Thanks.
The IT infra point is valid. Project overruns are expected once-in-a-while. Margin expansion is expected over long term as the share of digital services increases in the portfolio. Remains to be seen how quickly Lumada’s adaption.
Disc : Invested
Yes, I hv gone thru this link. Bt its more of an add-on push factor for now. No large known liabilities have incurred thru cyber attack so far. Bt in future it might become an important factor. In dat case, cos. like ABB power will have to mandatorily provide security of thr systems.
Disclaimer : i am invested in Abb Power products. this is not investment advice. please do your due diligence before investing.
ABB Power Products has an exciting portfolio of products and services, which has got further contemporaneity with Hitachi’s focus on mobility, smart cities, industry, energy storage, and data centers… As the overall power sector grows and moves up on the value chain, this company should emerge to be a significant beneficiary.
But the proof of the pudding is in eating it and in that respect, company sales growth numbers and that too in the right segments will need to be carefully watched. How the margins improve will clearly determine what kind of returns this stock provides
Its balance sheet also needs to cleanse and strengthen, the process that it has already begun, the with the provision of Rs 60.48 Crs taken in Q3. Can the issue of high working capital intensity be addressed – it has both high debtors and inventory on the asset side and high payables on the liability side
We as capital allocators have a choice between Honeywell and ABB Power
The company has a strong investor engagement programme, which can become even more productive if granular data can be shared
Pls correct me if wrong, Honeywell automation, the listed arm of Honeywell, is more a software solution provider rather than power products…so line of business and hence margin profile etc would be very different…
Thanks for your comment!
I am reasonably sure that Honeywell is not just a pure software solutions provider but has products and services. However would be glad to have better understanding.
Posting some extracts from Honeywell’s Annual Report MD section which may provide some insights…
Process Solution business has a wide portfolio of industrial automation products and solutions that help customers operate safe, reliable, efficient, sustainable, and more profitable operations. We have the expertise and breadth of resources to execute projects of every size and complexity in the oil and gas, refining, pulp and paper, industrial power generation, chemicals and petrochemicals, biofuels, pharma/ life sciences, and metals, minerals and mining industries. The Process Solutions business had a strong year driven by providing our customers leading technologies from the plant floor to the boardroom as well as comprehensive lifecycle services to ensure more productive and stable operations…
As part of its intelligent buildings suite, it provides building management systems, fire detection and
alarm systems, access control systems, video surveillance systems, integrated security systems, and integrated building management systems based on Honeywell’s Enterprise Buildings Integrator™. It provides aftermarket services for various control systems as well as comprehensive utilities’ operations and maintenance services for mechanical and electrical systems in buildings
Building Management Systems business had a good business year. The portfolio was further enhanced with new product offerings like Mechanical PICVs, Variable Frequency drives and Piston type PRVs. Business will continue to stay focused on its core strategies through commercial excellence levers such as sales deployment, on-boarding, channel excellence and pipeline management. This will ensure that your Company continues to grow via its existing product portfolio. Exciting new initiatives such as Connected Buildings and upcoming new product launches will
help your Company grow in an evolving market.
Sensing and Internet of Things (IOT) has multiple diversified customer accounts from Transportation, Aerospace, Medical, Industrial Verticals. This business was focused on market demand and new segment identification during 2019. The Electronic Sensing portfolio which includes board mount Pressure Sensors, Airflow Sensors, Hall ICs, Temperature Sensors etc. helped the business to win in Medical, EVs segment
Thanks for sharing details, indeed Honeywell automation provides end to end solutions for its products which seem to have significant platform/software part as well.
Does Hitachi ABB power grid India’s products also have such significant software component? I think they are majorly hardware/products with not so much software/sevices part that can up its margin significantly (at least not yet)…do they have long term vision and capability for such blended high end products?
@Investor_No_1 : - Yes is the answer to ur first question. LUMADA is the name of Hitachi platform for power grid mgmt. Power products was the solely h\w manufacture part that ABB sold & Hitachi bought because its a perfect business fit for them. However, this total transition will happen over next 5-10 yrs. A margin expansion can be factored in ur valuations if u can take a reasonable call on revenue growth over this period.
Some related questions and answers relating to their IT capabilities in the last concall:
Pls correct me if wrong, lumada platform comes under Hitachi vantara, the unlisted digital entity of Hitachi. I understand that the synergy is there between sister company offerings but when we compare with a Honeywell automation, they seem to have both software and product offering within same listed entity?
Pls note I agree on all your points and just trying to dig deeper as I am interested in this company and hold small position.
@Investor_No_1 : - I’ll be more than happy to knw ur views & see if ur analysis brings out some disconfirming evidence to the investment thesis… 
Regrdng the LUMADA capabilities this is wat the mgmt mentioned in latest concall :-
Hope this points u to the direction of answers u seek. As far as ownership of platform is concerned, I suppose this will be done thru the royalty arrangement as many MNC brand cos, do.
The latest concall transcript on thr site( frm which the above snippet is taken) has a lots of related queries like urs answered by mgmt. Plz have a look at that & let me knw ur thoughts.
Disclosure : - Invested frm lower levels.
I read through the details. I do see lot of synergy with Hitachi + ABB. Only point is if this is a software/platform for produts oriented company like Honeywell automation or not…or would eventually be…this is beyond by circle of competence…in any case my investment thesis for this company is gradual increase in synergy with Hitachi platforms and india moving to smarter grids along with increase in electric consumption. An MNC with ethical promoters in this space is good to track and remain invested.
Disc. Pls note above are just my views and I maybe wrong. Invested as small position in portfolio and hence biased. Not a buy/sell recommendation
Just one note
Ultimately as per demerger agreement ABB has to either sell his holding to HITACHI or if they are not interested then to others in two or three years time frame. For more details check demerger notes.
Disc invested
Hi, ive just started researching this company and am trying to understand the justifcation for investing. Growth projection for earnings as per calls is high single-digit with margins not expected to increase beyond 9%. Stock is already trading close to 50PE based on TTM however based on last QTR we can extrapolate to 40-45EPS for FY 21/22 which puts it at roughly 30PE. That seems fair value but not exactly cheap.
Can we have an insight into Hitachi’s India play. How is the India business organised?
Since there are numerous Hitach Group entities/companies active in India-some listed some unlisted, it will always be a question/concern as to where the value is being created.
Has there been any addressal of these issues by Hitachi Mgmt
The stock has started rising in the last few days without any apparent triggers enabling the valuations to become even more aggressive - it already wasn’t cheap…
How to value such situations - companies running ahead of demonstrated performance
Hitachi’s acquisition of GlobalLogic a bump up for Indian E&RD segment. The $31 billion engineering, research and development (E&RD) sector in India is in a jubilant mood with Japan’s Hitachi announcing the acquisition of US-based software development firm GlobalLogic for $9.6 billion
How will this acquisition impact ABB Power’s valuations?
Indeed stock is rising with no clear known reason to me. ABB India’s results were good but Hitachi ABB Powergrid’s result has not yet come and I could not see anything in news for this week. Anyone has insight about recent upswing or its just adjustment to future growth anticipation with regards to upcoming capex cycle and Electric infra in India?
The beauty of this forum is that a meaningful question nd discussions arnd it enable investors to knw wat to look for, Where nd how to treat it in ur accounting and valuations
So, APART FROM THE QUESTION OF RANDOM RUNUP IN MARKET MOVEMENTS -
The main theme of above few posts is the question of overvaluation of the co. per its TTM earnings. Nd interestingly, the same posts answer certain variables to look which are currently on P&L, bt can be reasnably capitalised. When adjusted for those, the stock might not look overpriced on cost average basis to some. This is the essence of quality investing as xplained in lectures of revered Sanjay Bakshi sir!!!
P.S. M travellng to nd fro nd might not post promptly bt I hv seen given sufficient amount of time, every post uncovers the crucial points by fellow valuepickrs itself.
Disclosure:- Invested from lower levels.
Annual Report out today.
Annual report
