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ABB: The extraordinary impact!
Feb 24, 2011

ABB declared its 4QCY10 results. The company has reported 8.8% YoY increase in sales while its net profits have fallen 93.8% YoY. Here is our analysis of the results.

Performance summary
  • Sales increase by 8.8% YoY during 4QCY10 (December ending fiscal). Sales growth was led by the power systems and discrete automation & motion businesses.
  • Operating margins contract drastically by 6.3% YoY during the quarter on the back of higher provisioning costs for an early exit on balance projects pertaining to non-core businesses.
  • Net profits fall by 93.8% YoY during the quarter, due to dismal performance at the operating level. In addition, foreign exchange losses and higher tax rates also impacted the bottom line.
  • The company has declared a dividend of Rs 2 per equity share for the year ended CY10.




Financial performance snapshot
(Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
Sales 18,852 20,506 8.8% 62,372 62,871 0.8%
Expenditure 17,220 20,018 16.3% 56,608 61,087 7.9%
Operating profit (EBDITA) 1,633 488 -70.1% 5,764 1,784 -69.1%
Operating profit margin (%) 8.7% 2.4%   9.2% 2.8%  
Other income 215 240 11.2% 726 855 17.9%
Interest 26 48 84.3% 254 174 -31.5%
Depreciation 125 148 18.8% 485 517 6.5%
Foreign exchnage variation/td> 121 375 210.1% 477 946 98.6%
Profit before tax 1,576 156 -90.1% 5,274 1,002 -81.0%
Tax 480 88 -81.6% 1,728 370 -78.6%
Profit after tax/(loss) 1,096 68 -93.8% 3,546 632 -82.2%
Net profit margin (%) 5.8% 0.3%   5.7% 1.0%  
No. of shares       211.9 211.9  
Diluted earnings per share (Rs)*         2.98  
P/E ratio (x)*         221.9  
* On a trailing 12 months basis

What has driven performance in 4QCY10?
  • ABB witnessed an increase in net sales by 8.8% YoY during 4QCY10. This was led by the company's power systems business which reported an increase of 48.9% YoY. The discrete automation & motion business too recorded a strong performance during the quarter. However, on the other hand the power products and process automation segments saw a decline in sales growth by 8.8% YoY and 2.2% YoY, respectively during the quarter. It may be noted that the company continues to face price pressures on the power side of the business on account of intense competition.

    During the quarter, the company received order inflows to the tune of Rs 13.9 bn, a decline of 41% YoY. ABB's order backlog at the end of the year stood at Rs 84.3 bn as compared to Rs 84.7 bn in CY09.

    Segment-wise performance
    (Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
    Power systems            
    Revenue 4,265 6,350 48.9% 17,192 18,267 6.3%
    % share 21% 28%   25% 27%  
    PBIT margin -9.2% -6.0%   0.4% -6.0%  
    Power products            
    Revenue 5,927 5,404 -8.8% 19,936 18,155 -8.9%
    % share 29% 24%   29% 26%  
    PBIT margin 6.5% 3.8%   10.9% 4.5%  
    Process automation            
    Revenue 4,684 4,582 -2.2% 12,922 11,887 -8.0%
    % share 23% 20%   19% 17%  
    PBIT margin 16.0% 7.6%   12.0% 6.9%  
    Discrete Automation and Motion            
    Revenue 4,346 4,875 12.2% 14,072 15,929 13.2%
    % share 21% 22%   21% 23%  
    PBIT margin 22.7% 5.6%   12.8% 8.3%  
    Low Voltage Products            
    Revenue 1,233 1,440 16.8% 3,825 4,486 17.3%
    % share 6% 6%   6% 7%  
    PBIT margin -5.6% -0.8%   5.5% 0.4%  
    Total*            
    Revenue 20,454 22,651 10.7% 67,947 68,723 1.1%
    PBIT margin 8.1% 1.9%   8.5% 2.7%  
    * Excluding inter-segment adjustments

  • ABB's operating margins contracted by 6.3% during 4QCY10. The adverse impact on profits was mainly due to lower price realization and continued higher provisioning costs on exit from rural electrification business. Apart from this, increase in key raw material costs like coal, steel and copper also impacted margins. Based on segments, power systems and low voltage products witnessed negative PBIT margins. While margins in other business segments were positive, on a YoY basis all the segments witnessed margin erosion.

  • Net profits declined 93.8% YoY on the back of dismal performance at the operating level. Increase in foreign exchange losses and tax rates did not help the cause either.

What to expect?
At the current price of Rs 667, the stock is trading at a multiple of 19.5 times our estimated CY12 earnings. ABB continues to disappoint in terms of its financial performance. We have a cautious view on the stock at current levels (ResearchPro subscribers, kindly click here)

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