ABB India sheds 4% after Kotak Institutional Equities downgrades stock to ‘reduce’

Brokerage firm Kotak Institutional Equities has downgraded ABB India to ‘reduce’ from ‘buy’ because of downside risks in the near term.

It also assigned a target price of Rs 3,425 for the stock, which reflects a meagre upside potential of less than 1 percent from the stock’s Monday closing price.

Investors also reacted negatively to the downgrade and dumped shares of ABB India in the cash market on April 11. At 12.55pm, the shares of ABB India traded with a cut of 3.49 percent from the previous close at Rs 3,279.15 on the National Stock Exchange.

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KIE remains sceptical of the sustainability of ABB India’s sharp gross margin expansion in 2022. “The 200 basis point on-year gross margin expansion and low 10 days of working capital that yields a near 37 percent post-tax return on invested capital for ABB in 2022 may be hard to sustain and grow. This represents a downside risk to our unchanged estimates,” the brokerage firm highlighted in its report.

On top of that, the ABB India’s sharp upside rally of around 22 percent in the year so far makes the case for an impending correction even stronger according to the brokerage firm.

The broking firm is positive on the ABB India’s  unrelenting focus on sustainability and new investments across segments which are poised to drive the next leg of growth for the capital goods company.

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