The September 2025 quarter presented a tale of two narratives for ABB India. Whilst net sales surged an impressive 67.64% year-on-year to ₹3,310.72 crores, driven by strong order execution and buoyant infrastructure demand, the quality of earnings came under scrutiny. Operating profit before depreciation, interest, tax and other income (PBDIT excluding OI) stood at ₹500.39 crores, yielding a margin of 15.23%—a sequential contraction of 206 basis points from the 18.70% recorded in September 2024. This margin compression, despite revenue acceleration, signals rising cost pressures and potential pricing challenges in an increasingly competitive landscape.
| Quarter | Revenue (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 3,310.72 | +4.26% | 409.04 | +16.29% | 15.23% |
| Jun'25 | 3,175.44 | +9.04% | 351.74 | -20.14% | 13.17% |
| Sep'24 | 2,912.16 | +38.82% | 440.45 | +202.36% | 18.70% |
| Jun'22 | 2,097.85 | +6.23% | 145.67 | +82.86% | 9.92% |
| Mar'22 | 1,974.86 | +13.13% | 79.66 | -41.11% | 9.51% |
| Sep'19 | 1,745.62 | +1.15% | 135.28 | +3.74% | 7.16% |
Financial Performance: Revenue Momentum Masks Profitability Concerns
ABB India's Q2 FY26 revenue performance of ₹3,310.72 crores represents a sequential acceleration of 4.26% quarter-on-quarter and a remarkable 67.64% year-on-year expansion. This growth trajectory underscores the company's strong positioning in India's electrification and automation markets, benefiting from government infrastructure spending and industrial capex revival. However, the revenue strength was not fully translated into bottom-line growth, with profit after tax at ₹408.88 crores (standalone) showing only modest sequential improvement.
The margin dynamics reveal underlying pressure points. Operating margin excluding other income contracted sharply to 15.23% in Q2 FY26 from 18.70% in the year-ago quarter, whilst the PAT margin compressed to 12.45% from 15.25%. This 280-basis-point erosion in PAT margin occurred despite relatively stable tax rates (24.58% versus 26.25% year-on-year), pointing to operational challenges rather than fiscal factors. Employee costs rose to ₹222.25 crores, though as a percentage of sales they remained controlled at approximately 6.7%.
Other income contributed ₹83.95 crores in Q2 FY26, down from ₹99.75 crores in the previous quarter, highlighting the company's reduced reliance on non-operating income. When stripping out other income, profit before tax stood at ₹458.16 crores, representing a 9.20% decline from the comparable year-ago figure—a concerning trend that underscores the core operational challenges facing the business. This deterioration in operating profitability, despite strong revenue growth, raises questions about pricing power and cost management efficiency.
Capital Efficiency: Exceptional Returns Justify Premium Multiple
Despite near-term margin pressures, ABB India continues to demonstrate exceptional capital efficiency metrics that distinguish it from peers. The company's latest return on equity (ROE) stands at an impressive 24.99%, significantly above the sector average and reflecting superior profitability relative to shareholder capital deployed. Higher ROE indicates better capital efficiency and stronger wealth creation potential for shareholders, a critical consideration for long-term investors evaluating the stock's premium valuation.
The company's return on capital employed (ROCE) paints an even more compelling picture at 102.61% for the latest period, with a five-year average of 63.38%. This exceptional ROCE, combined with an average EBIT-to-interest coverage ratio of 80.05 times, underscores ABB India's robust business model and minimal financial risk. The company operates as a net cash entity with an average net debt-to-equity ratio of -0.72, providing significant financial flexibility for growth investments and shareholder returns.
Key Strength: Balance Sheet Fortress
ABB India operates with zero long-term debt and maintains a net cash position, providing unparalleled financial flexibility. The company's average debt-to-EBITDA is classified as "Net Debt is too low," whilst interest coverage exceeds 80 times. This fortress balance sheet enables aggressive growth investments without financial constraints, positioning the company advantageously for capital-intensive electrification and automation projects. The 50% dividend payout ratio balances shareholder returns with reinvestment needs.
The Margin Conundrum: Pricing Power Versus Cost Inflation
The most pressing concern emerging from Q2 FY26 results is the sustained margin compression despite strong revenue growth. Operating margins excluding other income have declined from 18.70% in September 2024 to 15.23% currently—a substantial 347-basis-point erosion. This trend suggests that ABB India is facing either intensifying competitive pressure limiting pricing flexibility, rising input costs, or unfavourable product mix shifts towards lower-margin segments.
Analysis of the cost structure reveals that whilst employee costs have grown in absolute terms to ₹222.25 crores, they have actually improved as a percentage of revenue compared to prior periods. This indicates that the margin pressure stems primarily from other operating expenses or cost of goods sold, potentially reflecting higher raw material costs, supply chain inefficiencies, or investments in business development. The depreciation charge of ₹36.59 crores remains stable, ruling out accelerated asset write-downs as a factor.
Monitoring Required: Sustained Margin Pressure
The sequential and year-on-year compression in operating margins warrants close monitoring. Whilst revenue growth remains robust at 67.64% YoY, the inability to translate this into proportionate profit growth raises concerns about competitive intensity and pricing power. Management commentary on order book mix, pricing trends, and cost inflation will be critical to assess whether current margin levels represent a temporary trough or a structural reset. The financial trend classification of "FLAT" for Q2 FY26 reflects these mixed signals.
| Metric | Q2 FY26 | Q1 FY26 | Q2 FY25 | Trend |
|---|---|---|---|---|
| Revenue (₹ Cr) | 3,310.72 | 3,175.44 | 2,912.16 | Improving |
| Operating Margin (Excl OI) | 15.23% | 13.17% | 18.70% | Declining YoY |
| PAT Margin | 12.45% | 11.20% | 15.25% | Compressed |
| Net Profit (₹ Cr) | 409.04 | 351.74 | 440.45 | Below Prior Year |
| Tax Rate | 24.58% | 25.74% | 26.25% | Stable/Improving |
Industry Leadership: How ABB India Compares to Peers
Within the heavy electrical equipment sector, ABB India occupies a distinctive position as the second-largest company by market capitalisation at ₹1,11,333 crores, trailing only the sector leader. The company's valuation metrics reflect its quality premium but also highlight the market's elevated expectations. At a price-to-earnings ratio of 61.57 times trailing twelve-month earnings, ABB India trades below the sector average of approximately 114 times, suggesting relative value compared to peers like CG Power & Industrial Solutions (107.82x) and Siemens Energy India (115.34x).
However, the company's price-to-book value multiple of 15.38 times significantly exceeds the peer average of approximately 8.4 times, reflecting the market's recognition of ABB India's superior return profile. The company's ROE of 18.91% compares favourably against most peers, though it trails CG Power's exceptional 83.43%. ABB India's dividend yield of 0.83% is amongst the highest in the peer group, supported by a sustainable 50% payout ratio, providing income-oriented investors with reasonable cash returns alongside capital appreciation potential.
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| ABB India | 61.57 | 15.38 | 18.91 | 0.83 | -0.72 |
| CG Power & Ind | 107.82 | 1.54 | 83.43 | 0.17 | -0.18 |
| Siemens Energy Ind | 115.34 | 29.34 | 0.00 | NA | 0.02 |
| Siemens | 57.53 | 8.91 | 12.96 | 0.39 | -0.48 |
| BHEL | 162.06 | 0.37 | 1.22 | 0.20 | 0.11 |
| Hitachi Energy | 125.69 | 1.97 | 9.18 | 0.03 | -1.01 |
The peer comparison reveals that ABB India's premium valuation is partially justified by its superior financial metrics and market position, but the gap has widened significantly. The company's enterprise value-to-EBITDA multiple of 48.08 times and EV-to-sales ratio of 8.36 times place it amongst the most expensive stocks in the sector. For this premium to persist, ABB India must demonstrate sustained margin recovery and earnings growth acceleration in coming quarters, making operational execution critical to maintaining investor confidence.
Valuation Analysis: Premium Pricing Leaves Limited Margin for Error
ABB India's current valuation reflects the market's optimism about India's electrification and industrial automation opportunity, but leaves little room for disappointment. Trading at 61.57 times trailing earnings with a PEG ratio of 5.22, the stock appears expensive relative to its growth profile. The company's five-year sales compound annual growth rate of 15.23% and EBIT CAGR of 58.98% have historically justified premium multiples, but the recent margin compression and flat financial trend raise questions about sustainability.
The stock's enterprise value-to-capital employed ratio of 52.60 times, whilst elevated, must be viewed in context of the exceptional 102.61% ROCE. This suggests that despite the premium valuation, the company generates extraordinary returns on invested capital, creating significant value for shareholders. The price-to-book value of 15.38 times compares to a book value per share of ₹122.78, implying a market price that embeds substantial expectations for future growth and sustained high returns.
The stock's classification as "VERY EXPENSIVE" by proprietary valuation models since May 2020 highlights the persistent premium at which ABB India trades. At current levels of ₹5,223.15, the stock trades 34.38% below its 52-week high of ₹7,959.90, reflecting the market's reassessment of near-term growth prospects. For value-conscious investors, the current price offers limited upside unless the company can demonstrate a return to margin expansion and accelerated earnings growth. The dividend yield of 0.83%, whilst reasonable, provides insufficient income cushion to compensate for valuation risk.
Shareholding: Stable Promoter Base, Declining Foreign Confidence
ABB India's shareholding pattern reveals a rock-solid promoter base with Abb Asea Brown Boveri Limited maintaining a steady 75% stake across all recent quarters. This unwavering promoter commitment provides strategic stability and ensures alignment with long-term value creation objectives. However, the institutional shareholding trends paint a more nuanced picture of investor sentiment towards the stock.
Foreign institutional investor (FII) holdings have declined sequentially from 12.28% in September 2024 to 8.29% in September 2025, representing a cumulative reduction of 399 basis points over five quarters. This sustained FII exodus, with a 96-basis-point decline in Q2 FY26 alone, suggests growing concerns amongst global investors about valuation sustainability or near-term growth prospects. The selling has been partially offset by increased domestic institutional participation, with insurance holdings rising sharply from 1.07% to 3.16% over the same period.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 75.00% | 75.00% | 75.00% | 75.00% | Stable |
| FII | 8.29% | 9.25% | 10.28% | 11.85% | -0.96% |
| Mutual Funds | 4.04% | 4.55% | 4.53% | 3.62% | -0.51% |
| Insurance | 3.16% | 2.04% | 1.57% | 1.22% | +1.12% |
| Other DII | 1.12% | 1.07% | 0.92% | 0.86% | +0.05% |
| Non-Institutional | 8.40% | 8.09% | 7.70% | 7.46% | +0.31% |
Mutual fund holdings have also declined modestly to 4.04% from 4.55% in the previous quarter, indicating cautious positioning by domestic fund managers. The increasing insurance and non-institutional participation suggests a shift towards longer-term domestic holders who may be less sensitive to near-term valuation concerns. With 672 FII investors and 35 mutual funds holding stakes, the stock maintains reasonable institutional diversification, though the declining FII interest warrants monitoring as a potential leading indicator of sentiment shifts.
Stock Performance: Significant Underperformance Pressures Premium Valuation
ABB India's stock performance over the past year has been decidedly disappointing, with the shares declining 27.38% whilst the Sensex gained 3.65%—resulting in negative alpha of 31.03 percentage points. This substantial underperformance extends across multiple timeframes, with the stock down 24.51% year-to-date against the Sensex's 6.62% gain. The six-month return of -1.82% compares unfavourably to the Sensex's 3.31% advance, highlighting sustained selling pressure.
The stock's technical positioning reflects this weakness, currently trading at ₹5,223.15—below all major moving averages including the 5-day (₹5,254.94), 20-day (₹5,201.69), 50-day (₹5,201.59), 100-day (₹5,411.97), and 200-day (₹5,508.19) averages. This alignment of moving averages in bearish configuration, combined with the stock's classification as "MILDLY BEARISH" in technical trend analysis, suggests limited near-term momentum. The stock has fallen 34.38% from its 52-week high of ₹7,959.90, though it trades 13.79% above the 52-week low of ₹4,590.05.
| Period | Stock Return | Sensex Return | Alpha | Relative Performance |
|---|---|---|---|---|
| 1 Week | -0.99% | -1.30% | +0.31% | Outperformed |
| 1 Month | 0.13% | 1.86% | -1.73% | Underperformed |
| 3 Months | 2.45% | 3.44% | -0.99% | Underperformed |
| 6 Months | -1.82% | 3.31% | -5.13% | Underperformed |
| Year-to-Date | -24.51% | 6.62% | -31.13% | Underperformed |
| 1 Year | -27.38% | 3.65% | -31.03% | Underperformed |
| 3 Years | 62.28% | 36.69% | +25.59% | Outperformed |
| 5 Years | 457.20% | 98.87% | +358.33% | Outperformed |
Longer-term performance remains impressive, with three-year returns of 62.28% and five-year returns of 457.20% substantially outpacing the Sensex. This historical outperformance, generating positive alpha of 358.33 percentage points over five years, underscores ABB India's quality as a long-term compounder. However, the recent underperformance versus the sector (which declined 17.65% over one year compared to ABB India's 27.38% fall) suggests company-specific concerns beyond broader sector headwinds. The stock's beta of 0.53 indicates lower volatility than the market, though this has not prevented significant drawdowns.
Investment Thesis: Quality Company at Crossroads
ABB India presents a complex investment proposition—a demonstrably high-quality business facing near-term operational challenges whilst trading at premium valuations. The company's proprietary score of 50 out of 100, resulting in a "HOLD" rating, reflects this balanced assessment. The investment case rests on four critical pillars: valuation, quality, financial trends, and technical positioning, each telling a different part of the story.
The "EXCELLENT" quality grade recognises ABB India's fortress balance sheet, exceptional return ratios, consistent profitability, and market leadership position. The company's five-year sales CAGR of 15.23%, EBIT growth of 58.98%, and zero debt profile distinguish it as a high-quality franchise. However, the "VERY EXPENSIVE" valuation grade and "FLAT" financial trend temper enthusiasm, whilst the "MILDLY BEARISH" technical trend suggests limited near-term catalysts for re-rating.
"ABB India's exceptional capital efficiency and market leadership justify a premium, but current multiples demand flawless execution and margin recovery to deliver satisfactory returns from these levels."
Key Strengths & Risk Factors
✅ KEY STRENGTHS
- Exceptional Capital Efficiency: ROE of 24.99% and ROCE of 102.61% rank amongst the best in Indian manufacturing, reflecting superior business quality and competitive positioning
- Fortress Balance Sheet: Zero long-term debt, net cash position (debt-to-equity of -0.72), and interest coverage exceeding 80 times provide unmatched financial flexibility
- Market Leadership: Second-largest heavy electrical equipment company with established relationships across power, industrial, and infrastructure segments
- Strong Revenue Momentum: 67.64% YoY revenue growth in Q2 FY26 demonstrates robust demand and successful order execution
- Stable Promoter Backing: 75% promoter holding by global parent ABB ensures strategic stability, technology access, and long-term commitment
- Consistent Dividend Payer: 50% payout ratio with 0.83% yield provides income alongside capital appreciation potential
- Long-term Track Record: Five-year returns of 457.20% with positive alpha of 358.33 percentage points demonstrate wealth creation capability
⚠️ KEY CONCERNS
- Sustained Margin Compression: Operating margin declined from 18.70% to 15.23% YoY despite strong revenue growth, raising concerns about pricing power and cost management
- Stretched Valuation: P/E of 61.57x, P/BV of 15.38x, and PEG ratio of 5.22 leave limited margin for error; classified as "VERY EXPENSIVE" since May 2020
- Weak Stock Performance: 27.38% decline over past year with negative alpha of 31.03 percentage points reflects deteriorating investor confidence
- FII Exodus: Foreign institutional holdings declined from 12.28% to 8.29% over five quarters, indicating reduced global investor appetite
- Flat Financial Trend: Q2 FY26 classified as "FLAT" with profit before tax (excluding other income) declining 9.20% YoY despite revenue surge
- Technical Weakness: Stock trading below all major moving averages with "MILDLY BEARISH" trend classification suggests limited near-term momentum
- Sector Underperformance: 27.38% decline versus sector's 17.65% fall indicates company-specific challenges beyond industry headwinds
Outlook: What Lies Ahead
ABB India's near-term trajectory hinges critically on its ability to arrest margin compression and demonstrate sustainable profitability improvement. The company operates in structurally attractive end-markets—India's electrification drive, renewable energy integration, industrial automation, and smart infrastructure development—providing a favourable long-term backdrop. However, translating this opportunity into shareholder value requires operational execution that has been inconsistent in recent quarters.
🟢 POSITIVE CATALYSTS
- Margin Recovery: Sequential improvement in operating margin from 13.17% (Q1) to 15.23% (Q2) suggests stabilisation; sustained trend would restore confidence
- Order Book Momentum: Strong revenue growth of 67.64% YoY indicates robust order execution; commentary on order book quality critical
- Government Infrastructure Push: Increased capex allocation to power transmission, railways, and smart cities benefits ABB India's core segments
- Valuation Correction: 34.38% decline from 52-week high provides better entry point for long-term investors if fundamentals stabilise
- Insurance Buying: Rising insurance holdings from 1.07% to 3.16% signals long-term domestic institutional confidence
🔴 RED FLAGS
- Further Margin Erosion: Any sequential decline in operating margins from current 15.23% would signal structural profitability challenges
- Continued FII Selling: Additional reduction in foreign institutional holdings below 8% would indicate persistent valuation concerns
- Revenue Growth Deceleration: Slowdown in QoQ revenue momentum from current 4.26% would question demand sustainability
- Competitive Intensity: Aggressive pricing by peers or market share losses would pressure already compressed margins
- Technical Breakdown: Breach of 52-week low at ₹4,590.05 would trigger fresh selling pressure and momentum deterioration
Investors should monitor quarterly margin trends, order book composition, management commentary on pricing environment, and competitive dynamics. The stock's ability to reclaim the ₹5,500 level and move above the 200-day moving average would signal technical improvement, whilst sustained margin expansion above 16-17% would validate the quality premium. Conversely, failure to demonstrate profitability improvement or breach of the ₹4,500 support level would necessitate portfolio reassessment.
The Verdict: Quality Franchise at Premium Pricing Requires Patience
Score: 50/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst ABB India remains a high-quality franchise with excellent long-term credentials, the combination of stretched valuations (P/E 61.57x, P/BV 15.38x), margin compression (operating margin down 347 bps YoY), and weak technical momentum creates an unfavourable risk-reward profile. Wait for either meaningful valuation correction below ₹4,800 or sustained evidence of margin recovery above 17% before considering entry.
For Existing Holders: Continue holding with close monitoring of quarterly margin trends. The company's fortress balance sheet, exceptional ROCE of 102.61%, market leadership, and exposure to India's structural electrification opportunity justify maintaining positions for long-term wealth creation. However, consider trimming positions on any rally above ₹5,800 to reduce concentration risk, and be prepared to add on significant weakness below ₹4,500 if fundamentals remain intact. Set a stop-loss at ₹4,200 (52-week low minus 10%) to protect against material deterioration.
Fair Value Estimate: ₹5,400-5,600 (3-5% upside from current levels), implying limited near-term appreciation potential unless operational performance improves materially
Note- ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results. Stock market investments are subject to market risks, and investors may lose some or all of their invested capital.
