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ABB: Improvement continues - Views on News from Equitymaster
 
 
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  • Feb 21, 2002

    ABB: Improvement continues

    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) 4QFY01 4QFY02 Change FY01 FY02 Change
    Net Sales 2,861 3,909 36.6% 7,933 10,416 31.3%
    Other Income 49 71 46.1% 136 142 4.3%
    Total expenditure 2,477 3,454 39.4% 7,157 9,452 32.1%
    Operating Profit (EBDIT) 383 455 18.7% 776 964 24.2%
    Operating Profit Margin (%) 13.4% 11.6%   9.8% 9.3%  
    Interest 8 28 267.9% 39 73 85.6%
    Depreciation 39 56 45.0% 168 182 8.9%
    Profit before Tax 386 442 14.5% 705 851 20.7%
    Tax 95 80 -16.3% 165 198 19.7%
    Profit after Tax/(Loss) 291 362 24.5% 540 653 20.9%
    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) 41.4 42.4   41.4 42.4  
    Earnings per share* 28.1 34.2   13.0 15.4  
    *(annualised)            
    Current P/e ratio   7.5     16.5  

    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) 4QFY01 4QFY02 Change FY01 FY02 Change
    Raw material 1,842 2,559 38.9% 4,887 6,746 38.0%
    Staff cost 268 348 30.1% 1,019 1,130 10.9%
    Other expenditure 367 547 48.8% 1,251 1,576 26.0%
    Total 2,477 3,454 39.4% 7,157 9,452 32.1%

    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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