September 10, 2008

ABB India
cmp: Rs 893.40
target price: Rs 728

Macquarie Research has initiated coverage on ABB India with an ‘underperformer’ rating saying ABB has traded at a significant premium to peers in the power sector equipment space.

“We expect growth to moderate and multiples to come off,” said Macquarie in a note to its clients. Macquarie expects the company’s growth to mod-erate to 26% CAGR over CY08-10.

“We expect ABB’s growth to come in line with BHEL’s (proxy to generation sector investment) projected growth. Our projected topline growth over CY08-10 is 26%, against 42% over CY05-07,” the note said. According to Macquarie, ABB has built-in price escalation clauses in its contracts and has also hedged key raw materials such as copper.

“We expect margins to remain stable on pass through clauses, earnings growth around 27%,” the note added.