In times of shrinking orders from traditional business, street expects co’s thrust on new-age tech to deliver 20% earnings growth annually for next 3 years
ET Intelligence Group: At a time when new orders are shrinking due to low capacity utilisation in the private sector, ABB India, an Indian subsidiary of Zurich-based ABB, is increasing its focus on renewables, digitalisation, charging infrastructure for electric vehicles and efficiency solutions.
The Street is expecting earnings to grow 20% a year in the next three years, underpinned by the right mix of new and existing business initiatives. The stock is trading at 42 times its projected 2019 earnings, a slight discount to the five-year average. The stock’s price-earnings ratio is likely to remain stable because of revenue visibility from new businesses, MNC parentage and the low float.
The government’s thrust on solar power has benefited the company. ABB India is the market leading solar inverter, with more than 50% market share. The company has delivered more than 10 GW of cumulative solar and wind power solutions.
Interestingly, buoyancy in the solar business has sustained despite tariffs heading south. To maintain revenue momentum in solar power, ABB India has doubled inverter manufacturing capacity. The renewables segment made up about 10% of the total top line for ABB India in 2017.
Because of tepid private sector capital expenditure, the company is focusing on revenue growth to ‘Opex’ from ‘capex’. The focus on efficiency presents a vast opportunity to ABB. Orders from robotics, oil and gas and mining rose 28%, 54% and 60% in the last quarter of 2017.
Consequently, excluding one-time large orders of HVDC and traction transformers booked last year, order inflow in 2017 rose 19% Y-o-Y to ₹9,500 crore and order backlog increased 44% Y-o-Y. The base orders rose 13% in 2017.
Among the new business initiative, ABB India has launched a digital platform ABB Ability. It is an open platform, allowing ABB India to co-create solutions with its customers.
The digitisation opportunity primarily has three layers — Internet of Things, machine learning and artificial intelligence. ABB India has already engaged with a leading cement producer in India in the area of digitisation to improve its productivity and efficiency.
In addition, the company has introduced a fast-charging station for an electric vehicle-maker in India. It has put 50 kW fast charging station at Niti Aayog office, which can recharge in 30 minutes, using the Terra 53 technology. ABB has more than 6,000 units installed across 55 countries.
source: Et energy world