The Rs 5,930-crore ABB disappointed the street with its September 2008 quarter numbers. Net sales grew a subdued 10 per cent y-o-y to Rs 1,519 crore, the lowest topline growth since the December 2002 quarter.
This happened as the company’s project business revenues, which comprise power systems and process automation segments, declined by 0.7 per cent y-o-y to Rs 758 crore. Analysts believe that the lower growth is because the company has been focusing on larger sized projects, which entail an execution period of 15-20 months and result in uneven quarterly revenue bookings.
The lower revenue growth as well as the high cost of raw materials impacted the company’s operating profit margin negatively as it declined by 370 basis points y-o-y to 8.9 per cent. Operating profit was down 22 per cent to Rs 135 crore in the September 2008 quarter. Raw material costs as a percentage of sales increased by 330 basis points over the previous corresponding quarter. As a result, the net profit was also down 9.5 per cent y-o-y to Rs 105 crore.
The order book growth was also low last quarter — it was up just 13 per cent to Rs 1,890 crore. However, the order backlog is quite strong growing at Rs 7,150 crore as on September 30, 2008. This is about 1.2 times ABB’s CY07 sales, and is quite healthy if the company is able to keep the gestation period short.
Analysts believe that the company would grow at about 16 per cent in CY08 to about Rs 6,900 crore with net profit growing at about 12 per cent to Rs 550 crore on account of the slower pace of order execution and a possible slower order intake in the projects division.