE 60 times on trailing 12-month earnings.

 

Given margin pressures, there could be valuation downgrades and certainly cuts to EPS targets.

 

But once QCO implementation is over, ordering may ramp up. Investors may also worry about slow order inflows, pricing pressures, supply chain issues, and geopolitical risks. However, many analysts remain positive on the stock.