ABB rumbles to life with big order flow, ready to ride capex recovery
Stock surges 9.7% on Tuesday on strongest quarterly order flow in 5 years
In the March 2017 quarter, which is the first quarter of its fiscal, ABB bagged orders worth Rs 2,342 crore. This takes the total order book size to Rs 12,023 crore, which gives revenue visibility for the next five-six quarters.
Half of the orders will to be executed in the short and medium terms while the remaining orders have a long duration of two-three years. The blend of short and long cycle orders helps in reducing the variation in the quarterly earnings.
Factors such as government initiative to boost infrastructure projects, and pick-up in orders from the railways, solar, exports, cement and food and beverage segments resulted in order jump during the March quarter.
Indian Railways plans to undertake modernisation worth $3 billion (around Rs 19,800 crore). Refineries will invest over $ 6 billion (Rs 39,600 crore) due to the transition of emission standard to Euro 6 from Euro 4.
Solar energy is another major opportunity. ABB has 45% market share in the total installed solar capacity of 12,000 megawatts in the country. Besides this, ABB also expects some business from the leading cement makers in India to offer engineering solutions to increase efficiency and boost margins.
Before the March quarter results were out, some analysts had factored in muted order inflow growth. Therefore, given the better-than-expected order outlook, the street may revise revenue estimates upwards.
According to Bloomberg consensus estimate, ABB India’s revenue is expected to be Rs 9,966 crore and Rs 11,568 crore for 2017 and 2018, respectively, which implies year-on-year growth of 17% and 16%, respectively.
At Tuesday’s closing price of Rs 1,537.8, the stock was traded at 49 times one-year forward projected earnings, which is around 22% higher than its long-term average valuation. The premium valuation is likely to sustain given lower float — proportion of shares available for trading — MNC parentage, established product portfolios and the company’s ability to capture any recovery in the capex cycle.