Shares of capital goods firm ABB India hit a record high of ₹4,369 apiece during Wednesday's session, extending their winning streak for the second consecutive trading session. The company shares have been on an upward journey since the start of CY23, and they have returned 62.13% so far. During the same period, S&P BSE Capital Goods Index gained 18.46%.
Investors who held the stock for the long term have reaped the benefits as shares spiked 438% over the last five-year period and 610% in the last ten years. However, in its recent note, global brokerage firm UBS said that the stock has room to grow further.
The brokerage has upgraded its rating on ABB India to 'buy' from a 'Neutral' rating and also raised its target price to ₹5,000 apiece. This revised target price indicates a new all-time high for the stock.
The brokerage has listed the following key factors for its rating revision:
Steady short-cycle demand and an upcycle in orders: Despite global growth moderation, India's long- and short-cycle orders have shown strong momentum. ABB has experienced a 13% upgrade in consensus earnings, indicating a positive outlook beyond pent-up demand, said UBS.
Potential for earnings growth: "The company's ability to win more mandates from its parent (such as the recent low voltage products), deepening tier-2/3 market penetration, and significant scope to expand its addressable market in low voltage electrification add to our confidence that earnings can grow at a high double-digit trajectory," the brokerage firm added.
Electrification and motion segments to contribute: With wide innovation-driven moats and high value-added products, ABB is extending its geographical reach in its leadership segments, such as motors, drives, low and medium voltage switches, and switch gears. The brokerage estimated that these will have a lot more room to grow profitably.
The focus on service-layered long-term projects also indicates potential revenue growth from high-margin services, it noted.
Valuation: UBS maintains a bullish stance on industrial automation and low voltage electrification demand, projecting further OPM growth. It has raised margins by 130 bps and earnings by 10–17% for CY23–25E, which it believes realistically reflects the sustainability of margins, driven by volume and revenue mix benefits from electrification and motion.
The brokerage raises its price target to ₹5,000 apiece from ₹3,770 earlier, upgrades the stock to 'buy', and highlights ABB as one of its preferred choices in the industrial sector coverage.
ABB India is a 74-year-old company established in 1949. It develops and sells products and system solutions to utilities, industries, channel partners, and original equipment manufacturers in India and internationally.
The company operates through Motion, Robotics and Discrete Automation, Electrification, and Process Automation segments.
28 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.