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ABB: Low base impact paints rosy picture
May 13, 2011

ABB has announced first quarter results of financial year 2010-2011 (1QCY11) (It is a December ending company). The company has reported 21.7% YoY and 796.9% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales increase by 21.7% YoY during 1QCY11 (December ending fiscal). Sales growth was led by strong performance from power systems, process automation and low voltage products.
  • Operating margins rise to 5.7% during the quarter. It may be noted that 1QCY10 results were impacted by higher provisioning/restructuring costs for early exit on projects pertaining to non-core businesses.
  • Net profits increase 796.9% YoY during the quarter, due to strong performance at the operating level and increase in other income partially offset by increase in tax rates.


Financial performance snapshot
(Rs m) 1QCY10 1QCY11 Change
Sales 14,752 17,960 21.7%
Expenditure 14,530 16,943 16.6%
Operating profit (EBDITA)  223 1,016 356.2%
Operating profit margin (%) 1.5% 5.7%  
Other income 19 45 144.2%
Interest 38 40 6.4%
Depreciation  120  144 19.7%
Exceptional items - -  
Profit before tax 83 877 952.2%
Tax 17 282 1558.8%
Profit after tax/(loss) 66 595 796.9%
Net profit margin (%) 0.5% 3.3%  
No. of shares   211.9  
Diluted earnings per share (Rs)*   2.81  
P/E ratio (x)*   157.7  
* On a trailing 12 month basis.
* The P/E ratio appears to be unreasonably high as CY10 earnings were impacted by restructuring charges and forex losses.

What has driven performance in 1QCY11?
  • ABB's net sales increased by 21.7% YoY during 1QCY11. This was led by the company's power systems business which reported an increase of 49.6% YoY. The process automation and low voltage products business too recorded strong performance and increased 15.1% YoY and 33.3% YoY respectively. It may be noted that the company continues to face price pressures on the power side of the business on account of intense competition.

  • During the quarter, the company received order inflows to the tune of Rs 16.9 bn. ABB's order backlog at the end of the quarter stood at Rs 83.2 bn as compared to Rs 87.5 bn in 1QCY10

    Segment-wise performance
    (Rs m) 1QCY10 1QCY11 Change
    Power systems
    Revenue 3,825 5,723 49.6%
    % share 24% 30%  
    PBIT margin -12.7% 0.3%  
    Power products
    Revenue              4,318            4,400 1.9%
    % share 27% 23%  
    PBIT margin 8.3% 4.9%  
    Process automation
    Revenue 2,866 3,298 15.1%
    % share 18% 17%  
    PBIT margin 10.6% 6.6%  
    Discrete Automation and Motion
    Revenue 3,960 4,174 5.4%
    % share 25% 22%  
    PBIT margin 2.7% 12.2%  
    Low Voltage Products
    Revenue                 973 1,297 33.3%
    % share 6% 7%  
    PBIT margin -0.8% 8.0%  
    Total*
    Revenue 15,942 18,892 18.5%
    PBIT margin 1.7% 5.6%  
    * Excluding inter-segment adjustments

  • ABB's operating margins increased to 5.7% during 1QCY11. The rise appears to be sharp on a YoY basis as higher provisioning costs on exit from rural electrification business had impacted the results in 1QCY10. Margin rise was also bolstered by a turnaround in two segments namely power systems and discrete automation & motion systems.

  • Net profits increased 796.9% YoY on the back of strong performance at the operating level. The earnings were boosted by forex gains of Rs 29.1 m in this quarter compared to loss of Rs 823 m in the last quarter previous year.

What to expect?
At the current price of Rs 864, the stock is trading at a multiple of 25.6 times our estimated CY12 earnings. Considering the expensive valuations, we have a cautious view on the stock at current levels (ResearchPro subscribers, kindly click here)

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