ABB Logs Worst Day In A Month On Credit Suisse Downgrade

Shares of ABB India Ltd. logged the worst day in over a month as Credit Suisse downgraded the stock citing global slowdown and pricey valuations.

ABB India has outperformed the Sensex by 76% over the one year, the research firm said in a note, citing evidence of an investment cycle. Discounted cash flows imply 20% compounded annual growth rate for 20 years, at all-time high margins of 12.5%, it said.

The stock is trading at 70 times its estimated earnings for fiscal ending March 2024, implying "much higher expectations", Credit Suisse said, reducing the rating on the stock from 'neutral' to 'underperform' on "elevated multiples".

"High multiples have to be seen not just in context of near-term earnings momentum but also with its deep and long cyclicality," it said, citing a 3% annualised decline in EPS from 2008-17.

Downside risks can originate from a prolonged slowdown and a delay in pick-up of investment activity in India as well as geopolitical risks that delay or depress the pick-up in global economic activity, thus affecting export prospects, it said.

Credit Suisse cited near-term momentum in inflows and margins as "upside risks".

Shares of ABB fell as much as 3.42% during the session, and closed 2.37% down on Monday—the worst day since Aug. 3, 2022.

Credit Suisse has a target price of Rs 2,600, implying a potential downside of nearly 21%.

Trading volume was slightly more the 30-day average (1.2 times), when markets closed. The Relative Strength Index was at 75, suggesting the stock may be overbought.

Of the 34 analysts tracking the company, 19 maintain a 'buy', eight recommend a 'hold' and seven suggest a 'sell', according to Bloomberg data. The 12-month consensus price target implies a downside of 12.3%.

• Among peers, Credit Suisse rated Larsen and Toubro Ltd. as 'outperform' and views it as a better sectoral investment given potential late cycle benefit, which is not priced in as yet (17 times its estimated FY24 earnings).

• It prefers Siemens (52 times March 2024 estimated earnings) over ABB given valuation, stronger automation offering with deep software capabilities, broader basket (railways, power) and upside of projects business.