ABB India - To BUY or Not to BUY
ABB is involved in the automation and power management industries. The Swiss multinational's consumer base includes state governments in large power management and transfer projects, private firms in factory automation support to mining services and data storage centers. The company has few competitors due to the sheer size of its service and product offerings.
The first thing we can notice from the company's profit/loss account is the consistency in its total revenue. Being a service provider, the firm may have booked long term projects with state governments or companies. From a growth point of view the company's total revenue has remained between the range of 7,000 - 9,000 crore for the last 5 years. The total expenses have been decreasing as employee expenses have fallen drastically since FY 2016 and depreciation costs have also fallen significantly.
The firm's EBIT has seen a steady increase over the last 3 years, and is expected to grow as the company continues to increase efficiency, while electrification and infrastructure projects are estimated to drive sales.
At the time of writing this analysis, the company is functioning at P/E ratio of 47.8.
The balance sheet looks relatively strong, with no such red-flags regarding risks of defaulting. The company has essentially no long-term loans, while short-term liabilities remain consistent with the company's current assets. In FY 2019, there was no-such capital work in progress, hinting that the firm is not looking to expand its manufacturing sector in the country.
The book value of the company stands at 166 rupees per share.
Like most Multi-National corporations, ABB India's Swiss counterpart, ABB Asea Brown Boveri Limited, holds a 75% stake in the company.
On the public side of the matter, around 15% of the remaining 25% is held by mutual funds, FIIs and Financial Institutions. Some key shareholders are Reliance Capital (2.99%), SBI (1.65%) and LIC (4.51%). This shows us that this company has been given a safe outlook by some of the nation's largest investing entities.
- ABB is extremely far ahead in their sector, with one of a kind technology in all their products.
- Strong shareholding pattern.
- Consistent financials
ABB has been extremely consistent with its sales and the cutting of costs over the last 3 years and looks to be set for greater growth. The company also has some exciting outlooks over the long-run as they have started testing products in the market for electric-vehicle chargers and electric vehicle management services. However, at this point of time I believe that the company is still a little over-valued with a market cap of 20,000 crore, and the promoters have not been focusing on the growth of the India sector, seen through the falling levels of capital in progress and employee cost.
I believe it is best for an investor to wait for the price of this stock to fall further, and enter into the company, when it is evident that the promoters are looking to back ABB's India sector more seriously.