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MOSL: ABB (Buy)-In line result; order inflows indicate recovery is on track

ABB: In line result; order inflows indicate recovery is on track

(ABB IN, Mkt Cap USD4.8b, CMP INR1684, TP INR2000, 19% Upside, Buy)

 

Balance Sheet strength intact

• ABB's 2QCY21 result stood in line with our expectations. While the demand recovery was strong in Jun'21, it lost 3-3.5 weeks of operations, which is reflected in its performance. Capacity utilization has now scaled up to 80-85% across its different manufacturing locations, indicating that a gradual recovery is in progress. While order inflows moderated sequentially, it stood healthy across all segments, with the Systems and Services business witnessing a strong growth in orders after a couple of quarters. Order inflows across various end-markets grew at similar levels, with a recovery visible in the Automotive segment.
• The management has demonstrated commendable control over cash flows and improved its Balance Sheet further. Its cash balance now stands ~INR24b and constitutes ~64% of its net worth.
• ABB is a pure play on long-term industrial automation and 'Make in India' theme. It stands to benefit from the ongoing PLI-driven increase in manufacturing across the country. The short cycle nature of the business implies a very swift recovery, if the economy continues to improve. We maintain our Buy rating, with a TP of INR2,000 per share (60x Jun'23E EPS). We expect its premium valuations to sustain in the near term, given the growing opportunity in the Manufacturing space in India, and likely higher adoption of Automation Solutions in various industries.