Stock Review: ABB

ABB India disappointed analysts again with an eight per cent yearon-year (y-o-y) fall in sales to Rs 1,349 crore due to higher share of long-gestation projects in the order backlog and declining realisations amid tough competition.

Power products (PP) and process automation (PA) segments, together accounting for 46 per cent revenues ( `617 crore), reported a 16 per cent y-o-y decline. Other segments like power systems (PS), discrete automation and low voltage products recorded flatto-marginal growth in sales.

Despite strong control over costs and substantial decline in tax (76 per cent), operating profit and net profit tanked 75 per cent and 86 per cent to `34 crore and `11.5 crore, respectively, due to a fall in the top line, exit costs for the rural electrification (RE) business and losses before interest and tax in PP, PS and PA segments.

The order inflow growth of about six per cent at Rs 2,000 crore was relatively satisfactory, as earlier two quarters saw an average y-o-y decline of 34 per cent in the same. The order book growth of 14 per cent at `9,100 crore was also better compared to the 12.3 per cent rise in the June quarter. The incremental trend augurs well for future sales growth, say analysts.

Though the long-term prospects of the company are good, analysts expect sustained improvement in the operational performance before they recommend the stock. In the medium term, they continue to be cautious about the extent of exit costs in the RE business and the impact of competition on order inflows and realisations.

The stock, at Rs 860.60, trades at a high valuation of 33.5 times CY2011 estimated earnings on the possibility of another open offer (after the recent rise in stake from 52 per cent to 75 per cent by the parent company) and delisting.

It was another disappointing quarter, but the stock is gaining support due to the open offer and de-listing prospects