ABB India record order book and data centre demand support growth despite margin pressure

Investment View and Recommendation

In its August 2, 2026 Q2CY26 result update, PL Research characterised ABB India's quarter as mixed. Strong revenue execution and order inflows were offset by margin pressure from input costs and currency volatility. The broker retained its HOLD rating despite constructive long-term fundamentals, citing the stock's valuation and near-term headwinds from higher commodity costs and forex volatility amid the West Asia crisis.

PL Research raised its target price to Rs 6,944 from Rs 6,523. The target applies a 58 times June 2028E P/E multiple, compared with the earlier 56 times, reflecting order momentum and structural opportunities in electrification, automation and data centres. The target remains below the CMP of Rs 7,285.

Q2CY26 Financial Performance

ABB India reported Q2CY26 revenue of Rs 3,559 crore, up 21.0 per cent year on year and 9.8 per cent above PL Research's estimate of Rs 3,243 crore. Growth was broad based across the key segments.

Electrification revenue rose 30.9 per cent year on year to Rs 1,804 crore, Motion revenue increased 16.6 per cent to Rs 1,269 crore, and Industrial Automation revenue grew 6.5 per cent to Rs 524 crore. EBITDA margin declined because gross margin fell 274 basis points to 37.1 per cent, primarily due to elevated raw-material costs.

Order Momentum and Revenue Visibility

The principal positive was order momentum. Q2CY26 order inflows increased 49.6 per cent year on year to Rs 4,360 crore, led by base orders in Electrification and higher export orders in Motion and Automation. The order book rose 22.2 per cent year on year to a record Rs 11,900 crore, equivalent to 0.9 times trailing-twelve-month revenue.

The order book comprised 40.8 per cent Motion, 40.6 per cent Electrification and 18.6 per cent Process Automation. Management indicated that there were no slow-moving orders and that approximately 40 per cent of the backlog should be executed over the next two quarters, supporting revenue visibility.

Data centres accounted for approximately 15 to 17 per cent of quarterly order inflows, followed by metals and mining at about 15 per cent, oil and gas at about 9 per cent, buildings and infrastructure at about 8 per cent, and renewables at about 6 per cent.

Segment Developments and Capacity

Electrification

Electrification order inflows grew 77 per cent year on year, supported by data centres, metals and mining, buildings and infrastructure, and cement. Its order backlog was approximately Rs 4,890 crore.

Motion

Motion order growth was 26 per cent year on year, driven by railways, exports and industrial applications. Segment margin was about 12 per cent. Long-duration railway contracts delayed revenue recognition, although management cited execution visibility from long-term Indian Railways agreements.

Process Automation and Manufacturing Capacity

Process Automation order growth was 24 per cent year on year, supported by automotive, cement and exports. Service revenue, which contributed about 30 per cent of segment revenue, supported profitability.

The new Nelamangala manufacturing facility, localisation and dedicated data-centre products are intended to address anticipated multifold growth in data-centre demand over CY27-CY28. Capacity utilisation was approximately 85 to 90 per cent, leaving 15 to 20 per cent headroom.

Margin Outlook and Key Headwinds

Management expects margin pressure to continue for the next two to three quarters because of higher copper, aluminium and silver prices, rupee depreciation and forex volatility. ABB India has implemented two price hikes, but pass-through is trailing input-cost inflation, particularly in the tender-based systems business.

Approximately 60 per cent of Distribution Solutions comprises flow products, which allow faster price revisions. PL Research expects the backlog, operating leverage, price pass-through and stabilising raw-material prices to support a gradual margin recovery.

Estimates and Valuation

PL Research raised its CY27E and CY28E estimates across key financial metrics. The broker increased sales estimates by 4.5 per cent and 7.9 per cent, EBITDA estimates by 3.2 per cent and 6.6 per cent, and EPS estimates by 0.7 per cent and 4.5 per cent, respectively.

The revised target price of Rs 6,944 is based on a 58 times June 2028E P/E multiple. While PL Research remains positive on ABB India's structural opportunities in electrification, automation and data centres, the HOLD rating reflects valuation concerns and the near-term risks from commodity costs and forex volatility.