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ABB: Improvement continues

Feb 21, 2002

The power transmission & distribution (T&D) equipment major, ABB Limited, has recorded a significant 37% growth in topline in the December quarter of 2001. The company's profits were up 25% YoY during the same period.

(Rs m)4QFY014QFY02ChangeFY01FY02Change
Net Sales2,8613,90936.6%7,93310,41631.3%
Other Income497146.1%1361424.3%
Total expenditure2,4773,45439.4%7,1579,45232.1%
Operating Profit (EBDIT)38345518.7%77696424.2%
Operating Profit Margin (%)13.4%11.6%9.8%9.3%
Interest828267.9%397385.6%
Depreciation395645.0%1681828.9%
Profit before Tax38644214.5%70585120.7%
Tax9580-16.3%16519819.7%
Profit after Tax/(Loss)29136224.5%54065320.9%
Effective tax rate (%)24.6%18.0%23.4%23.2%
Net profit margin (%)10.2%9.3%6.8%6.3%
No. of Shares (eoy) (m)41.442.441.442.4
Earnings per share*28.134.213.015.4
*(annualised)
Current P/e ratio7.516.5

On an annual basis, ABB's income from operations was up by 31% in 2001 as compared to the previous year. Its bottomline stood improved by 21% during the same period. Though the results are encouraging, it has to be pointed out that the December quarter includes sales of Rs 457 m from the 4 companies (viz. Introl, ABB Instrumentation, ABB Lenzohm and ABB Analytical) that were amalgamated into ABB Limited. Excluding this sales, the topline of the company has grown by 21% YoY during December quarter and by 26% YoY in 2001.

As a result of the amalgamation, its staff costs seemed to jump by 30% in 4QFY02. Also, its other expenses crept up by nearly 50%. As a result, its operating margins fell by 180 basis points to 11.6% during the quarter. On an annual basis too, its operating margins fell by 50 basis points to 9.3%. Looking at the results it seems that the company managed to improve sales volumes, but was pressed for realisation growth.

Cost break-up
(Rs m)4QFY014QFY02ChangeFY01FY02Change
Raw material1,8422,55938.9%4,8876,74638.0%
Staff cost26834830.1%1,0191,13010.9%
Other expenditure36754748.8%1,2511,57626.0%
Total 2,4773,45439.4%7,1579,45232.1%

Higher interest also deflated earnings growth of the company. However, it must be said that there are definite signs of an improvement in ABB's financial performance. The company managed to impove its working capital efficiencies by pruning its receivable days from 152 to 141.

While utilities contributed 28% to 2001 sales, power technology and automation technology (ABB's relatively new focus areas) contributed 24% and 26% respectively. Utilities and automation technology both contributed 33% each to profits before interest and tax, followed by power technology at 19%.

Higher interest also deflated earnings growth of the company. However, it must be said that there are definite signs of an improvement in ABB's financial performance. The company managed to impove its working capital efficiencies by pruning its receivable days from 152 to 141.

While utilities contributed 28% to 2001 sales, power technology and automation technology (ABB's relatively new focus areas) contributed 24% and 26% respectively. Utilities and automation technology both contributed 33% each to profits before interest and tax, followed by power technology at 19%.

At the current price of Rs 255 the stock trades at 16.5x FY02 earnings. Going forward its valuations are likely to see strength in the short term. However, only if this momentum continues will the stock price hold on that strength.

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