ABB India (ABB IN)
BUY | CMP: INR 4,734 | Mkt Cap: USD 12.0 bn | TP: INR 6,167
Quality is never cheap!
ABB has implemented decentralized operating model "ABB Way" with
intent to empower business divisions with financial, strategic and
operational freedom to conduct business and also help stay nimble and
quick in decision making process. This augurs well for ABB India which has
over the years has invested and developed strong infrastructure to cater
to the 'In Country, For Country' initiative and can now leverage domestic
infrastructure to become important part of the global supply chain in the
ABB group.
Reaping benefits from the new business model-the ABB Way
Under the new leadership of Mr. Bjorn Rosengren (ex. CEO Sandvik), ABB
moved away from its matrix structure-based business model and has
implemented a decentralized operating model called the ABB Way. The
objective is to bring operating decisions closer to customers, enabling quick
decision-making process and shift more responsibility to the four business
units with the aim to be the number 1 or 2 in their market segment. The
mandate across units is to first focus on the stability of the unit and then on
improving profitability, post which growth should be the key focus area by
way of the organic and inorganic route. Post implementation of the new
strategy in CY21, ABB India has witnessed a marked improvement in its
business performance. Revenue has witnessed growth of 24% YoY, operating
profit is up by 73% YoY, margin is up by 320 bps YoY to 11.2%, and earnings
reported 67% YoY growth.
Guarded optimism on growth; new segments emerge for growth
opportunities
Management highlights their 'guarded optimism' on the growth
possibilities supported by government's policy initiatives like a) Easing FDI
limits in certain sectors, b) Push for private sector participation in mining, c)
Launch of the Atmanirbhar Bharat initiative to encourage self-reliance, and
d) The PLI scheme to push greater localization and promote the Local for
Global initiative. While core sectors like steel, mining, and conventional
power
Antique Stock Broking Limited Analysts: Dhirendra Tiwari; Amit Shah; Devesh Kasliwal
power generation are yet to show signs of ordering revival, new business
segments (like data centers, renewables, electronics, rail & metro,
warehouse & logistics), have shown greater resilience and signs of revival in
the current challenging business which will support ABB's growth in the
near term. For ABB, the products business revenue has increased from 58%
in CY15 to 78% in CY22 as it moved away from the projects business and
focused on better margin products business.
Exports and services remain the key focus area with a better margin
profile
Exports and services has been one of the key focus areas and important
drivers for ABB India. Export revenue has been registering a growth of 20%
CAGR over CY20-22 and export contribution stood at 12% of sales in CY22.
ABB has developed new markets like Latin America in recent years to push
Make in India products, additionally, Middle East and Africa markets stand
strong for ABB solutions for process industries. With the new decentralized
operating model in place and global companies looking for the China + 1
strategy, ABB India can leverage India as a global manufacturing hub and
thus has exponential potential to scale up its export business in the
medium to long term.
Investment Summary
We believe ABB could be one of the important beneficiaries of the
digitalization and automation theme which gets played out as companies
look to improve the efficiency and productivity of their existing
infrastructure. We expect ABB to deliver 43% earnings CAGR over CY22-25.
We maintain our Buy rating on the stock with revised target price of
INR6,167 (60x its Mar’ 26E EPS of INR102.8)
97
 CY18 66,901 10 CY18 67,290 16

CY19 73,151 9 CY19 71,500 6

CY20 58,210 -20 CY20 59,320-17

Story in Charts

pick up in ordering activity

CY21 69,340 19 CY21 76,660 29

Revenue (INR mn)

CY22 CY22 1,00,280 31

Order inflow (INR mn)

85,675 24

CY23E 1,05,440 23 CY23E 1,22,412 22

CY24E 1,27,608 21 CY24E 1,49,124 22

YoY (%)
CY25E 1,63,420 28 CY25E 1,86,405 25
YoY (%)

CY26E 2,06,029 26 CY26E 2,35,259 26

Revenue CAGR of 24% over CY22–25E supported by pick up in execution
Order inflow to register 23% CAGR over CY22–25E supported by broader

CY18 8,412 12.6 CY18 42,270 0.6

CY19 12,999 17.8 CY19 41,230 0.6

CY20 7,089 12.2 CY20 41,140 0.7

CY21 8,718 12.6 CY21 49,120 0.7

Exports (INR mn)

CY22 10,132 11.8 CY22 64,680 0.8

Order backlog (INR mn)

CY23E 15,816 15.0 CY23E 79,500 0.8

CY24E 19,141 15.0 CY24E 98,412 0.8

Export stands at 16% of CY22 revenue and is key driver for ABB

CY25E 24,513 15.0 CY25E 1,18,062 0.7

BTB (x)

as a % to sales

CY26E 30,904 15.0 CY26E 1,43,087 0.7

Order backlog at 0.8x its TTM revenue given short cycle nature of business

98
Story in Charts
Gross margins stands stable despite an inflationary environment Fees to ABB INC stands at 9.8% in CY22 as against 8.1% of sales in CY21

1.6%

37.0%

37.0%
36.5%
1.3% 1.2% 1.2% 1.4% 1.4%

35.3%
1.0%
35.0%
34.9%

1.2% 1.1% 1.1%

3.0%

33.5%

33.5%

33.3%
33.2%
2.8% 3.2% 2.7%
2.9%
32.7%

32.5%
32.2%
28.3%

30.1%

2.6% 2.9% 3.0% 2.9% 3.8%

CY18 CY19 CY20 CY21 CY22

CY23E
CY12

CY13

CY14

CY15

CY16

CY17

CY18

CY19

CY20

CY21

CY22

CY24E

CY25E

CY26E
Royalty and technology fees IT fees
Trademark Fees Group management fees

EBIDTA to register 37% CAGR over CY22–25E supported by margin Adjusted Pat to register 43% CAGR over CY22–25E
expansion of 400 bps over the same period

81
15.8

67
140
11.2

46

33

30
23
15.2

13
14.5
14.1
8.0
7.3
6.8

1,717 -54
2,712 4.7

12,420

15,226

20,256

26,357
14,890

18,499

24,889

32,543

6,864
2,542

3,719

4,112
4,578

5,312

5,567

9,619

CY18

CY19

CY20

CY21

CY22

CY23E

CY24E

CY25E

CY26E
CY18

CY19

CY20

CY21

CY22

CY23E

CY24E

CY25E

CY26E

EBIDTA (INR mn) EBIDTA Margin (%) Adj PAT (INR mn) YoY (%)

99
Financials
Profit and Loss Account (INR mn) Balance Sheet (INR mn)
Year ended CY22 CY23 CY24e CY25e CY26e Year ended CY22 CY23 CY24e CY25e CY26e
Net Revenue 85,675 1,05,440 1,27,608 1,63,420 2,06,029 Share Capital 424 424 424 424 424
Op. Expenses 76,057 90,550 1,09,108 1,38,531 1,73,486 Reserves & Surplus 48,970 58,409 69,068 82,032 98,900
EBITDA 9,619 14,890 18,499 24,889 32,543 Networth 49,394 58,833 69,492 82,456 99,324
Depreciation 1,047 1,182 1,332 1,482 1,632 Net deferred Tax liabilities (898) (898) (898) (898) (898)
EBIT 8,572 13,709 17,167 23,407 30,911 Capital Employed 48,496 57,935 68,593 81,557 98,426
Other income 1,795 2,961 3,257 3,746 4,308 Gross Fixed Assets 13,759 15,759 17,759 19,759 21,759
Interest Exp. 131 66 69 72 76 Accumulated Depreciation 4,768 5,949 7,281 8,763 10,395
Extra Ordinary Items -gain/(loss) 3,393 - - - - Capital work in progress 693 693 693 693 693
Reported PBT 13,628 16,604 20,356 27,080 35,143 Net Fixed Assets 9,684 10,502 11,170 11,688 12,056
Tax 3,372 4,184 5,130 6,824 8,786 Investments 4,932 4,932 4,932 4,932 4,932
PAT from continued operations 6,864 12,420 15,226 20,256 26,357 Non Current Investments 4,932 4,932 4,932 4,932 4,932
PAT from dis. op/Ex. income/(Exp) 3,393 - - - - Current Assets, Loans & Advances 77,668 94,057 1,14,945 1,45,005 1,82,465
Net Profit 10,256 12,420 15,226 20,256 26,357 Inventory 14,207 17,505 21,205 27,186 34,303
Adjusted PAT 6,864 12,420 15,226 20,256 26,357 Debtors 20,930 25,790 31,241 40,052 50,537
Adjusted EPS (INR) 32.4 58.6 71.9 95.6 124.4 Cash & Bank balance 31,491 33,262 41,299 50,588 63,333
Loans & advances and others 125 287 348 446 562
Cash Flow Statement (INR mn) Current Liabilities & Provisions 43,788 51,556 62,454 80,068 1,01,028
Liabilities 26,368 32,490 39,357 50,458 63,666
Year ended CY22 CY23 CY24e CY25e CY26e
Provisions 17,421 19,066 23,096 29,610 37,362
PBT 10,235 16,604 20,356 27,080 35,143
Net Current Assets 33,880 42,501 52,491 64,937 81,438
Depreciation & amortization 1,047 1,182 1,332 1,482 1,632
Miscellaneous expenses - - - - 1
Interest expense 131 66 69 72 76
Application of Funds 48,496 57,935 68,593 81,557 98,425
(Inc)/Dec in working capital 956 (6,850) (1,953) (3,157) (3,756)
Tax paid 3,372 4,184 5,130 6,824 8,786 Valuation Data
Cash Flow from operating activities 8,867 6,752 14,605 18,581 24,233 Year ended CY22 CY23 CY24e CY25e CY26e
Capital expenditure (1,793) (2,000) (2,000) (2,000) (2,000) P/E (x) 146.3 80.8 65.9 49.6 38.1
Inc/(Dec) in investments (4,932) - - - - P/BV (x) 20.3 17.1 14.4 12.2 10.1
Cash Flow from investing activities (3,184) (2,000) (2,000) (2,000) (2,000) EV/EBITDA (x) 102.5 66.1 52.8 38.8 29.3
Inc/(Dec) in share capital 85 - - - - EV/Sales (x) 11.5 9.3 7.6 5.9 4.6
Dividend Paid 1,399 2,981 4,568 7,292 9,489 EBITDA Margin (%) 11.2 14.1 14.5 15.2 15.8
Others 131 66 69 72 76 RoE (%) 15.3 23.0 23.7 26.7 29.0
Cash Flow from financing activities (1,314) (2,981) (4,568) (7,292) (9,489) RoCE (%) 23.4 31.3 32.3 36.2 39.1
Net cash flow 4,369 1,771 8,037 9,289 12,744
Opening balance 27,122 31,491 33,262 41,299 50,588
Closing balance 31,491 33,262 41,299 50,588 63,333

100