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ABB: Another dismal quarter - Views on News from Equitymaster
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ABB: Another dismal quarter
Aug 2, 2010

ABB declared its 2QCY10 results. The company has reported 4% YoY fall in sales while its net profits have fallen 54% year on year. Here is our analysis of the results.

Performance summary
  • Sales fall by 4% YoY during 2QCY10 (December ending fiscal). Fall during the quarter led by the power systems, power products and the process automation business.
  • Operating margins contract drastically by 5% YoY during the quarter on the back of a rise in raw material costs, employee costs and other costs (all as percentage of sales).
  • Net profits fall by 54% YoY during the quarter, the contraction in operating margins being the main reason for this.


Financial performance snapshot
(Rs m) 2QCY09 2QCY10 Change 1HCY09 1HCY10 Change
Sales 15,050 14,466 -3.9% 28,982 29,024 0.1%
Expenditure 13,769 13,966 1.4% 26,429 28,495 7.8%
Operating profit (EBDITA) 1,281 500 -60.9% 2,552 529 -79.3%
Operating profit margin (%) 8.5% 3.5%   8.8% 1.8%  
Other income 209 220 5.3% 352 432 22.9%
Interest 80 43 -46.6% 184 80 -56.2%
Depreciation 125 122 -2.3% 234 242 3.8%
Profit before tax 1,284 555 -56.8% 2,487 639 -74.3%
Tax 448 172 -61.6% 867 189 -78.2%
Profit after tax/(loss) 836 383 -54.2% 1,620 450 -72.2%
Net profit margin (%) 5.6% 2.6%   5.6% 1.5%  
No. of shares       211.9 211.9  
Diluted earnings per share (Rs)*         11.2  
P/E ratio (x)*         72.2  
* On a trailing 12 months basis

What has driven performance in 2QCY10?
  • ABB witnessed its net sales fall by 4% YoY during 2QCY10. This was led by the company's process automation' business which reported a fall of 28% YoY. The power systems and power products business too recorded some dull performances for the quarter. Both of these were impacted by the company being in the process of exiting from the rural electrification business. This is apart from the price pressures that the power side of the business is facing on account of intense competition. On the other hand, the automation division (process automation and automation products) saw a marginal sales growth of about 3% YoY during the quarter. During the quarter, the company received significant orders for electrical equipment and solutions to enhance reliability in power generation, transmission and distribution, which bodes well for its power segment going forward.

    Segment-wise performance
    (Rs m) 2QCY09 2QCY10 Change 1HCY09 1HCY10 Change
    Power systems            
    Revenue 4,643 4,173 -10.1% 9,114 7,998 -12.2%
    % share 28% 27%   29% 25%  
    PBIT margin 2.9% -5.1%   4.5% -8.7%  
    Power products            
    Revenue 5,017 4,441 -11.5% 9,276 8,759 -5.6%
    % share 30% 29%   29% 28%  
    PBIT margin 13.5% 6.4%   13.1% 7.3%  
    Process automation            
    Revenue 3,127 2,259 -27.8% 5,640 5,124 -9.1%
    % share 19% 15%   18% 16%  
    PBIT margin 9.9% 9.2%   10.9% 10.0%  
    Discrete Automation and Motion            
    Revenue 3,182 3,649 14.7% 6,266 7,609 21.4%
    % share 19% 23%   20% 24%  
    PBIT margin 8.5% 12.6%   7.3% 7.4%  
    Low Voltage Products            
    Revenue 822 1,034 25.7% 1,597 2,007 25.7%
    % share 5% 7%   5% 6%  
    PBIT margin -3.9% -0.3%   3.5% 0.5%  
    Total*            
    Revenue 16,791 15,556 -7.4% 31,893 31,498 -1.2%
    PBIT margin 8.1% 4.7%   8.7% 3.2%  
    * Excluding inter-segment adjustments

    During the quarter, ABB recorded an order inflow of just Rs 12 bn, which was 42% lower than the orders booked during 2QCY09. At the end of June 2010, the company's unexecuted orderbook stood at nearly Rs 85 bn, which is a 12% rise compared to the same period last year.

  • ABB's operating margins contracted by 5% during 2QCY10. This fall was due to higher raw material, employee and other costs. Based on segments, the power systems and power products segments saw a big contraction in PBIT margins. The former infact saw its profits go into the negative at the PBIT level. The discrete automation segment (23% of total sales) on the other hand recorded the best performance with its PBIT margins expanding from 8.5% in 2QCY09 to 12.6% in 2QCY10.

  • On the back of a severe fall in operating margins ABB recorded a 54% YoY fall in its bottomline during 2QCY10.

What to expect?
At the current price of Rs 810, the stock is trading at a multiple of 20.9 times our estimated CY12 earnings. As indicated in the results press release, ABB's management has expressed that the drastic fall in order inflows during the quarter was on the back of a delay in conclusion of a number of large orders compared to the same period last year as also the continued price pressure in the market. We have a cautious view on the stock at current levels (ResearchPro subscribers, kindly click here)

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