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ABB: Strong order inflow across sectors
Aug 19, 2011

ABB has announced second quarter results of financial year 2010-2011 (2QCY11) (It is a December ending company). The company has reported 17.0% YoY and 1.1% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales increase by 17.0% YoY during 2QCY11 (December ending fiscal). Sales growth was led by strong performance from power systems, process automation and low voltage products.
  • Operating margins rise to 5.0% during the quarter due to fall in operating expenses as a percentage of sales.
  • Net profits increase 1.1% YoY during the quarter, due to strong performance at the operating level. However, increase in depreciation and interest expenses impacted the overall profitability growth for the quarter.


Financial performance snapshot
(Rs m) 2QCY10 2QCY11 Change 1HCY10 1HCY11 Change
Total operating income 14,631 17,125 17.0% 29,383 35,056 19.3%
Expenditure 13,966 16,270 16.5% 28,495 33,185 16.5%
Operating profit (EBDITA) 665 855 28.5% 888 1,871 110.7%
Operating profit margin (%) 4.5% 5.0%   3.0% 5.3%  
Other income 55 65 19.2% 73 111 50.9%
Interest 43 67 55.0% 80 106 32.3%
Depreciation 122 264 116.7% 242 408 68.5%
Profit before tax 555 589 6.1% 639 1,467 129.7%
Tax 172 202 17.4% 189 484 156.1%
Profit after tax/(loss) 383 387 1.1% 450 983 118.6%
Net profit margin (%) 2.6% 2.3%   1.5% 2.8%  
No. of shares         211.9  
Diluted earnings per share (Rs)*         5.5  
P/E ratio (x)*         139.1  
*On trailing 12 month basis

What has driven performance in 2QCY11?
  • ABB's net sales increased by 17.0% YoY during 2QCY11. This was led by the company's power systems business which reported an increase of 21.7% YoY. The process automation and low voltage products business too recorded strong performance and increased 30.1% YoY and 23.3% YoY respectively. It may be noted that the company continues to face price pressures on the power side of the business on account of intense competition.
  • During the quarter, the company received order inflows to the tune of Rs 17.9 bn. ABB's order backlog at the end of the quarter stood at Rs 84.1 bn as compared to Rs 85.3 bn in 2QCY10
  • Segment-wise performance
    (Rs m) 2QCY10 2QCY11 Change 1HCY10 1HCY11 Change
    Power systems
    Revenue 4,173 5,077 21.7% 7,998 10,848 35.6%
    % share 27% 28%   25% 29%  
    PBIT margin -5.1% -0.7%   -8.7% -0.2%  
    Power products
    Revenue 4,441 4,688 5.6% 8,759 9,081 3.7%
    % share 29% 26%   28% 25%  
    PBIT margin 6.4% 4.7%   7.3% 4.8%  
    Process automation
    Revenue 2,259 2,938 30.1% 5,124 6,183 20.7%
    % share 15% 16%   16% 17%  
    PBIT margin 9.2% 5.1%   10.0% 5.9%  
    Discrete Automation and Motion
    Revenue 3,649 4,211 15.4% 7,609 8,378 10.1%
    % share 23% 23%   24% 23%  
    PBIT margin 12.6% 7.6%   7.4% 9.9%  
    Low Voltage Products
    Revenue 1,034 1,275 23.3% 2,007 2,559 27.5%
    % share 7% 7%   6% 7%  
    PBIT margin -0.3% 9.8%   -0.5% 9.0%  
    Total*
    Revenue 15,556 18,188 16.9% 31,498 37,049 17.6%
    PBIT margin 4.7% 4.3%   3.2% 5.0%  
    * Excluding inter-segment adjustments


  • ABB's operating margins increased to 5.0% during 2QCY11 due to fall in operating expenses as a percentage of sales. Total operating expenses fell from 95.5% in 2QCY10 to 95.0% in 2QCY11. Cost optimization plans have started yielding benefits for the company. However, high interest rates have delayed the capex cycle raising concerns in the near term.

  • Net profits increased 1.1% YoY during the quarter. The profitability growth was impacted by 55.0% YoY and 116.7% YoY growth in interest and depreciation expenses respectively.

What to expect?

At the current price of Rs 765, the stock is trading at a multiple of 23.4 times our estimated CY13 earnings. Considering the expensive valuations, we maintain our negative view on the stock.

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