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ABB: Forex variation losses decimate bottomline
Apr 30, 2010

ABB has announced its 1QCY10 results. The company has reported a 5% YoY increase in sales, and a 92% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Sales increase by just 5% YoY during 1QCY10 (December ending fiscal) owing to weak performance of the power systems business that saw sales fall by 15% YoY.
  • Operating margins fall to almost zero on account of an increase in almost all the company’s cost heads including a high level of foreign exchange variation losses (as percentage of sales).
  • Net profits decline by a staggering 92% YoY during the quarter, largely due to the contraction in operating margins.


Financial performance snapshot
(Rs m) 1QCY09 1QCY10 Change
Sales 13,931 14,559 4.5%
Expenditure 12,660 14,530 14.8%
Operating profit (EBDITA) 1,271 29 -97.7%
Operating profit margin (%) 9.1% 0.2%  
Other income 143 212 48.6%
Interest 103 38 -63.6%
Depreciation 109 120 10.7%
Profit before tax 1,203 83 -93.1%
Tax 419 17 -95.9%
Profit after tax/(loss) 784 66 -91.5%
Net profit margin (%) 5.6% 0.5%  
No. of shares# 211.9 211.9  
Diluted earnings per share (Rs)*   13.35  
P/E ratio (x)*   59.3  
* On a trailing 12 months basis

What has driven performance in 1QCY10?
  • ABB’s power systems division led the dismal performance in topline during 1QCY10. This business saw sales fall by 15% YoY during the quarter. Also, the company’s power products business saw only a marginal 1.4% Y0Y growth in sales. On the other hand, the process automation and automation products divisions recorded relatively better performances with 14% YoY and 28% YoY growth in sales.

    Segment-wise performance
    (Rs m) 1QCY09 1QCY10 Change
    Power systems      
    Revenue 4,472 3,825 -14.5%
    % share 29.6% 24.0%  
    PBIT margin 6.3% -12.7%  
    Power products      
    Revenue 4,259 4,318 1.4%
    % share 28.2% 27.1%  
    PBIT margin 12.7% 8.3%  
    Process automation      
    Revenue 2,513 2,866 14.0%
    % share 16.6% 18.0%  
    PBIT margin 12.2% 10.6%  
    Discrete automation and motion      
    Revenue 3,084 3,960 28.4%
    % share 20.4% 24.8%  
    PBIT margin 6.0% 2.7%  
    Lowe voltage products      
    Revenue 774 973 25.6%
    % share 5.1% 6.1%  
    PBIT margin 11.3% -0.8%  
    Total*      
    Revenue 15,102 15,942 5.6%
    PBIT margin 9.3% 1.7%  
    * Excluding inter-segment adjustments

  • ABB’s operating margins fell to almost zero during 1QCY10. This was due to higher raw material costs, higher cost of traded goods, higher staff costs as also a significant increase in exchange rate variation related losses during the quarter. Based on segments, the power systems and low voltage products segments saw their margins fall into the negative.

  • On the back the drastic fall in operating margins and an increase in depreciation charges, ABB recorded a severe 92% YoY fall in its bottomline during 1QCY10.

What to expect?
At the current price of Rs 792, the stock is trading at a multiple of 21.7 times our estimated CY12 earnings. During the quarter, ABB recorded an order inflow of Rs 16.8 bn, which was 27% lower than the orders booked during 1QCY09. At the end of March 2009, the company’s unexecuted orderbook stood at nearly Rs 87.5 bn. The company’s lacklustre performance in combination with its high valuations makes us cautious about the stock.

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