ABB India’s growth prospects trip after dismal Q1 across segments1 min read . Updated: 14 May 2020, 09:47 PM IST
Triggers for a rebound in ABB India’s stock price would come only from a margin improvement and steady order flow
ABB India Ltd’s March quarter (Q1CY20) earnings missed analysts’ forecasts, mirroring the challenges across domestic industrial sectors.
The Indian arm of Swiss-Swedish capital goods maker posted wafer-thin profit margins as it battled covid-19 woes. Earnings before interest, tax, depreciation and amortization (Ebitda) margin at 2.8% for the quarter, was 400 basis points lower year-on-year (y-o-y). Investors would be disappointed given the expectation of 7.3% Ebitda margin. One basis point is one hundredth of a percentage point. Q1’s operating profit at ₹43 crore was down to a third of the year-ago period.
This was partly led by the 18% y-o-y drop in net revenue. Impacting revenue was “lower sales, non-receipt of delivery clearance, lower service revenue in the nationwide lockdown due to the covid-19 pandemic," said the firm in the results media release. Indeed, pain was felt across business segments. The largest segments, electrification and motion that account for about three-fourths of the revenue, posted a 15% and 21% y-o-y drop, respectively.
Negative operating leverage dragged profits clocked by these two segments by 38% and 70%, respectively. Unfortunately, even the industrial automation and robotics that enjoyed relatively high margins in the recent past, staged a weak show.
Umesh Raut, lead analyst-industrials, Yes Securities (India) Ltd, said: “Profitability during the quarter was significantly impacted from negative operating leverage, adverse product mix and foreign exchange loss." The only bright spot in the quarter’s results was the 10% y-o-y growth in order flows. In spite of this, the overall order book of ₹4,444 crore offers barely a year’s revenue visibility.
Besides, prospects are dim, too. The company highlighted that the global economy is expected to contract in 2020 after a rapid deterioration in outlook driven by the covid-19 pandemic.
It is not surprising that ABB India’s stock closed 2.2% lower on Thursday even after its precipitous 33% fall since early January. Triggers for a strong rebound in stock price would come only from a margin improvement and sustained order flow in the coming quarters.