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Sowmya Krishnan

THE earnings performance of ABB for the year ended December 2001 rings positive for investors. The topline growth has been stable on a quarter-on-quarter basis this year.

More significant is the strong order book position, shift in the revenue mix from projects to products and the thrust on exports by manufacturing certain products globally for the parent company.

Recommendation: The stock perked up almost 20 per cent in the last week on the back of the results announcement. At the current market price of Rs 280, ABB is trading at a price-earning multiple of 17 times its December 2001 earnings. Shareholders can stay invested and fresh exposures can be considered if valuations decline to Rs 250-260.

Operational highlights for year ended Dec 2001: For the year ended December 2001, income from operations rose 31 per cent to Rs 1,041.6 crore.

The increase in expenditure matched the rise in sales and consequently pressured margins. As a result, the operating profit margin (OPM) declined marginally from 9.78 per cent in 2000 to 9.26 per cent in 2001.

This is attributed to the product mix still tilted towards projects rather than products.

For the year, the contribution of standard products and projects to the total revenues was in the ratio of 28:72, compared to 20:80 in 2000.

Though there was a shift in the product mix, it is still in favour of projects, where the margins are comparatively lower.

The bottomline grew 20 per cent over the previous year to Rs 65.33 crore.

However, the net profit margin declined marginally from 6.8 per cent in 2000 to 6.27 per cent in 2001 on higher interest and depreciation costs.

Interest costs almost doubled in the just concluded year. (Considering that the power sector accounts for over 50 per cent of sales, the sharp rise in interest costs can be partly attributed to delayed payments by some electricity boards.)

Performance for Dec 2001 quarter: The performance for the quarter ended December 2001 was in line with that of the whole year. ABB recorded a 36.6 per cent jump in sales to Rs 390.87 crore.

The net profit went up 24.5 per cent to Rs 36.2 crore. However, the drop in the OPM and the NPM was higher in the fourth quarter. While the OPM declined over two percentage points to 11.6 per cent, the NPM dipped over one percentage point to 9.26 per cent.

Prospects: The company has an outstanding order book position of Rs 1,090 crore which is approximately equal to the total sales of 2001.

Moreover, ABB would now be the global outsourcing base for certain products for its parent company. This is expected to generate incremental revenues of Rs 255 crore.

Also, a strategic shift in focus from projects to products is expected to improve margins in the coming quarters.

On the other hand, strong dependence on the power sector could hamper its growth prospects in the near term.

Growth in this segment would be the most stable in the near future, unless some major development takes place on the policy front. This is unlikely to happen in the near term.

In the absence of any improvement in industry-specific factors, company-specific strategies would determine the future prospects and maintain cash

Thus, in the near-to-medium term, overall prospects seem encouraging.

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