Orders aren’t exactly pouring in. So, it might be another difficult year for the capital goods firm.
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-o-y. 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.