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ABB v/s BHEL v/s Suzlon: A comparative look at the numbers - Views on News from Equitymaster

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  • Dec 8, 2008 - ABB v/s BHEL v/s Suzlon: A comparative look at the numbers

ABB v/s BHEL v/s Suzlon: A comparative look at the numbers
Dec 8, 2008

ABB, BHEL and Suzlon are some of the biggest capital goods companies in India. In this article, we shall have a look at some of the important financials of the three companies and see how they compare against each other.

Parameters ABB BHEL Suzlon
FYo8 Revenue (Rs. bn) 59 193 137
P/E (ttm) 18 23.4 5.8
P/B 5.9 6.3 0.8
Historical PE band 12 to 111 3 to 50 6 to 55
Debt to Equity 0 0 1
ROE 30.2% 26.5% 12.6%
Order Backlog (Rs. bn) 68 1,040 151
Order backlog to sales 1.2 5.4 1.1
Execution time 12 to 15 months 12 to 36 months 3 to 15 months
5 Year Avg OPM 10.6% 15.0% 19.1%
5 Year Avg NPM 7.8% 11.9% 14.8%
Sept Quarter Performance
YoY Change in Net Sales 10% 35% 33%
YoY Change in Net Profits -9% -11% -62%
Operating Margins 12.6% to 8.9% 17.5% to 13.3% 17.2% to 9.9%
Contraction in Margins -3.7% -4.2% -7.3%

Revenues
As far as revenues are concerned, BHEL definitely has the highest sales. BHEL is the market leader in India in its power generation equipment business segment, which contributes almost 75% of its sales. Its PSU status also helps it get a lot of backing from the government when it comes to securing orders.

Valuations
In terms of valuations, Suzlon is currently available at the cheapest valuations. The stock has taken a severe beating in the past few months and has come down significantly from a high of Rs 460. Excluding extraordinary items, it is currently trading at a trailing twelve months PE of 5.8 times and price to book value of 0.8 times, which is a much more attractive valuation compared to BHEL and ABB.

Return on Equity
ABB scores the highest in this parameter. It had a return on equity of 30.2% (CY07). This is quite an impressive feat considering that it employs close to zero debt. The low debt levels also ensure greater stability in a downturn. BHEL comes a close second with an ROE of 26.5% (FY08), again, employing close to zero debt.

Order Backlog
BHEL is the best positioned in terms of order backlog amongst the three. Its high order backlog of Rs 1.04 trillion (end of September 2008) is by far the highest. Its backlog is over 5 times FY08 sales, which lends it extremely good revenue visibility. The only problem going forward could be in terms of execution. Large orders that have to be executed over many years are susceptible to the changing economic environment, which could lead to volatility in revenues as well as earnings.

Operating & Net margins
The average operating and net margins for the preceding 5 years for the three companies under consideration reveals that Suzlonís margins have been the best over this period. But at the same time, it is important to note that its margins have been highly volatile. Also, over the last two years, they have borne the brunt of the companyís aggressive acquisitions of overseas companies that have lower margins, thus pulling Suzlonís overall margins down.

Latest quarterly performance
The performance of all three companies for the September 2008 quarter hasnít been that good. All three companies saw a marked decline in operating margins. The commodity inflation led to a spike in raw material costs. Employee costs were also amongst the main spoilers for BHEL and ABB. Suzlonís business being logistics intensive, its margins were hit mainly by a sharp spike in freight costs due to high oil prices prevalent at the time. Also, it saw high extraordinary expenses in the form of mark to market loses on foreign borrowings and wind turbine restoration costs, which further took away from the quarterís profits.

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