ABB is getting expensive

ABB has declared another good set of results. Revenues stood at Rs.13.8 bn; up 29% yoy while EBITDA was up 56% at Rs.1.7 bn and PAT was up 41% at Rs.1.16 bn. EBITDA margins have increased sharply YoY in 3Q07 by 219 bps to 12.5%, the strongest leverage in the last six quarters.

India is not only a promising domestic market, where ABB is well-positioned as a market leader in power and automation technologies, but also a key regional and global resource base because of lower costs and higher productivity.

ABB is getting pricey as it seems to be running ahead of the fundamentals. ABB has had a strong run over the past three years, outperforming the BSE Sensex significantly over different horizons. Citi downgraded ABB to Hold/Low (2L) risk from Buy/Low (1L) risk an new target price of Rs1,595. At 38.9x CY08E and 28.2x CY09E, it is now the most expensive stock in our Indian Electrical Equipment universe.

It is expected to report an EPS of Rs 38.52 for FY08 [ending Dec] However, HSBC analyst thinks Rs 1250 is the fair price for the stock and expects it to report an EPS of Rs 37.5 for FY08. Credit Suisse has a price Target of Rs 1450 for the stock which we think is reasonable in the bull case scenario.