Broking firm Motilal Oswal has placed a "buy" call on the stock of ABB with a price target of Rs 1,565 on the stock. According to the brokerage firm, ABB's operating performance was in line and balance sheet strength intact.
"While operating performance in 1QCY21 was largely in line, the company demonstrated commendable control over cash flows and improved its Balance Sheet further. The cash balance now stands Rs 25 billionand constitutes 65% of its net worth. Pure play on products and services rather than direct play on capital expenditure. After the demerger of the PWGR business, ABB's business is largely products and services oriented, with projects constituting ~9% of revenue in CY20. This makes it a pure play on the Digitalization and Automation theme," the brokerage firm has stated.
In terms of return ratios the brokerage firm sees it improving. "We expect Return On Equity (ROE) to improve to 13% by CY22E, following the aberration in CY20. ABB's RoEs are depressed due to a higher cash balance. The improvement in the business model is better captured in RoIC calculations. We expect RoIC to improve to 38% by CY22E from 21% in CY19," Motilal Oswal has said in its report.
In terms of valuation and view, the brokerage firm has noted that while the recent statewide lockdowns remain a concern, it expectsa quick recovery in short-cycle businesses. "We maintain our Buy rating, with a target price of of Rs 1,565 per share (55x Mar'23E EPS). We expect its near term premium valuations to sustain, given the growing opportunity in the Manufacturing space in India," the brokerage firm has stated.
The share price of ABB was last seen trading at Rs 1,385 on the National Stock Exchange, down marginally at about 0.29 per cent. The stock hit a 52-22k high of Rs 1,635 in Feb earlier this year.