Strong orders cushion ABB as margin recovery remains key concern

ABB reported strong order inflows in Q1CY26, but margins remained under pressure due to higher raw material costs, forex volatility and slower execution

ABB's operational performance in the first quarter of calendar year 2026 (Q1CY26) disappointed the market, as profits fell even as revenues rose. Guidance also indicated that margins are likely to stay under pressure for the next two to three quarters. The company has completed the divestment of the robotics division.

 

It reported a revenue of ₹3,180 crore, which was below estimate due to the Iran war. Profits were hurt by high raw material costs, poorer mix, forex volatility and slower execution. Operating profit declined 27 per cent year-on-year (Y-o-Y) to ₹410 crore, while margins contracted 580 basis points to 12.8 per cent.

 

Ordering momentum hit record quarterly level of ₹4,280 crore, with net inflows rising 25 per cent Y-o-Y. The order book stood at ₹11,100 crore, up 17 per cent Y-o-Y which is an optimistic signal across its 16 businesses. Order traction could be driven by significant government investments, potentially favourable trade deals, and gradual pick up in private capex. Execution could be a question mark, given the conflict.

 

The revenue at ₹3,180 crore was up 6 per cent -- the company estimated that geopolitics had a big impact, since revenue could have hit ₹3,300 crore-₹3,400 crore. Electrification revenue grew 15 per cent Y-o-Y to ₹1,560 crore. Motion business revenue stood at ₹1,160 crore, up 6 per cent Y-o-Y. Automation revenue fell 15 per cent Y-o-Y to ₹500 crore. Business momentum depends on scale up in data centres, electronics, renewables, railways & metros, waste & wastewater, building & infra, food and beverage, pharma, and healthcare segments.

 

The gross margin contracted 370 basis points Y-o-Y to 38.7 per cent, impacted by higher materials costs, low margin orders, slower execution and forex impact. The operating profit Ebitda was hurt by weak gross margin, higher staff costs and other expenses. Margin contraction was witnessed across all segments and dropped by 1,000 basis points for motion and electrification segments while decline in automation margin was about 230 basis points. 

 

Electrification and motion segments order inflows surged 36 per cent to ₹2,400 crore, and 22 per cent Y-o-Y to ₹1,530 crore, respectively. Automation ordering was muted and down 11 per cent Y-o-Y at ₹400 crore due to weak ordering from process industries. The order book of ₹11,100 crore is around 0.9 times the trailing twelve months (TTM) revenue visibility. Large order inflows were aggregated at ₹760 crore in Q1CY26, driven by data centres and railways.  

 

The balance sheet is strong with cash of ₹6,045 crore and ₹5,690 crore quarter-on-quarter (Q-o-Q). Cash proceeds from sale of the robotics business took total cash position to ₹7,600 crore. Exports constituted 11 per cent of the total sales in Q1CY26 (7 per cent Y-o-Y). The forex loss in the quarter was ₹27.5 crore.

 

There were cost spikes due to supply chain bottlenecks due to the conflict, with cost escalation in copper, silver and aluminium and rupee depreciation. Raw material costs as a percentage of sales rose 370 basis points Y-o-Y to 61.3 per cent. The electrification margin plunged 1,000 basis points to 15.1 per cent with a base effect (a data centre project with higher margins was executed a year ago) apart from raw material cost impact. Motion division margin was down 900 basis points Y-o-Y to 12.7 per cent.

 

Volume growth and operating leverage may improve margins, but adverse forex moves, and industrial metal cost spikes are concerns. ABB has taken price hikes. But there is a lag between input cost inflation and price hikes, and competitive intensity is fairly high.

 

ABB has launched its first ever locally manufactured wind power converter and a new low voltage switchgear platform named ArTu formula. The company has $75 million capex outlay (excluding Hyderabad labs) to enhance capacities and support localised product pipelines.

 

Data centres contribute 11-13 per cent of the order book, and it has the potential to increase to 12-16 per cent. ABB can easily meet evolving requirements. Exposures across 16 distinct businesses means that the company contends with competitors in many different verticals. The current Chief Financial Officer (CFO), TK Shridhar, will take over as chief executive officer in January 2027.

 

Timeline of margin recovery is a key monitorable given very high valuations. Analysts have cut earnings estimates for the next two-three quarters. The revenue visibility and potential pipeline look good. The stock had appreciated 40 per cent in six months before it met heavy selling pressure.