Shobhana Subramanian / Mumbai Aug 06, 2009, 00:48 IST
ABB’s June quarter profits fell 37 per cent to Rs 84 crore which was worse than expected even though sales came off by 7 per cent to Rs 1,505 crore. While the company’s most profitable segment — industrial automation — saw a marked slowdown, spends on employees and other overheads pressured operating margins which fell 365 basis points to just over 9 p cent.
With order inflows down 4 per cent year-on-year, mainly because the company’s automation segment saw weak inflows, recovery may be still some time away. The order backlog at the end of June was up just 13 per cent year-on year at Rs 7,600 crore and the amount about a year’s sales. Also a fair share of the orders are for long-gestation projects. The transmission and distribution (T&D) space that ABB caters to has seen some price erosion since the start of the year, the cuts have been steeper at around 25-30 per cent in the distribution space where the competition is intense and products are not always of very high technology.
Industry watchers say the entry of Korean manufacturers has resulted in some undercutting. ABB’s sales are expected to grow in mid-single digits this year and although the lower prices of raw materials will help, margins could be under pressure, operating profit margins could come in at around 11 per cent. The stock has gained about 50 per cent since the start of the year but, at Rs 700, is rather expensive trading as it does at multiple of around 24 times estimated calendar 2009 earnings.
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With order inflows down 4 per cent year-on-year, mainly because the company’s automation segment saw weak inflows, recovery may be still some time away. The order backlog at the end of June was up just 13 per cent year-on year at Rs 7,600 crore and the amount about a year’s sales. Also a fair share of the orders are for long-gestation projects. The transmission and distribution (T&D) space that ABB caters to has seen some price erosion since the start of the year, the cuts have been steeper at around 25-30 per cent in the distribution space where the competition is intense and products are not always of very high technology.
