Asea Brown Boveri (ABB) India is one of the foremost suppliers of high-end power transmission and distribution (T&D) equipment in India. The Rs 7.9 bn (US$ 170 m) ABB India manufactures motors, generators and alternators upto 200 megawatt (MW). It commands a 19% share of the Rs 14 bn (US$ 305 m) high tension (HT) switchgear segment. It also manufactures control systems and mini/micro processor-based systems.
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 bearing fruit. Its interest costs declined by 36% as a result of pruned debt levels. Its operating costs too, declined marginally. The company has been continously realigning its employee costs. This year the company wrote off Rs 50 m as VRS expenses. As a result, ABB finished the year (FY01) with a 45% growth in bottomline YoY. However, turnover growth of the company has not been very impressive (up only 5% YoY in FY01).
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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.
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 stock has come off from above Rs 300 levels and is trading at Rs 234, a P/e multiple of 18 times FY01 earnings. Based on our estimations, the P/e multiple works out to be 15.2 times FY02 earnings. By our estimations the company is evenly rated even though the stock historically trades at a P/e multiple range of 22-28 times.
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