Asea Brown Boveri, the power transmission and distribution (T&D) equipment major seems on the right track. Since hiving off its power business, ABB has improved its performance in FY01. The company's approach to cost cutting and its focus on key businesses is indeed commendable. As a result, ABB finished the year with a 45% growth in bottomline YoY.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy) (m)
Earnings per share*
Current P/e ratio
The company's turnover however, improved by a marginal 2%. But if we exclude the power business from the previous year's performance the rise in turnover is higher at 5%.
Large infrastructure orders from customers such as WBSEB, MSEB, APTRANSCO, NTPC Talcher and Delhi Metro Rail Corporation resulted in the company clocking a significant 52% jump in order intake to Rs 11 bn. The company's net cash position for the year stood at a positive Rs 127 m (the same level as at the end of the previous year). This is mainly attributable to the high level of revenues in the last few months of the year contributing to higher accounts receivables.
ABB's efforts to rationalise costs seem to be bearing fruit. Its interest costs declined by 36% as a result of pruning its debt levels. Its operating costs too, declined marginally. The company has been continously realigning its employee cost structure. This year the company wrote off Rs 50 m as VRS expenses.
ABB has been focusing on seamless solutions for its clients and is working towards providing real time services. The company's T&D business is also on an upswing. This focus is likely to improve its operating margins in the next few years.
The bourses have taken notice of the improving business prospects of ABB. In the last six months the ABB stock has run up by 45%. At Rs 315, the stock currently quotes at a P/e multiple of 24 times its FY01 earnings. If we go by the P/e multiple valuations, then the stock is evenly valued. But with the company expected to improve its topline in FY02 coupled with an improvement in its operating margins, the stock is likely to see an upward re-rating.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407