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ABB: The turnaround continues

Apr 24, 2002

The power transmission & distribution (T&D) equipment major, ABB Limited, has recorded a significant 19% growth in topline in the March quarter of 2002. The company's profits were up 31% YoY during the same period.

(Rs m) 1QFY02 1QFY03 Change FY02
Net Sales 2,022 2,411 19.3% 10,416
Other Income 18 25 38.0% 142
Total expenditure 1,923 2,301 19.7% 9,452
Operating Profit (EBDIT) 99 110 11.1% 964
Operating Profit Margin (%) 4.9% 4.6%   9.3%
Interest 15 3 -83.3% 73
Depreciation 42 44 4.8% 182
Profit before Tax 60 89 47.9% 851
Tax 13 27 107.7% 198
Profit after Tax/(Loss) 47 62 31.4% 653
Effective tax rate (%) 21.6% 30.3%   23.2%
Net profit margin (%) 2.3% 2.6%   6.3%
No. of Shares (eoy) (m) 41.4 42.4   42.4
Earnings per share* 4.6 5.9   15.4
*(annualised)        
Current P/e ratio   44.7   17.0

With this ABB continues with its growth momentum. The company had ended FY02 with a 31% growth in topline and a 21% growth in profit. What is commendable in ABB's 1QFY03 performance is that the growth in topline has been achieved without consolidating companies which ABB amalgamated in FY02. The amalgamation of 4 companies (viz. Introl, ABB Instrumentation, ABB Lenzohm and ABB Analytical) with ABB came into effect from April 2001.

However, the pressure on company's operating margins is evident. The company has not been able to cut costs in order to enhance benefits of its commendable topline growth. Though as a percentage of sales raw material costs declined to 66.8%, in absolute terms all cost heads saw an increase YoY.

Ratio to sales
  1QFY02 1QFY03
Raw material 67.5% 66.8%
Staff cost 11.6% 13.5%
Other expenditure 16.5% 15.7%
Total expenditure 95.1% 95.4%

While utilities contributed 27% to 1QFY03 sales, power technology and automation technology (ABB's relatively new focus areas) contributed 24% and 28% respectively. Utilities contributed 27% to profits before interest and tax. However, it was automation automation technology segment that emerged as a key contributor to earnings. This segment contributed over 62% to profits before interest and tax during 1QFY03.

The company is likely to continue with its commendable topline performance in the coming quarters too. This is largely backed by a high order backlog, which stands at Rs 8,116 m currently as compared to 7,750 m as on December 31, 2001. The company booked orders worth Rs 2,809 m in March quarter, up 25% over Rs 2,250 m orders booked in the corresponding quarter last year. Also, from April onwards the topline of the 4 amalgated companies is going to be reflected in ABB's results. This will give a fillip to topline in the next two quarters. But operating margins are likely to remain under pressure.

Pursuant to the ABB Group's decision to sell its air handling equipment business (worldwide) to Global Air Movement (Luxembourg) SARL, ABB India too has decided to divest its air handling equipment business, subject to shareholder approval.

At the current price of Rs 262 the stock trades at 13.7x FY03 expected earnings.


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