Bullish indicating open at $55-$60, IPO prices at $37
Tuesday, ABB (ST:ABB) India’s stock rating was downgraded by Elara Securities India from ’Accumulate’ to ’Reduce’, accompanied by a decrease in the price target to INR 5,580 from INR 5,860. The downgrade reflects concerns over the company’s muted top-line growth in the first quarter of CY25, attributed to slower order inflows compared to the same period last year. The high base effect of Q1CY24, sluggishness in large project orders, and deferred capital expenditures across various sectors due to geopolitical tensions were cited as contributing factors.
Despite the challenges in revenue growth, ABB India has seen a year-over-year improvement in margins. This improvement has been driven by better-priced orders and operating leverage. However, the updated price target is based on a 60x March CY27E price-to-earnings ratio, which factors in a slower-than-expected growth momentum in both government and private capital expenditures, as well as a gradual normalization in margins.
Elara Securities projects a compound annual growth rate (CAGR) of 7% in ABB India’s earnings from CY24 through CY27E. Additionally, the firm anticipates an average return on equity (ROE) and return on capital employed (ROCE) of 23% each in the CY25E-27E period. These figures suggest a stable but subdued financial performance for ABB India in the coming years.
The downgrade and revised price target indicate a more cautious outlook on ABB India’s financial prospects. Elara Securities’ analysis suggests that the company may face headwinds that could impact its growth trajectory and profitability in the medium term. The report emphasizes the importance of government and private sector capital expenditures as key drivers for ABB India’s business, which appear to be lagging expectations currently.
Investors in ABB India may need to adjust their expectations as the company navigates through a period of slower growth and potential margin pressures. The revised rating and price target by Elara Securities serve as a signal to the market about the anticipated performance of ABB India in the face of current economic challenges.
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