ABB India: Carving out of power grid biz relieves investors

The stock of ABB India was buzzing in the morning session as investors breathed a sigh of relief from the fact that the company would be carving out its domestic transmission and distribution business into a separate entity. The stock was up 3 per cent.

ABB has demerged its global power grid business and sold it to Hitachi for USD$11 billion. Minority shareholders of ABB India were apprehensive about the valuations of Indian power grid business. After the demerger, the minority shareholders will be issued two shares of the demerged entity for every five shares held in ABB India. The rationale for the swap ratio was not provided. However, the sum total of shares after demerger should be higher than the current price of existing shares.

ABB India is currently trading at 40 times its CY19 estimated earnings. The management seeks to list the demerged company separately. The high valuation reflects the company’s technological edge and product profile. This, however, is not the case with the power grid business and thus it may get a lower valuation multiple on listing. ABB India’s power grid business accounts for 40 per cent of the company’s turnover and 30 per cent of its operating profits.

On Thursday, ABB India was trading at Rs. Rs.1281.65 per share , up 3 per cent on the BSE