The ABB stock has crashed 15 per cent since last Thursday when the company announced a revenue growth of just over 15 per cent for the June 2008 quarter at Rs 1,620 crore. The engineering major’s revenues for the March 2008 quarter too had been weak, up at just 17 per cent, way below the 35 per cent posted in CY07.
Despite expenses on raw materials going up, ABB’s operating profit margin expanded by about 10 basis points to 11.8 per cent, allowing the operating profit to increase by 16 per cent — one reason for the strong profitability of the automation products division, which saw EBIT (earnings before interest and tax) margins expand by 270 basis points.
The 21 per cent rise in the net profit, to Rs 132 crore, was partly the result of a sharp increase in other income and a lower interest payout.
The sluggish growth in the topline is the result of the company currently implementing several long gestation projects —- it’s not unusual for revenues from such time-consuming assignments to get bunched up.
Demand for the Rs 5,930 crore ABB’s new and existing ranges of transformers, switchgears and motors has been strong — both the power products and automation products divisions have fared exceeding well.
What’s worrying is that ABB has bagged orders of just about Rs 2,200 crore in the June quarter, an increase of 11 per cent over Q2CY07. While this is partly due the high base created last year, it should be mentioned that in the March 2008 quarter, the order book has grown by a more robust 34 per cent. At Rs 6,780 crore, at the end of June 2008, the order book, remains healthy at more than last year’s revenues.
ABB may close CY08 with revenues in the region of Rs 7,500 crore and a net profit of about Rs 650 crore. The stock has been an underperformer since the start of the year, losing nearly 45 per cent. At the current price of Rs 772, it trades at about 25 times estimated CY08 earnings and is expensive.