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ICICI Securities
ABB (Hold)
CMP: ₹1,335.9
Target: ₹1,381
ABB has announced global divestment of its global powergrids segment to Hitachi at an enterprise value of $ 11 billion. ABB will initially retain 19.9 per cent stake of the carved out entity to ensure transition with a pre-defined exit option to be exercised at fair value three years post closing of the deal having a floor price of 90 per cent of the agreed enterprise value.
According to the management, the major reason for this is to focus on digitisation, automation and electrification, so that the company continues to maintain its leadership in a constantly changing technological landscape.
During the investor conference call held by the parent, the management indicated that they will share the strategic vision and outlook post Q4CY18 and CY18 result scheduled on February 28, 2019. The company will also start to report the powergrids as discontinued operations. Hence, we have revised our estimates for CY19E factoring in only the continuous business and have also introduced CY20E earnings. We have also changed our valuation methodology to factor in the eventual demerger of the powergrids segment.
Given the risk on the medium- to long-term growth potential we downgrade the stock to ‘hold’ with a revised SoTP valuation of ₹1,381.
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