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Capital good company ABB India Ltd's December quarter earnings were a mixed bag. While revenue growth was ahead of expectations, operating performance disappointed hurt by higher raw material and logistics costs hurt. On a year-on-year basis, Ebitda margins contracted by 270 basis points to 8.8%. Ebitda is short for earnings before interest, tax, depreciation and amortization. One basis point is one hundredeth of a percentage point.

In a post-earnings conference call, the ABB management said, they expect margins to stabilize going forward. The commodity and forex volatility risk which the business faces, will be mitigated by focusing on improving supply chains and hedging forex, it added.

But the bright spot according to analysts is ABB's outlook for calendar year 2022. It should be noted that ABB India follows the calendar year as financial year.

According to the management, it is witnessing strong demand growth across most markets where it is present and these markets are growing in the double digits. Growth is driven by segments like renewables, water & waste water, warehousing and data centres. On the flipside, some segments like ports, cement, conventional power and mining & metals continue to have a weak outlook.

Nonetheless, the management said that its order backlog is strong. In Q4CY21, ABB's order inflows at 2240 crore, rose nearly 53% y-o-y.

"ABB is a pure-play on long-term industrial automation and the ‘Make in India’ theme. It stands to benefit from the ongoing PLI-driven increase in manufacturing across the country," analysts at Motilal Oswal Financial Services Ltd said in a report on 13 February.

Sharing a similar view, analysts at JM Financial Institutional Securities Ltd said that the company's growth momentum is expected to sustain on capital expenditure by PLI-led segments, energy efficiency-driven projects and revival of exports.

Analysts say these favourable factors are expected to support the stock's valuations. The stock is trading at a price-to-earnings multiple of 60 times taking into account earnings estimates for calendar year 2023.

"We expect its premium valuations to sustain in the near term, given the growing opportunity in the domestic Manufacturing space, and the likely higher adoption of Automation Solutions in various industries," added the Motilal report.

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