The Hindu Business Line : ABB: A growth story backed by strong fundamentals

BACKED by the increased investments in the country's transmission and distribution network and recovery in industrial investment, the stock of ABB India has been gaining strength on the bourses.

ABB India is in the business of T&D equipment and industrial automation. "It is a growth story and the company's strong fundamentals are an added incentive," say brokers.

"The improvement in T&D investments, revival in demand for industrial automation solutions and ramp up in exports will enable ABB to report a 22 per cent CAGR in revenues and 28 per cent CAGR in profits during FY04-05," says analyst Mr Srinivas Rao of Motilal Oswal Securities.

The company derives 60 per cent of its revenues from power transmission and distribution and 40 per cent of its revenue from industrial automation.

According to Mr Srinivas, in each of them there are three growth drivers going forward - domestic demand, exports and new initiatives (developing channel partners for marketing, electrical equipment and focus on services in industrial automation).

"The industrial automation market has a size of around Rs 1,400 crore. The major players are Tata Honeywell, ABB, Siemens, BHEL and Yokogawa. Petroleum (25 per cent of the market), chemicals (20 per cent), power (20 per cent), metals (15 per cent) and paper (5 per cent) industries are the primary clients of the segment. Most of the user industries are in expansion mode and are increasing automation in plants to improve efficiencies and productivity." Mr Rao added.

Informed sources told Business Line that T&D and industrial automation will continue to push product expansion, both by way of range expansion and penetration through channel partners. The company currently has an order backlog of Rs 1,100 crore.

"On the export front, revenues will be driven by project exports, products and services. Every year new companies are being added to the company stable, globally," sources said.

ABB India, according to analysts, provides the best example of an overseas parent company leveraging the local one's expertise for its global requirements.

However, despite the high revenue visibility, the stock appears expensive. "Pressure on margins is another area of concern. But that could also be added to the shift in revenue mix every quarter," sources said.

The stock ended the day at Rs 670.15 with around 20,464 shares traded on the NSE. On the BSE, the stock ended at Rs 669.40 with around 48,456 shares traded.