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ABB: Bottomline up 20%

Oct 30, 2003

Automation major, ABB has posted a healthy 22% increase in its topline for 3QFY04. However, the bottomline of the company grew at marginally slower rate, up 20% YoY. The 9-month picture looks better as the bottomline has shown an improvement of 33%. Though operating profit margins have registered a decline, they are more or less in line with the past trend of the company.

(Rs m) 3QFY03 3QFY04 Change 9mFY03 9mFY04 Change
Net Sales 2,761 3,372 22.1% 8,021 9,512 18.6%
Other Income 52 84 62.3% 139 226 62.9%
Total expenditure 2,529 3,104 22.8% 7,419 8,836 19.1%
Operating Profit (EBDIT) 232 268 15.5% 602 676 12.3%
Operating Profit Margin (%) 8.4% 7.9% 7.5% 7.1%
Interest 1 3 135.5% 5 6 13.0%
Depreciation 44 46 4.9% 134 135 0.9%
Profit before Tax 238 303 27.0% 602 761 26.3%
Extraordinary Items 0 0 144 233 61.8%
Tax 65 95 45.4% 185 246 32.7%
Profit after Tax/(Loss) 173 208 20.0% 561 748 33.3%
Net profit margin (%) 6.3% 6.2% 7.0% 7.9%
No. of Shares (eoy) (m) 42.4 42.4 42.4 42.4
Earnings per share* (Rs) 16.4 19.6 26.5 23.5
Current P/E ratio 26.7 23.2

A 22% growth in the topline came mainly due to increase in the power technology revenues. The operating margins were lower by 50 basis points because of material cost increased by around 25%. Staff cost of the quarter has come down marginally. The difference between net profit margins reduced because of higher other income in September quarter of FY04. However, due to higher extraordinary income in second quarter, the net profit margins for nine-month period of FY04 have improved by 90 basis points.

Letís have a look at the segmental revenues.

Segmental revenues (Rs m) 3QFY03 3QFY04 Change 9mFY03 9mFY04 Change
Power Technology revenues 1,687 2,064 22.3% 4,772 5,732 20.1%
PBIT 77 110 43.9% 271 268 -1.0%
PBIT margin 4.5% 5.3%   5.7% 4.7%  
Automation Technology revenues 1,262 1,423 12.8% 3,588 4,165 16.1%
PBIT 144 130 -9.9% 337 329 -2.2%
PBIT margin 11.4% 9.1%   9.4% 7.9%  
Others 26 80 209.5% 192 229 19.8%
PBIT 19 7 -65.4% 20 27 30.7%

Revenues from automation have gone up but the margins have come down by around 230 basis points for the quarter. Company is currently focusing on increasing the revenues from this segment. It has increased the dealer network by more than 100% in last one year. However, company is confident of improving the margins in fourth quarter, as most of its projects will be finishing by that time.

Power business has delivered relatively better performance during second quarter. Margins form the segment has also improved by around 80 points. However, over nine month period margins are still lower by 100 basis points YoY. ABB is currently focusing on APDRP (accelerated power development reform programs) as it is the key topline driver for the power segment. Since companyís majority of power revenues are in the form of contract business, fourth quarter plays an important role.

The company has received orders worth Rs 12.5 bn during the nine-month period of 2003, registering an increase of 34% YoY. The order intake for the third quarter was also higher by 22% YoY. The orderbook backlog of ABB stood at Rs 11.4 bn as on September 2003, which is around 0.9 times FY03 revenue.

At the price level of 525, the stock trades at P/E multiple of 22.6x, annualised 9mFY04 earnings. Though growth prospects of the company are good, but looking at the valuations it seems that market has factored the future growth.

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