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ABB: Making a strong comeback

Feb 23, 2001

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.

(Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
Net Sales 2,597 2,861 10.1% 7,758 7,933 2.3%
Other Income 106 49 -53.9% 176 136 -22.7%
Expenditure 2,283 2,477 8.5% 7,182 7,157 -0.4%
Operating Profit (EBDIT) 314 383 22.2% 576 776 34.8%
Operating Profit Margin (%) 12.1% 13.4% 7.4% 9.8%
Interest 17 8 -54.4% 61 39 -36.2%
Depreciation 38 39 2.4% 158 168 6.1%
Profit before Tax 365 386 5.7% 532 705 32.6%
Tax 117 95 -18.8% 160 165 3.1%
Profit after Tax/(Loss) 248 291 17.3% 372 540 45.2%
Net profit margin (%) 9.5% 10.2% 4.8% 6.8%
No. of Shares (eoy) (m) 41.4 41.4 41.4 41.4
Earnings per share* 23.9 28.1 9.0 13.0
Current P/e ratio 24.2

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.

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