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ABB: Good performance but…

Jul 24, 2001

Asea Brown Boveri (ABB) India, has continued its encouraging growth momentum in the second quarter of FY02. Its net sales have grown at 37% during 2QFY02. It topline had grown by a similar 36% in 1QFY02 also. But depite this its bottomline during 2QFY02 has declined by 11% due to a very high tax outgo.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Net Sales 1,645 2,254 37.0% 3,136 4,276 36.3%
Other Income 50 47 -6.1% 76 65 -13.9%
Expenditure 1,526 2,097 37.4% 2,983 4,019 34.7%
Operating Profit (EBDIT) 119 157 31.6% 154 256 66.9%
Operating Profit Margin (%) 7.3% 7.0%   4.9% 6.0%  
Interest 11 11 3.4% 23 27 17.1%
Depreciation 42 43 2.5% 83 85 2.3%
Profit before Tax 117 150 28.6% 124 210 69.9%
Tax 8 53 562.5% 8 66 725.0%
Profit after Tax/(Loss) 109 97 -10.8% 116 144 24.5%
Net profit margin (%) 6.6% 4.3%   3.7% 3.4%  
No. of Shares (eoy) (m) 41.4 41.4   41.4 41.4  
Earnings per share* 10.5 9.4   5.6 7.0  
Current P/e ratio   26.6     35.7  
*(annualised)            

ABB is one of the foremost suppliers of high-end power transmission and distribution (T&D) equipment in India. The Rs 7.9 billion (US$ 170 million) ABB India manufactures motors, generators and alternators upto 200 megawatt (MW). It commands a 19 percent share of the Rs 14 billion (US$ 305 million) high tension (HT) switchgear segment. It also manufactures control systems and mini/micro processor-based systems.

On a consolidated half yearly basis, ABB's turnover improved 36% and its bottomline recorded a growth of 25% despite the higher tax outgo. ABB has to provision for higher taxes in view of the increased profits this quarter. Also, in the first half of last year, the company's net tax outgo was less due to a a write back of Rs 23 m, which accrued due to excess tax provisioning earlier. If you look at the profit before tax growth at 29% in 2QFY02, the performance is good.

However, ABB's order intake during 1HFY02 declined 37% to Rs 4,191 m as compared to 1HFY01. The shortfall in orders was mainly due to the lack of green field investments. In FY01, the company had received huge infrastructure orders from customers such as WBSEB, MSEB, APTRANSCO, NTPC Talcher and Delhi Metro Rail Corporation. This helped ABB register a significant 52% jump in order intake to Rs 11 bn during FY01.

Despite the decline in order intake, the company's managing director, Mr. K. K. Kaura, seems very confident. In the press release Mr. Kaura has said, and we quote: "The revenue growth is expected to continue, supported by our strong current order backlog of Rs 6,900 m. We will continue to focus on all domestic and overseas opportunities to maximise our order intake, especially in the the power transmission and distribution sectors where we see encouraging signs."

In another development, the board of Directors ABB Limited in a meeting held today approved the scheme of amalgamation of ABB Instrumentation, ABB Analytical, ABB Lenzohm Service and Introl India with the company. The appointed date of amalgamation as per the scheme is April 1, 2001. The aforesaid scheme is subject to approvals due to which the current quarterly results do not include the effect of the proposed amalgamation.

The above 4 companies had a combined turnover of Rs 700 m in the year 2000. The merger will marginally increase ABB Group shareholding in ABB India from the current level of 51% to 52%.

At Rs 248 the stock is trading at a P/e of around 36 times its annualised 1HFY02 earnings. Though the company's growth in turnover is encouraging, the valuation is on the higher side. Tax outgo is likely to continually increase with improving turnover performance. Also, ABB has failed to keep a tab on its operational costs, which have increased at a faster clip than turnover during 2QFY02. This has deflated its operating margins, though only marginally. If this continues in the coming quarter too, turnover growth may not perk the bottomline growth by much.


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