Shares of ABB India Ltd. fell the most in a month as Credit Suisse downgraded the stock citing global slowdown and pricey valuations.
ABB India has outperformed the Sensex by 76% over the one year, the research firm said in a note, citing evidence of an investment cycle. Discounted cash flows imply 20% compounded annual growth rate for 20 years, at all-time high margins of 12.5%, it said.
The stock is trading at 70 times its estimated earnings for fiscal ending March 2024, implying “much higher expectations”, Credit Suisse said, reducing the rating on the stock from ‘neutral’ to ‘underperform’ on “elevated multiples”.
“High multiples have to be seen not just in context of near-term earnings momentum but also with its deep and long cyclicality,” it said, citing a 3% annualised decline in EPS from 2008-17.
Downside risks can originate from a prolonged slowdown and a delay in pick-up of investment activity in India as well as geopolitical risks that delay or depress the pick-up in global economic activity, thus affecting export prospects, it said.
Credit Suisse cited near-term momentum in inflows and margins as “upside risks”.
Shares of ABB fell as much as 3.42% on Monday and was trading 3.28% lower at 1:42 p.m. compared with a 0.8% rise in the benchmark S&P BSE Sensex.
Credit Suisse has a target price of Rs 2,600, implying a potential downside of nearly 21%.
Of the 30 analysts tracking the stock, 24 recommend ‘buy’, and six suggest ‘hold’, according to Bloomberg data. The average of target prices implies a return potential of 12.5%.