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ABB: A review

Oct 8, 2003

The stock price of automation major, ABB, has gained significantly in the last few months (up 60% in last 8 months). The spurt has come about in the wake of increased orderbook and prospects for the company. ABB is about to announce its 3QFY04 results on 30th October. In this context, letís have a look at the September quarter results for last three years and see how the company has fared in this quarter in the past.

(Rs m) 3QFY01 3QFY02 3QFY03
Net Sales 1935 2231 2670 17.5%
Percentage of annual sales 24.4% 21.4% 22.7% -3.5%
Operating Profit 241 258 283 8.4%
Operating Profit Margin 12.5% 11.6% 10.6% -7.7%
Depreciation 46 41 44 -2.2%
Interest 9 17 1 -62.4%
Tax 62 52 65 2.4%
Net Profit 125 147 173 17.8%
Percentage of total profits 23.1% 22.5% 17.8% -12.2%
Net Profit Margin 6.4% 6.6% 6.5% 0.3%

The net sales and net profit for this quarter have grown at a steady pace, CAGR of around 18% over the last three years. Since most of the companyís revenues are contract based, the December quarter plays a major role in performance (around 35% of FY03 sales). The net profit contribution of the September quarter to the cumulative annual results has come down from 23% to 18%. However, the net profit margins have remained stable at little higher than 6%. The contribution of net sales to cumulative annual revenues has shown a marginal change in the last years, and hovered around 23% in 3QFY03.

Now letís have a look at the segmental performance.

ABB India has streamlined its business in line with the parent company over last few years and is currently focusing on two divisions, namely power technologies and automation technologies. Historically, power business has contributed to around 60% of the total revenues but the contribution at PBIT level has remained lower at around 50%. Power has been a low margin business for ABB because of high competition. Automation contributes around 39% of the total revenues but the margins are higher, because the customers for its power and automation segment are more or less common. This enables the company to club a lot of intelligent systems and solutions to the projects adding a lot of value. This proves to be a one-stop shop for its customers and provides the company an edge over its competitors

Power Technologies
( Rs m) FY02 FY03 Change
Order Inflow 6,794 10,599 56.0%
Revenues 5,984 8,229 37.5%
EBIT 550 608 10.6%
EBIT margins 8.1% 5.7%
Automation Technologies
( Rs m) FY02 FY03 Change
Order Inflow 4,244 5,742 35.3%
Revenues 4,769 5,208 9.2%
EBIT 486 573 10.6%
EBIT margins 13.0% 10.6%

The company has done well in 1HFY04 so far, with both topline and bottomline up 17% YoY and 39% YoY, respectively. The export orders for the period stood at 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 last declared order backlog of the company (June end 2003) stood at Rs 10,732 m, over 90% of ABBís FY03 revenues.

On the over all basis, the outlook for the company remains positive as lot of investments are expected in T&D areas of Indian power sector. Automation will remain as key growth driver for the company. The company has received orders worth Rs 1.1 bn just a fortnight ago for modernisation of zinc plants by Balco (Sterlite Group), which will involve design, manufacture, supply, installation and commissioning of rectifier systems, which further strengthens the orderbook for automation segment. With the industrial segment looking at more efficiency in their systems, ABB is expected to be big beneficiary of the same. At the current price level of Rs 490, the stock trades at P/E multiple of 19.2x, annualised 1HFY04 earnings.

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