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ABB: Product focus

Mar 10, 2003

ABB India has had a good run, both in terms of financial and consequently, stock performance in FY03. This T&D equipment major finished 2002 with a 13% topline and a 25% bottomline growth (excluding extraordinary gains from sale of air handling equipment business). The ABB India stock has gained around 40% in the last one year. In the last 10 years, ABB India has clocked a CAGR of 11% both in terms of topline and bottomline. The company has seen a lot of restructuring in this period, spinning off some divisions (power) in JVs and merging some other ABB entities in India. Since ABB’s growth prospects are linked to the power development scene in India, this growth can be considered satisfactory.

The decade gone by…
  FY94 FY03 CAGR (%)
Sales 4,518 11,758 11.2%
Net Profit 306 814 11.5%
Operating margins (%) 10.7% 10.0%  
Net profit margins (%) 6.8% 6.9%  

In the last few years however, ABB has focused on servicing the T&D clients and also on getting outsourcing work from its parent. Currently, the company has divided its business into 3 focus areas. One is the traditional setting up of turnkey projects, second is the services business wherein the company is focusing on catering to all the needs of clients and is looking to take over the day-to-day running and maintenance of plants. The third focus area is the company’s retail initiative i.e., branded standard products for retail consumers. The company’s management sees this as a big growth area going forward.

These new initiatives are a positive for the company, which has for long been dependent on the power growth scene in India. The company will however, continue to derive a significant part of its revenues from power (whether through setting up plants or through servicing). In FY03, utilities and power technology services together accounted for 53% of the company’s turnover.

With the current power reforms focused on T&D, ABB India is bound to be a key beneficiary. Also, as and when the new Electricity Bill is passed one is likely to see more investments in the sector. At the current price of Rs 304 the stock trades at 13x FY03 earnings. We believe FY04 too will be a healthy year for the company.

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