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Business News/ Market / Mark-to-market/  ABB: improved performance, but valuations high
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ABB: improved performance, but valuations high

Net profit increased 33% to `51.6 crore on a decline in depreciation costs

ABB’s power and power-related segments fared well in the June quarter. (ABB’s power and power-related segments fared well in the June quarter. )Premium
ABB’s power and power-related segments fared well in the June quarter.
(ABB’s power and power-related segments fared well in the June quarter. )

Multinational capital goods company ABB Ltd’s stock rose 1.3% after it announced June quarter earnings. The 14% jump in orders to 2,045 crore was perhaps the reason. The 10% increase in revenue to 1,884 crore was another positive in the backdrop of stagnant year-on-year growth in the three months ended March.

For the June quarter, all businesses of the company posted double-digit revenue growth, except the discrete automation and motion segment, which grew 7%.

The power and power-related segments have fared well. This is mirrored in the 12% revenue growth clocked by the power systems, power products and process automation businesses, which collectively accounted for 70% of the total revenue.

The key issue for ABB has been its inability to improve operating performance after recovering from losses in the past couple of years.

Operating margin, at around 5% during the quarter, was flat compared with the year-ago period, after foreign exchange adjustments.

Margins were under pressure due to the losses incurred in the process automation segment, because of a sluggish industrial sector.

A decline in other expenses, however, shored up the operating profit for the company.

A slower pace of growth in finance costs and a decline in depreciation costs meant net profit increased 33% to 51.6 crore.

That looks spectacular against the 20% decline in net profit seen during the March quarter.

Strong order inflows in the June quarter, especially seen against a decline during the preceding three months, are also encouraging. At the end of June, ABB’s order backlog stood at 9,175 crore, which offers good revenue visibility in the coming quarters.

In spite of better results, concerns on the process automation business and the low voltage products segment remain. The company has said the short-term macroeconomic outlook is a concern. Further, although ABB’s losses may be behind it now, its operating profitability does not augur well for a sharp earnings increase. The stock is trading at its usual high valuations and, unless operating margin improves, there isn’t much scope for an upside.

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Published: 08 Aug 2012, 11:10 PM IST
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