ABB India: Brokerages cut target post Q4; Nomura downgrades to 'Reduce'

A key factor influencing the change in target price is ABB India's disappointing order inflow, which missed expectations by 24 per cent, highlighting potential challenges in the near-term

Engineering services company ABB India’s Q4CY24 results have led to a shift in investor sentiment, with several brokerages slashing their target prices. 

 

A key factor influencing the change in target price is the company's disappointing order inflow, which missed expectations by 24 per cent, highlighting potential challenges in the near-term.

 

According to Nomura, the company’s order inflow declined 14 per cent Y-o-Y and 19 per cent Q-o-Q, amounting to Rs 2,700 crore, which was considerably lower than their forecast. 

 

The dip in orders is attributed to two primary factors, which include the lowest base business (short cycle) orders in CY24, and the absence of any large-scale orders, analysts said. 

 

 

The company’s Motion (MO) and Process Automation (PA) segments were particularly impacted, with Y-o-Y declines of 30 per cent and 18 per cent, respectively. 

 

While ABB's management has described the slowdown as ‘transient’ and expects growth momentum to moderate before picking up again, the near-term outlook remains uncertain. 

 

Segments like data centres, electronics, and renewables are expected to grow at under 7 per cent, while others like cement, metals, and mining are expected to see minimal growth.

 

Despite the downturn in orders, ABB India reported a strong operational performance for Q4CY24. Revenue surged 22 per cent Y-o-Y, exceeding both Nomura’s and Bloomberg’s estimates. This was primarily driven by robust performances in the Motion and Electrification segments, which saw Y-o-Y growths of 22 per cent and 33 per cent, respectively. 

 

The company also benefitted from higher margins, with Ebitda rising 58 per cent Y-o-Y, supported by a favourable revenue mix and better-margin orders. The recurring PAT for Q4 was Rs 530 crore, a 54 per cent Y-o-Y jump, surpassing analyst expectations.

 

However, as the ordering momentum has slowed majorly compared to previous years (from a CAGR of 23 per cent between CY20 and CY23 to just 5 per cent in CY24), Nomura has downgraded ABB India to a ‘Reduce’ rating with a lowered target price of Rs 4,970. The revised target price implies a P/E of 52x, 15 per cent lower than the company’s long-term average. 

 

Nomura also reduced their earnings estimates for CY25 and CY26, citing slower-than-expected public and private capex, which has dampened ABB’s growth prospects.

 

On the other hand, Motilal Oswal remains more optimistic about ABB India’s future. They highlighted the company’s strong margin performance and its exposure to high-growth sectors like data centres, electronics, and renewables. 

 

“We remain positive on the company and maintain ‘Buy’ with a revised target price of Rs 6,700, which implies 60x March’27E earnings,” Motilal Oswal said. However, analysts have cut the estimates for FY25 and FY26 by 6 per cent and 9 per cent, respectively.

 

Those at InCred Equities also maintained an optimistic view, keeping their ‘Add’ rating on ABB India, but with a reduced target price of Rs 7,627 (Rs 9,000 earlier). They highlighted ABB’s strategic focus on energy transition and infrastructure, particularly in energy efficiency, as key drivers for long-term growth. The downside risks, analysts said, include delay in order execution and lower margin.

 

Nuvama, while acknowledging the near-term sluggishness in order inflows and the potential peak in margins, remained upbeat on ABB India’s long-term growth prospects. They pointed to key areas like data centres, railways, and industrial capex as strong drivers for the company. 

 

Despite lowering its CY25E/26E EPS by 4 per cent and 8 per cent, Nuvama kept its ‘Buy’ rating with a target price of Rs 6,650, down from Rs 8,900.

 

That said, while ABB India delivered solid operational performance in Q4CY24, concerns about the slowdown in order inflows and the uncertainty surrounding public and private capex have led brokerages like Nomura to downgrade their ratings. 

 

However, other analysts like Motilal Oswal, InCred, and Nuvama remain optimistic about the company’s long-term growth prospects, especially in high-growth sectors.

 

On the bourses, ABB India shares dropped as much as 2.42 per cent to hit an intraday low of Rs 5,016.20 per share.