Shares of ABB India witnessed a significant dip of 5% on 5 November 2024, touching an intraday low of ₹6,994.05, following the company’s Q3 results for the calendar year 2024, which fell short of market expectations. This decline has sparked concerns among investors who often look for consistency in earnings growth to invest in stocks.
Profit and revenue growth overshadowed by missed expectations
Despite reporting a 21.4% year-on-year (YoY) increase in profit, rising to ₹440.5 crore in Q3CY24 from ₹363 crore in Q3CY23, ABB India's performance did not fully meet the anticipated benchmarks. The company, which operates on a January-December fiscal calendar, also saw a modest 5.2% YoY increase in revenue from operations, reaching ₹2,912.2 crore compared to ₹2,769.1 crore in the same quarter of the previous year.
On the operational front, the company’s earnings before interest, tax, depreciation, and amortisation (EBITDA) showed a notable improvement, climbing 23% YoY to ₹540.2 crores, up from ₹438.5 crores. The EBITDA margin also rose by 280 basis points to 18.6% from 15.8% in Q3CY23. However, despite these gains, analysts perceived ABB India's overall performance as subdued, resulting in a dip in stock price.
Orders and segments drive growth, but challenges remain
ABB India reported a total order value of ₹3,342 crore for Q3CY24, representing an 11% increase YoY, largely driven by demand in the electrification sector. Orders in the data centre segment, particularly for Smart Power and Distribution Solutions, contributed significantly to this growth. The Motion segment also saw increased demand, particularly in the Traction division, with orders for propulsion equipment, battery chargers, and converters.
While these sectors buoyed growth, the Robotics and Discrete Automation segment faced headwinds, with lower order volumes compared to Q3CY23. Orders here were predominantly from non-automotive and electronics industries, indicating a need for strategic recalibration in the face of shifting industrial demand.
Robust order backlog supports future revenue visibility
As of the end of September 2024, ABB India reported an order backlog of ₹9,995 crore, marking a 25% YoY increase. This robust backlog is expected to enhance revenue visibility, providing the company with a steady stream of work for upcoming quarters. Sanjeev Sharma, Managing Director of ABB India, noted that the order basket is well balanced, comprising both long- and short-cycle orders, which could help the company capitalise on market opportunities over varying timeframes.
Sharma highlighted that large orders from diverse sectors, including transportation, metals, and data centres, are key indicators of economic resilience. He also acknowledged the influence of government-led capital expenditure in reviving demand across industrial sectors, which could support ABB India's growth trajectory.
Broader market conditions impact future outlook
ABB India expressed optimism regarding the Indian market’s potential, citing an expected upswing in infrastructure investments and industrial expansion. Nonetheless, the company pointed to challenges stemming from global factors, such as the ongoing crisis in West Asia, which could elevate energy prices, increase freight costs, and disrupt supply chains. These external pressures, ABB India noted, make it essential to closely monitor global economic conditions.
India’s increasing adoption of automation, digitalisation, and advanced manufacturing solutions is seen as a growth driver for ABB India. The company believes that its strategic positioning in these segments will enable it to benefit from ongoing capital investments in infrastructure, technology, and localised manufacturing, all of which are critical factors for those looking to invest in stocks with future growth potential.
At 10:50 AM, ABB India’s shares were trading down by 3.36% at ₹7,114.80 per share on the BSE, while the Sensex index posted a minor 0.03% drop, reflecting a broader market trend amid cautious investor sentiment. The dip in ABB India’s share price underscores market reactions to quarterly results that, while profitable, have missed key street estimates, highlighting the importance of consistent growth and market alignment.
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