ABB India shares at Rs 5,000? UBS upgrades stock to 'Buy'. Here's why

Foreign brokerage UBS has upgraded ABB India shares to 'Buy' from 'Neutral' earlier, with a revised target of Rs 5,000 against Rs 3,770, suggesting a 21 per cent upside over June 9's closing value of Rs 4,148.90. Short-cycle demand for ABB's industrial products has been stronger than expected on the back of its deeper geographical penetration, UBS said.

Electrification and motion are set to lift margins even though ABB remains dependent on imports in process automation and robotics, it said adding that ABB India's Indian leadership is highly focused on expanding market opportunities, especially in low voltage electrification.

"While consensus margin forecasts have risen 120 bps in the past 12 months, we think ABB's true potential from value-accretive electrification and motion has yet to be priced in. A growing contribution from highly scalable new segments and products aid growth and OPM, supported by active capex," it said.

UBS said it remains bullish on industrial automation and low voltage electrification demand and sees an improving case for further operating profit margin growth.

"We lift margins by 130 bps and earnings by 10-17 per cent for CY23-25E, which we believe realistically reflects the sustainability of margins, driven by volume and revenue mix benefits from electrification and motion. Our CY24/25E earnings forecasts are 10 per cent/15 per cent ahead of consensus. We raise our price target from Rs 3,770 to Rs5,000, and upgrade the stock to Buy, based on a peak PE of 70 times (vs the 62 times earlier), pricing in the potential for greater growth-led capex," it said.

UBS' order of preferences in the industrial sector coverage is now Siemens, ABB India, Larsen & Toubro and BHEL.

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 switchgears, which in UBS said have a lot more room to grow profitably.

Further momentum in service-layered long-term projects points to medium-to long-term growth in revenue share from high margin services, it said.

Also read: Infosys shares have up to 28% upside potential; most attractive risk-reward in IT space, say analysts

Also read: Zomato shares rise 4% to hit new 52-week high; analysts see more steam left in the stock