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ABB: Order strength continues… - Views on News from Equitymaster
 
 
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  • Apr 10, 2003

    ABB: Order strength continues…

    T&D equipment major, ABB Ltd.'s growth story continues. The company has reported a 41% growth in March quarter (1QFY04) net profits, backed by an encouraging 18% growth in topline. However, at the operating level, margins dipped to 3.9% indicating competitive environment.

    (Rs m) 1QFY03 1QFY04 Change FY02 FY03 Change
    Net Sales 2,411 2,837 17.6% 10,416 11,758 12.9%
    Other Income 25 66 157.8% 142 248 75.3%
    Total expenditure 2,301 2,725 18.4% 9,452 10,587 12.0%
    Operating Profit (EBDIT) 110 112 1.4% 964 1,171 21.4%
    Operating Profit Margin (%) 4.6% 3.9%   9.3% 10.0%  
    Interest 3 1 -42.6% 73 6 -91.8%
    Depreciation 44 44 1.0% 182 183 0.4%
    Profit before Tax 89 131 47.7% 851 1,230 44.5%
    Extraordinary items 0 0 - 0 158 -
    Tax 27 44 63.0% 198 416 110.7%
    Profit after Tax/(Loss) 62 87 41.0% 653 972 48.8%
    Effective tax rate (%) 30.3% 33.5%   23.2% 33.8%  
    Net profit margin (%) 2.6% 3.1%   6.3% 8.3%  
    No. of Shares (eoy) (m) 42.4 42.4   42.4 42.4  
    Earnings per share* 5.9 8.3   15.4 22.9  
    *(annualised)            
    Current P/e ratio   38.4     13.8  

    The company further strengthened its order backlog to Rs 9,694 m, as compared to Rs 8,794 m at the beginning of the year. On a YoY basis, order backlog saw over 19% growth. The continuation of strong order growth indicates that ABB is likely to continue the strong growth it displayed in FY03 to continue in FY04 as well.

    However, pressure on margins is a sign of the competitive market conditions. Had the company not reported strong growth in other income, it would have reported a 25% dip at the net profit level. The higher other income has been possible as a result of freeing of cash due to working capital efficiencies, as well as selling of some non-core businesses its air handling equipment business. In April 2003, it has also sold off its metering business to Elster Metering Private Ltd.

    Cost as % to sales 1QFY03 1QFY04
    Raw material 66.8% 71.9%
    Staff cost 12.9% 10.2%
    Other expenditure 15.7% 13.9%
    Total expenditure 95.4% 96.1%

    At the current price of Rs 317, the stock trades at around 12x our FY04 earnings estimates. Though we are encouraged by the company's continuous improvement in efficiencies, its focus on services and end-to-end solutions, as also its outsourcing business initiatives, a 3.9% operating margin and dependence on other income for bottomline growth is a cause for worry.

     

     

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