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MOSL: ABB (Buy)-Robust order inflows indicate recovery is on track

ABB: Robust order inflows indicate recovery is on track

(ABB IN, Mkt Cap USD5.3b, CMP INR1863, TP INR2110, 13% Upside, Buy)

 

Balance Sheet strength intact

• ABB's 3QCY21 revenue came in 5% below our estimate, with a miss largely on account of the Process Automation business. However, with a higher share of exports and services, favorable sales mix, and pricing action, EBITDA margin stood at 9.5% (est. 7.5%), accompanied by gross margin expansion. The management indicated strong growth in short cycle orders, with order inflows up 46% YoY to INR19.1b - the highest in the last 12 quarters (after the PG business demerger).
• The recovery in order inflows was broad based across segments, with major order wins across the end-markets of Renewables, Data Centers, Railways, and Food and Beverages. Order inflows were also aided by the Systems and Services businesses, which bounced back after a couple of muted quarters.
• The management has demonstrated commendable control over cash flows and improved its Balance Sheet further. Its cash balance now stands ~INR25b and constitutes ~63% of its net worth. ABB is a pure play on long-term industrial automation and the 'Make in India' theme. It stands to benefit from the ongoing PLI-driven increase in manufacturing across the country. The short cyclical nature of the business implies a very swift recovery as the economy scales back to pre-COVID levels. We maintain our Buy rating with a TP of INR2,110 per share (60x FY24E EPS). We expect its premium valuations to sustain in the near term, given the growing opportunity in the Manufacturing space in India, and the likely higher adoption of Automation Solutions in various industries.