ABB valuations leave little room for growth slip-ups despite strong outlook

ABB India shows steady growth and strong order book across sectors, but margin pressures and elevated valuations leave little room for earnings disappointments

The CY25 annual report of capital goods major ABB India has moderate numbers but signals good future prospects. ABB posted 8 per cent revenue growth to Rs 13,200 crore. But margins fell 340 basis points year-on-year (Y-o-Y) to 15.5 per cent due to commodity cost volatility, adverse forex movements, new mandatory quality control order (QCO) norms that led to higher imports, new labour codes, among others. Earnings saw a 10 per cent Y-o-Y decline with margins under pressure. Forex outgo rose due to the impact of QCO norms, with imports contributing 39 per cent of the raw material cost (34 per cent in CY24).

 

ABB is well positioned to exploit broad demand with exposure across 23 sectors. It is looking for opportunities in artificial intelligence (AI) and digital infrastructure, energy transition, manufacturing, and mobility. Order inflow was Rs 14,120 crore, with Q4CY25 witnessing a 52 per cent Y-o-Y rise in order inflow. End-markets include data centres, automotive, infrastructure, railways, and metals. The CY2025 order book was at record levels of Rs 10,470 crore, which is 0.8 times trailing twelve months (TTM) sales, with 70 per cent comprising small orders and 30 per cent being large orders.

 

ABB has a strong balance sheet, robust free cash generation, and good return ratios. A localisation drive and capacity expansions are strengthening supply chains. There is a new high-margin export opportunity via the India–EU free trade agreement (FTA). Exports are 10 per cent of sales. Margin expansion may come through pricing discipline and a better mix of higher-value areas.

 

Net cash on the balance sheet was Rs 5,690 crore in CY25. Net working capital days increased to 18, which is double that of CY24, due to QCO requirements forcing enhanced inventory of 57 days. The return on capital employed and return on equity (RoCE and RoE) stood at 29 per cent and 21 per cent, respectively. 

 

ABB is increasing localisation with capex in automation and expanded testing to accelerate product development, and the India–EU FTA could boost this significantly. ABB is also increasing its penetration into Tier-2 and Tier-3 towns while enhancing international market positioning.

 

The company has exposure across 23 sectors, leaving it in a position to benefit from opportunities across the economy. It has benefited from government investments such as capex in infrastructure, railways, grids, and renewables, along with increasing demand from metals, mining, energy, chemicals, data centres, and electronics. Any revival in private capex would add to momentum.

 

The electrification segment, where ABB has a wide range of products, digital solutions, and services, reported revenue growth of 13 per cent Y-o-Y at Rs 5,700 crore. Margins dropped 240 basis points Y-o-Y to 20.5 per cent in CY25 on account of QCO norms, material costs, and forex volatility. Order inflow was flat Y-o-Y at Rs 5,880 crore, with an outstanding order book of Rs 3,280 crore.

 

Opportunities are visible in data centres and digital infrastructure, renewables and energy transition projects, buildings, rail and metro infrastructure, airports, electric vehicle (EV) manufacturing, semiconductors, electronics manufacturing, green hydrogen, battery energy storage systems (BESS), among others.

 

In the discrete automation and motion segment, there was 11 per cent Y-o-Y revenue growth to Rs 5,260 crore. Motion reported modest growth of 6 per cent Y-o-Y to Rs 4,560 crore. Order inflow was at Rs 4,980 crore (up 10 per cent Y-o-Y). The order book stood at Rs 4,250 crore (up 12 per cent Y-o-Y). Robotics and discrete automation revenue grew 58 per cent Y-o-Y to Rs 700 crore. Order inflow jumped 128 per cent Y-o-Y to Rs 1,220 crore. The segment margin dipped 400 basis points Y-o-Y to 18 per cent in CY25.

 

ABB has introduced IE5 large and mid-range motors in the domestic market (total capex of Rs 140 crore). It has also established a new automated manufacturing line and expanded low-voltage (LV) motor capacity. ABB also deepened its footprint in North America, the Middle East, and Africa via partnerships with companies.

 

The robotics and discrete automation business was earlier focused on the automobile industry but is expanding into electronics, food and beverages, metals, and logistics. Process automation registered a 10 per cent decline in topline to Rs 2,330 crore. Operating profit margin fell 130 basis points Y-o-Y to 16.4 per cent due to unfavourable project mix, rising commodity costs and forex volatility, execution challenges in large projects, and high competition. Order inflow was flat at Rs 2,170 crore, and the order book stood at Rs 2,260 crore, down 6 per cent Y-o-Y.

 

Growth and revenue visibility are good. Management believes that margin compression is cyclical, not structural. Guidance is for double-digit revenue growth with a net profit margin range of 12–15 per cent. This may be achievable. But the stock is highly valued, and any miss could lead to sharp downgrades.