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ABB Ltd: All segments deliver
Aug 13, 2012

ABB has announced second quarter results of financial year 2012 (It is a December ending company). The company has reported 10.0% YoY and 33.3% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales increase by 10% YoY during 2QCY12 (December ending fiscal). Strong performance from all the sub segments drove topline growth.
  • Operating margins rise to 5.6% during the quarter due to fall in overall expenditure as a percentage of sales.
  • Net profits increase 33.3% YoY during the quarter, due to strong performance at the operating level. However, fall in other income by 78.2% YoY impacted the profitability growth.
  • Order inflow during the quarter stood at Rs 20.4 bn, compared to an inflow of Rs 17.9 in 2QCY11, representing a growth of 14% YoY. The order backlog at the end of the quarter stood at Rs 91.7 bn.


Financial performance snapshot
(Rs m) 2QCY11 2QCY12 Change 1HCY11 1HCY12 Change
Total operating income  17,125 18,838 10.0% 35,056 36,741 4.8%
Expenditure 16,270 17,778 9.3% 33,185 34,706 4.6%
Operating profit (EBDITA) 855 1,060 24.0% 1,871 2,035 8.8%
Operating profit margin (%) 5.0% 5.6%   5.3% 5.5%  
Other income 65 14 -78.2% 111 33 -70.3%
Interest 67  77 15.0% 107 131 22.5%
Depreciation 264 231 -12.5% 408 455 11.3%
Profit before tax 589 766 30.1% 1,467 1,483 1.1%
Tax 202 250 23.8% 484 490 1.2%
Profit after tax/(loss) 387 516 33.3% 983 993 1.0%
Net profit margin (%) 2.3% 2.7%   2.8% 2.7%  
No. of shares         211.9  
Basic & diluted earnings per share (Rs)         4.7  
P/E ratio (x)*         88.9  
* On a trailing 12 months basis

What has driven performance in 2QCY12?
  • ABB's net sales increased by 10% YoY during 2QCY12. This was led by the company's power product business which reported a growth of 12.6% YoY. The power systems and process automation segments too recorded strong performance with revenue growth of 12.0% YoY and 12.1% YoY respectively. However, revenues from the discrete automation and motion segment grew at a modest pace of 7.0% YoY.

    Segment-wise performance
    (Rs m) 2QCY11 2QCY12 Change 1HCY11 1HCY12 Change
    Power systems
    Revenue 5,077 5,688 12.0% 10,848 11,377 4.9%
    % share  28% 28%   29% 29%  
    PBIT margin -0.7% 5.0%   -0.2% 5.0%  
    Power products
    Revenue 4,688 5,278 12.6% 9,081 9,858 8.6%
    % share  26% 26%   25% 25%  
    PBIT margin 4.7% 5.5%   4.8% 4.1%  
    Process automation
    Revenue 2,938 3,294 12.1% 6,183 6,332 2.4%
    % share  16% 16%   17% 16%  
    PBIT margin 5.1% -2.5%   5.9% 0.0%  
    Discrete Automation and Motion
    Revenue 4,211 4,506 7.0% 8,378 8,647 3.2%
    % share 23% 22%   23% 22%  
    PBIT margin 7.6% 12.8%   9.9% 11.7%  
    Low Voltage Products
    Revenue 1,275 1,505 18.1% 2,559 2,952 15.4%
    % share 7% 7%   7% 8%  
    PBIT margin 9.8% 4.9%   9.0% 5.3%  
    Total*
    Revenue 18,188 20,272 11.5% 37,049 39,166 5.7%
    PBIT margin 4.3% 5.6%   5.0% 5.4%  
    * Excluding inter-segment adjustments

  • ABB's operating margins increased to 5.6% during 2QCY12 due to fall in raw material expenses and other expenditure as a percentage of sales. Raw material expenses fell from 65.2% in 2QCY11 to 64.7% in 2QCY12 due to the indigenization steps taken by the company. Other expenditure fell due to a forex gain of Rs 90 m in the current quarter as opposed to a loss of Rs 120 m in 2QCY11. It may be noted that forex loss is clubbed under other expenditure while gain is clubbed under other income.

  • Net profits increased 33.3% YoY during the quarter. Strong performance at the operating level and forex gain of Rs 90 m boosted the profitability growth for the quarter.

What to expect?
After several quarters, all the sub-segments of the company reported healthy revenue growth. The power systems segment returned to profitability as execution pace increased. However, the process automation segment reported a loss during the quarter due to cost overruns in few projects. The company decided to take upfront provisioning in these projects which impacted the profits. With respect to the rural electrification business, it may be noted that only Rs 70 m of orders are pending for review which are unlikely to have any material impact on the profitability. Nonetheless, considering the expensive valuations and competitive scenario in the power sector, we maintain our sell view on the stock.

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