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ABB: Growth story continues...

Jul 24, 2003

ABB India posted impressive 2QFY04 results yesterday, with topline growing by 16% to Rs 3,303 m. The T&D equipment major’s operating profits went up by 14% and net profits were up 39% YoY during the quarter. The operating margins of the company remained under pressure and took a marginal dip. Hike in material costs was primarily responsible for the margin pressure. To put things in perspective, while material costs to revenues were 65% in 2QFY03, they surged to over 68% during 2QFY04.

(Rs m)2QFY032QFY04Change1HFY031HFY04Change
Net Sales 2,849 3,303 16.0%5,260 6,140 16.7%
Other Income 62 76 23.4%87 142 62.7%
Total expenditure 2,589 3,007 16.1%4,890 5,732 17.2%
Operating Profit (EBDIT) 260 296 14.0%370 408 10.3%
Operating Profit Margin (%)9.1%9.0% 7.0%6.6% 
Interest1112.8%4 3 -25.9%
Depreciation4645-2.3%90 89 -0.7%
Profit before Tax27532618.9%364 458 25.9%
Extraordinary items14423361.3%144 233 61.3%
PBT41955933.5%508 691 36.1%
Tax9310714.4%120 151 25.3%
Profit after Tax/(Loss)32645339.0%388 540 39.3%
Net profit margin (%)11.4%13.7% 7.4%8.8% 
No. of Shares (eoy) (m)42.442.4 42.442.4 
Earnings per share* (Rs)30.742.7 18.325.5 
*(annualised)      
Current P/e ratio 8.7  14.6 

Power technologies contributed 55% to the net sales during the quarter and showed a marginal growth of 2% in revenues but power business being contract based, quarterly comparison may not give the true picture. In 1HFY04, power technologies business showed a growth of 7%, which is satisfactory, though PBIT margins have come down marginally. Company has received a good volume of orders from power business, so topline growth going forward should not be a problem.

Automation technologies contributed 40% to net sales and showed a significant growth of 25% in revenues during 2QFY04. The business grew by 16% in the first half of FY04. Consequently, automation technologies is a key contributor to ABB’s topline growth. The PBIT margins of this business were static for the quarter. Automation business has perked up for the industry as a whole, as user industries are opting for smart and intelligent devices to run the systems and the growth achieved indicates that management is ready to take up the opportunity.

The company booked orders worth Rs 8,327 m during the half-year ended June 2003, 41% higher compared with the same period last year. For 2QFY04 orders booked amounted to Rs 4,525 m (up 44% YoY). The major contributors to this strong order book were utility and industrial customers for power and automation technologies.

Export orders during the first half of 2003 amounted to Rs 2,101 m as compared with Rs 747 m in same period last year. Infact, for entire FY03 export orders amounted to only Rs 1,653 m. The order backlog further strengthened to Rs 10,732 m as compared to Rs 8,794 m in the beginning of FY04. The current order backlog is over 90% of ABB’s FY03 revenues.

At the current price of Rs 372 the ABB stock trades at a P/E of 14.6x annualised 1HFY04 earnings. However, if we exclude the extraordinary income, then the P/E multiple stands at 25.7x annualised 1HFY04 earnings. Though the valuation does look high based on the first half earnings numbers, we believe that the second half of FY04 will show more strength.

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