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ABB Ltd (updated - Feb 2009)
ABB’s lost steam. Net profits for 2008 are up just 11 per cent at Rs 547 crore and after being inundated with work in the last few years, orders for the December 2008 quarter actually fell 37 per cent y-oy. That’s a sure sign that companies are holding back expansion plans and conserving cash instead - orders at Siemens too were up just 3.5 per cent.

With about a year’s revenues worth of orders - Rs 6,612 crore - ABB’s still got plenty to do.But execution delays are hurting; compared with the compounded annual growth rate of around 42 per cent in the last five years, ABB’s net sales rose just 15.3 per cent in 2008 to Rs 6,837 crore.Though the pace picked up somewhat in the December 2008 quarter when net sales grew 18 per cent, it’s still not encouraging enough because operating margins for the year were weak slipping 90 basis points to 11.3 per cent. Part of this was because imports of some raw materials cost more thanks to the depreciating rupee.

Nevertheless, there should be plenty of action in the power sector over the next few years to keep ABB busy and the power products division should continue to fetch it a third of its revenues as it does now. It may not be easy to stay very profitable though because the competition is getting fierce given that not all private sector power generators are able to get going.

Customers would also expect vendors to pass on the benefit of lower raw material prices. Already, operating margins for the the division were marginally down at 12.7 per cent in 2008, though revenues were up 25 per cent. Meanwhile, the process automation and the automation products segment did well in 2008 growing at 25 and 30 per cent respectively. With the steel and cement markets in a bit of a slump though, business might not be as brisk this year.
source - BS

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ABB Ltd (updated - 06 Aug 2009)
ABB’s June quarter profits fell 37 per cent to Rs 84 crore which was worse than expected even though sales came off by 7per 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 per 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 longgestation 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.
source - BS

ABB Ltd (updated - 05 Nov 2009)
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-onyear 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 ninemonth 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 afierce 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-onyear.

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.
source - BS

ABB Ltd (updated - 10 Dec 2009)
Aray of hope emerged through the clouds on the capital goods multinational, ABB, which bagged a Rs 506-crore contract for the Bangalore metro rail project. This has resulted in an 8 per cent boost to its order inflow of Rs 6,308 crore during the nine months ended September 2009.

The trend in ABB’s order inflows has been subdued, due to which its results have been below estimates in the last five quarters. The stock has underperformed 46 per cent than the BSE Capital Goods index in the last one year. The sector is seeing high competition pressures and the business environment indicates that the industrial capex cycle and benefits of infra-spend are still at some distance.

For the nine months ended September 2009, sales were down 7 per cent yearon-year to Rs 4,352 crore due to weak order inflow. The company hasn’t seen material flow-through from its parent and couldn’t enter the domestic EHV (extra high voltage-765 kV) transmission project space, since it doesn’t have domestic manufacturing capabilities for the equipment. Also, subcontracting the same to its foreign facilities is not economical, given the competitive pricing environment.

According to analysts, entry of Chinese and Korean competitors has led to acute pricing pressures in the power equipment space. The segment hasn’t been able to tap benefits from lower input costs. This in turn has hit the operating margins of the company. For the nine months ended September, ABB’s Ebitda margins were down 265 basis points to 9.85 per cent; its post-tax profit fell 31 per cent to Rs 245 crore, compared with the year-ago period.

At the current price of Rs 740, the stock is trading at a PE of about 36 times 2009 and 29 times 2010 analysts’ estimated EPS, and is richly valued given its limited medium-term earnings growth prospects. While the order win is a good news, one would need to see faster pick-up in industrial capex to justify the current valuations.
source - BS