BackABB India reports strong operating performance in Q1, sustenance key
ABB India's March quarter earnings was its strong operating performance with Ebitda at ₹130 crore, beating analysts' estimates
PremiumA key positive takeaway from ABB India's March quarter earnings was its strong operating performance with Ebitda at ₹130 crore, beating analysts' estimates. Ebitda is short for earning before interest, tax, depreciation and amortization.
Shares of the company rose around 2% on the NSE in Tuesday's opening trade reacting to its Q1 earnings. The company follows calendar year as financial year.
ABB India's strong performance in Q1FY21 was aided by lower employee costs and other expenses. On a year-on-year (y-o-y) basis these components declined by 6% and 25%, respectively. Consequently, operating margins for the quarter stood at 8.1%, as compared to 1% in the same quarter last year.
Of course, a favourable base has aided this steep surge. Analysts say, the steep decline in "other expenses" is a positive surprise, however with business normalcy resuming, investors should brace for a reversal here. Investors would reckon that in their December quarter earnings call, the company's management had said that the benefits of their cost optimisation measures had reached a peak.
"Ebitda came in 29% above our expectation with margin rising 210 bps q-o-q (quarter-on-quarter) and highest since 4QCY18. The beat primarily came from other expenses and was 15.8% of revenue, lowest in last few quarters. We would seek clarity on the call on key drivers behind low other expenses and sustainability of this ratio going forward," analysts at Ambit Pvt. Ltd said in a note. ABB India analysts' call is scheduled today post market hours.
The company's order inflows declined by 7% y-o-y to ₹1,830 crore in Q1CY21 and the current order book stands at ₹4,330 crore. According to analysts, Q1 is seasonally a strong quarter and weak order inflows is a concern in coming quarters as second covid wave impact plays out.
Meanwhile, its parent company, which announced earnings on Monday, said that it will be separating its e-mobility division from the electrification segment. Investors need to monitor if this development will have an impact on ABB India.
On the valuation front, analysts estimates show that the stock is trading at one-year forward price-to-earnings multiple of 64 times. This is premium to peers Siemens and Honeywell Automation. Some analysts are of the view that Honeywell Automation is better placed than ABB India and Siemens, given that the company is pure play in the automation segment. They feel, on the valuations and return ratio parameters as well, th Honeywell is more attractive.
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