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ABB's Power Grid order gives Indian arm revenue visibility

ABB has an impressive track record for providing High Voltage Direct Current (HVDC) lines and nearly half of installed base globally has been by the company.

, ET Bureau|
Updated: Jan 11, 2017, 08.36 AM IST
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ET Intelligence Group: The ABB India stock, an Indian subsidiary of ABB Group (Swedish-Swiss multinational based in Zurich), surged 13% on Tuesday after ABB group received a mega order of Rs 4,350 crore for construction of Ultra High Voltage Direct Current (UHVDC) line from Power Grid.

Typically , for these mega orders for UHVDC line, the parent company supplies critical equipment such as converters and inverters and the remaining part of orders are assigned to the Indian subsidiary. ABB has an impressive track record for providing High Voltage Direct Current (HVDC) lines and nearly half of installed base globally has been by the company. There are a couple of reasons why the order has propelled shares of ABB India.

Firstly, analysts believe the Street was factoring in hat the chances of ABB g roup grabbing the me ga order of Power Grid were slim. It must be noted that ABB India filed a case against Power Grid regarding the terms of a contract of the same order. Hence, ABB group emerging as a winner was a surprise.

Secondly, UHVDC order will increase the revenue visibility for ABB India. At the end of September quarter, ABB India's outstanding order stood at Rs 8,670 crore, which implies revenue visibility for the next 9-12 months.The new order of HVDC will be completed by 2019, so it will boost revenue growth further.

Based on the earlier HVDC orders for the group, ABB India's share is likely to be 20-25% of the total order, analysts said. The Street is pricing revenue growth of 15-17% for ABB India for the current and next fiscal year.

The stock is trading at a rich valuation of 47x projected 2018 earnings. However, the high valuation is likely to sustain due to low liquidity of the stock, technology edge and MNC parentage premium.
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