ABB: Robust show, though outlook remains grim

ABB’s focus on high technology and short-cycle products has started to pay off by way of better profitability


Photo: Reuters
Photo: Reuters

The most striking feature in ABB India Ltd’s June quarter results is that the management remains cautious in spite of turning out an encouraging performance.

A robust 35% jump in net profit to Rs.77 crore was in line with what the Street had chalked out. It came not just from lower raw material costs, as was the case with most manufacturers in the June quarter, but also from higher revenue. In fact, the management said that it was the best second quarter (the company has a calendar year-ending) in five years.

Revenue traction was mainly from the discrete automation systems division, which comprises a fourth of the total revenue. Analysts say that a lot of this came from renewable energy. Meanwhile, even the power grids and the electrification products divisions clocked decent sales growth.

Also, evidently ABB’s focus on high technology and short-cycle products has started to pay off by way of better profitability. Operating margin, which came up to investors’ expectation, was only a tad higher than a year-ago at 8.1%. Within this, the electrification products division outperformed other businesses with a 330 basis point jump in margins compared with a year back. One basis point is 0.01%.

Even order inflow during the quarter was 7.7% higher than a year ago. But perhaps, this was not enough to trigger enthusiasm. In the post-results conference call, the management stated that private sector capex is yet to look up even as capacity utilization and credit growth remain low. It is, therefore, not surprising that the stock closed 2.34% down at Rs.1,270.55, although it has been outperforming the benchmark indices in the past six months.

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