ABB: Reality check - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

ABB: Reality check

Jul 14, 2003

ABB India is a 52% subsidiary of ABB, Switzerland. The key focus areas of the company are the traditional T&D equipment segment and services (focused on catering to day-to-day running and maintenance of plants). Recently it has spelled out the retail sector (i.e. branded products for retail consumers) too as a key focus area. The retail market for products like transformers and other smaller equipment is largely unorganised at the current juncture.

Segment Business area Major competitors
Utilities Produces power transformers, provides solutions for high voltage
and medium voltage substations, power line carrier communication
equipments, relay control panels, networking mgmt and services to utilities.
BHEL and Siemens
Automation Technology
Products
Provides products, systems, software and services for the automation
and key technologies including measurement control, instrumentation,
process analysis, power, automation and unique process industry technology products
Siemens and Crompton Greaves
Others Switchgears, breakers, capacitors as well
as other products and technologies for high and
medium voltage applications.
BHEL, siemens and Crompton Greaves

The company’s orderbook grew 19% YoY to Rs 9.7 bn in FY03 (82% of revenues). The robustness in order book position continued in 1QFY04 as well (35% growth YoY to Rs 3.8 bn). Now let’s have a look at the segmental break-up of the revenues.

Power technology segment contributed to 53% of ABB’s total revenues and accounted for 38% to the PBIT in 1QFY03. As compared to the same quarter last year, revenues for this segment increased by 16% and PBIT by 9%.

Power Tech. (Rs m)
Revenue 1QFY03 1,618
PBIT for segment 1QFY03 488
Revenue 1QFY02 1,398
PBIT for segment 1QFY02 447
% increase in revenue 16%
% increase in PBIT 9%

ABB will be a significant beneficiary of the recently passed Electricity Bill. The focus is on the transmission and distribution segment, particularly on reducing T&D losses. So, rising investments here will directly improve business opportunities for ABB. The investment ratio of T&D to generation has been abysmally low as compared to world standards because T&D companies were not able to realise the money for electricity they supplied. But the scenario is expected to improve now because the sector will increasingly be unbundled. The companies involved in generation will be allowed to take up distribution also, so investing in T&D will make sense for these companies. The government has plans to put additional 100,000 MW to generation capacity till 2012. It takes approximately Rs 35 m to set up 1 MW capacity, and going by the world standards the investment ratio of T&D to generation should be 1:1. So great opportunity lies ahead for ABB.

The automation technology segment has shown significant improvements in 1QFY03 as compared to same quarter last year. The revenue went up by 6% and PBIT of the segment increased by 34%. The index of industrial production (IIP) registered a growth of 5.8% for FY03. This could be an indication of a long-term cyclical upturn.

Automation Tech. (Rs m)
Revenue 1QFY03 1,156
PBIT for segment 1QFY03 783
Revenue 1QFY02 1,090
PBIT for segment 1QFY02 583
% increase in revenue 6%
% increase in PBIT 34%

The other segment contributed 9% to the total revenues for first quarter FY03 and showed an improvement of 18% as compared to same quarter last year but the PBIT improved considerably.

Others (Rs m)
Revenue 1QFY03 2,527
PBIT for segment 1QFY03 242
Revenue 1QFY02 2,137
PBIT for segment 1QFY02 -55
% increase in revenue 18%
% increase in PBIT NA

The stock is currently valued at 370, and trading at P/E of 16.3x FY03 earnings. Historically, ABB has traded in a price band of 14-20x earnings, at a premium to its peers in the power equipment business. Given ABB’s strong focus, order book strength coupled with sector positives, we are optimistic on the company’s long term fortunes. But for the valuations to sustain, the company has to continually log in good numbers. And this in turn, is dependent on the execution of power sector reforms on the ground.

Valuation Snapshot  
Sales (Rs m) 11,724
PAT (Rs m) 97
EPS (Rs) 22.8
P/E (x) 16.3
Price/Book value (x) 3.2
Order book (Rs m) 9,694
Order book/Sales (x) 0.8
Market Cap/Sales (x) 1.3
* FY03 numbers

Equitymaster requests your view! Post a comment on "ABB: Reality check ". Click here!

  

More Views on News

Videocon Hits Upper Circuit After NCLT Clears Vedanta Group's Bid (Views On News)

Jun 9, 2021

The stock has fallen over 90% in the last five years. Will it recover?

Welspun Corp Hits 52-Week High After Securing Orders Worth Rs 17.3 Bn (Views On News)

Jun 9, 2021

Welspun Corp share price touched a 52-week high of Rs 165 per share after the company received multiple orders.

Va Tech Wabag Shares Get a Boost on Good Financial Results (Views On News)

Jun 8, 2021

Va Tech Wabag shares rise to 52-week high on decent March quarter results.

Thermax Q4 Earnings Beat Forecasts. Stock Zooms 8% (Views On News)

May 26, 2021

Here's why Thermax posted a near three-fold rise in profits.

Havells India's Stock Fell Over 4% Despite a Strong March Quarter Performance (Views On News)

May 21, 2021

Covid-led uncertainties mar Havells India's strong Q4 show.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

Don't Break These 5 Intraday Trading Rules (Fast Profits Daily)

Jun 1, 2021

To become a better intraday trader, follow these rules religiously.

Is the RBI's 'Bubble Talk' Signalling a Market Crash? (Profit Hunter)

May 31, 2021

Is the Indian central bank correct in warning you about a market crash?

Rs 2 Trillion Stimulus Coming to a Stock Market Near You (Profit Hunter)

Jun 2, 2021

Get ready to profit from a massive stimulus that you've never seen before.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

ABB INDIA SHARE PRICE


Jun 11, 2021 (Close)

TRACK ABB INDIA

  • Track your investment in ABB INDIA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

ABB INDIA - ELGI EQUIPMENTS COMPARISON

COMPARE ABB INDIA WITH

MARKET STATS