Broker Alert: With an 8% fall, it's time to dump ABB

ABB, a power and automation company, continued its falling streak for the second day in a row as the stock fell by 2.57 percent to Rs 806.9 per share today. This was in continuation of the 5.45 percent fall registered by the company on Friday when it announced its December quarter results where it stated that profit margins will continue to remain under pressure.

“Rising input costs, tight liquidity situation, forex volatility and low price realisation as witnessed in some sectors may continue to put pressure on the margins” said the company in its press release.

For the December quarter, the company reported a stellar growth in net profit which soared by 847 percent to Rs 64.1 crore while revenues rose by 5.8 percent to Rs 2,169.6 crore. Its order inflow also surged by 29 percent to Rs 8,188.8 crore for the year ended 31 December 2011.

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 However, due to the statement made by the company many brokerage firms have downgraded to stock to sell citing margin pressure and weak outlook.

Here are some brokers view on these stocks -

•Bank of America Merril Lynch maintain an ‘underperform rating on the stock due to slowing growth, increasing competition and expensive valuation. Also its most profitable - Automation business has slowed on a fall in private capex. It has a price target of Rs 560 per share against its current price of Rs806.

•Prabhudas Lilladher also has a sell rating on the stock with a price target of Rs644 per share. In spite of an improvement in the order book and inflows, PL maintains its sell rating on the stock since the challenging environment in power systems and automation business will dampen the margin recovery process.

•HSBC Global Research has an underweight rating on the stock with a price target of Rs510 per share. While the management has attributed weak profitability to lower volumes, high input costs, project delays and poor project mix, HSBC further says that the company’s margins have remained depressed for two years now, indicating poor project selection.

•Religare also has a sell rating on ABB with a price target of Rs575 per share. According to the report, the business environment for the company remains challenging as lower capacity utilisation in the industry and elevated interest rates are deferring capex plans of prospective customers.