ABB Power Products offers products, systems, software, automation and service across the power value chain. In simpler terms, wherever there’s a requirement to manage power - ABB’s systems and products come into play.
The co. was formed after ABB demerged and sold its power grids business at parent level to Hitachi. A new company Hitachi ABB power grid was formed with Hitachi holding 80% and ABB holding 20% share as of now. Below links provide more details of that transaction
ABB Power Products India was the Indian power grid business of ABB India and got demerged and listed on lines of above. ABB Asea Brown Boveri Ltd. is the vehicle thru which the parent holds 75% of this indian subsidiary.
Below are the major areas that the company operates and wants to extend upon : -
- Grid Connectivity
- Operational Efficiency
- Power Quality, Security and Sustainability
- Digital transformation - Basically a software system to effectively work the power mgmt hardware
The company’s diverse offerings serve customers from Energy, Industries, Mobility, Data-Centers and Smart Cities.
IMO this is a niche category and has a structural advantage as in the power grid and management systems will be a critical component for their customers, hence they will prefer going with the best expertise. ABB\Hitachi have that technology, expertise and brand pull.
The engine for growth comes from 2 levers : -
Opportunities in India - Energy sector, Metro rail connectivity, Data-Centers - these are the under-penetrated sectors that provide runway for growth
The Make-In-India - The parent intends to use India’s facilities for manufacturing components for its other subsidiaries. These will be exports part of the business.
Being a spin-off and recently listed case, valuation of this co. didn’t have any of the standard templates to look upto. So, an approximate approach was to take up the valuation of ABB Hitachi deal as a reference. The deal happened at an EV/Op. EBITA of 11.2x.
At current mkt. cap of Rs. 5506 crs. the EV/Op. EBITA of Indian subsidiary comes out to be 13.3x which is reasonable in light of business quality mentioned above.
Another approach is to look from purely qualitative view where this co. has the scope and growth runway to easily become 60-70k mkt cap in 15-20 yrs. Depending on execution, the investment can be accumulated gradually with current valuation being a starting point.
Disclosure : - Invested. There are a few risks associated with this investment which I’m aware of and will post subsequently. Would also like to hear valuepickr’s view esp. those associated with this sector.