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ABB: Capital boom

Rising input costs fail to bring down ABB's operating profit

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Niraj BhattAmriteshwar Mathur Mumbai
Last Updated : Feb 06 2013 | 5:34 AM IST
Though the upturn in the power capex cycle is not showing any sign of slowing down, costs of key raw materials like metals have moved up significantly for capital goods suppliers like ABB.
 
The street was apprehensive to see how companies would manage rising input costs, and ABB's results were a relief of sorts.
 
ABB has grown its operating profit by 68.84 per cent y-o-y to Rs 102 crore in the June 2006 quarter, as compared to a 47.85 per cent growth in net sales to Rs 974.22 crore.
 
ABB's operating profit margin also went up by 130 basis points y-o-y to 10.46 per cent in Q2 CY06. Although not strictly comparable, in the March 2006 quarter too, the company's operating profit margin expanded 254 basis points y-o-y to 8.64 per cent.
 
The company's growth was powered by its order intake of Rs 1451.1 crore during the June quarter, representing a growth of 55 per cent on a y-o-y basis.
 
The company's adjusted raw material costs went up by 51.1 per cent y-o-y to Rs 720.38 crore in the last quarter. Also, raw materials as a percentage of net sales grew 156 basis points y-o-y to 73.9 per cent in Q2 CY06.
 
However, a higher turnover helped offset this rise. In the key power systems division, segment profit expanded 61.85 per cent y-o-y to Rs 26.69 crore in Q2 CY06.
 
Going forward, the company is expected to once again leverage the current buoyancy in the capex cycle. However, with the stock trading at about 29.7 times estimated CY06 earnings, chances of a further upside are limited.
 
Cipla: No more marketing blues
 
Cipla has once again demonstrated the efficacy of its low-risk partnership based model in the overseas markets.
 
While Cipla has to share the profits with its foreign partners, it saves the company marketing and allied costs abroad. In the June quarter, its operating profit grew 52.7 per cent y-o-y to Rs 228.87 crore, as compared to a 30.3 per cent growth in net sales to Rs 863.58 crore.
 
Cipla's operating profit margin too has grown 390 basis points y-o-y to 26.5 per cent in the June 2006 quarter.
 
Earlier, generic players like Ranbaxy saw its consolidated operating profit improve by 571 basis points y-o-y to 18.2 per cent in the last quarter.
 
The Cipla stock has moved broadly in tune with the broader market over the past three months - it has fallen approximately 16.5 per cent during this period as compared to a 14 per cent dip in the Sensex.
 
The company's exports in the last quarter jumped 38.3 per cent y-o-y to Rs 393.8 crore.
 
Cipla saw improved demand for medications in segments like anti-retrovirals, anti-malarials and anti-asthmatics. Of crucial importance, is the export sales of formulations, which grew 48 per cent y-o-y. Analysts highlight that formulation exports have much higher margins via-a-vis APIs.
 
Cipla's domestic sales also expanded 20 per cent y-o-y to Rs 472.86 crore in the last quarter. Going forward, exports are expected to remain a key growth factor for the company.
 
However, with the stock trading at about 25 times estimated FY07 earnings, there isn't much room for further upsides.

 
 

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First Published: Jul 26 2006 | 12:00 AM IST

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