ABB India stock at new 52-week high; does this rally have more legs?

A significant highlight was the 36.4% YoY rise in order inflows to ₹3,125 crore across verticals, following two consecutive quarters of subdued order inflows. Analysts said that ABB’s Q1CY23 order book, valued at around ₹7,170 crore, provides revenue visibility for the next few quarters.

The management is optimistic about capital expenditure prospects and anticipates continued order momentum, particularly for short-cycle orders. Additionally, ABB is expected to benefit from global supply chain diversification.

These factors have led some analysts to revise their earnings estimates upwards. Yes Securities Ltd analysts said, “We believe ABB’s strong business model, healthy global distribution network, diversified business portfolio, and strong cash position would benefit the company as economic activity starts ramping up.” “Pencilling in richer margin profile and robust business outlook, we increase our CY23E/CY24E earnings per share estimates by 27%/14% respectively,” they said in a report.

However, the key question remains whether the stock has more potential for upside after the recent surge, given that it has rallied nearly 40% so far this calendar year.

“While we appreciate ABB’s short-cycle business model leading to a faster conversion of order book to earnings, we believe the CMP factors in the bull case of 14–15% order inflow with 11–12% margins. We expect limited upside despite factoring in the above best case given limited triggers,” Nuvama Research said in a report dated 5 May. The report also highlighted lingering concerns, such as high royalty fees compared to multinational peer sets and the unsustainability of order inflow and operating margin growth.