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| ABB: Not yet out of the woods |
| Shobhana Subramanian / Mumbai Nov 05, 2009, 00:48 IST |
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Capital goods maker ABB has seen its profitability fall for five consecutive quarters with the operating profit margin (OPM) contracting by about 50 basis points in the three months to September 2009 to 8.4 per cent.
 Revenues for the firm dipped 4.3 per cent year-on-year to Rs 1,454 crore, with both the power systems and process automation divisions facing some pressure on the margin front. In fact, over a nine-month period these divisions have reported lower revenues, and analysts point out that execution has been slow in the power products division.
Moreover, there has been a fierce competition in the transmission and distribution segment. Which has left prices in the transmission segment lower by 15-20 per cent and those in the distribution segment even lower by 25-30 per cent.
One reason for the heightened competition is the entry of Korean players into the marketplace. As such, the lower revenues from this segment are expected to pressure margins in the near future even though prices of key commodities have fallen. However, ABB has been able to bag orders and the September quarter saw order inflows of around Rs 1,900 crore, flat year-on-year.
However, the order backlog for the firm is just over Rs 8,000 crore, an increase of 13 per cent year-on-year. With the economy recovering the outlook is certainly better than what it was at the start of 2009. At the current price of Rs 725, the stock trades at a fairly steep 27 times estimated calendar 2010 earnings.
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