Financial Daily from THE HINDU group of publications
Thursday, Apr 29, 2004
Financial Daily from THE HINDU group of publications Thursday, Apr 29, 2004 |
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Corporate
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Performance Columns - Microscope ABB: Portfolio balancing pays off Sowmya Sundar
ABB recorded an impressive performance for the first quarter of 2004. The revenue growth and the order booking was the highest over the past five years. The consistent performance can be attributed to ABB's effort in balancing its portfolio between products, projects and services. The capacity expansion undertaken for meters and transformers in 2003 could have also started contributing during the year. An analysis also suggests that orders have been translating into revenues at a faster pace now than three years ago. For instance, in 2001, orders booked were 2.3 times the revenues. In contrast, in March 2004, the orders booked are just 1.3 times the revenues for the quarter despite a substantial growth in order booking. Over the past three years, ABB's order backlog in any year has been equivalent to 75 per cent of one year's revenue. The order backlog of Rs 1,166.3 crore by end March 2004 is just 42 per cent of the trailing 12-month revenues indicating that orders have been translating into revenues at a faster pace. Operating profit margins too have improved substantially from 3.9 per cent in March 2003 to 5.3 per cent in March 2004. The improvement in revenues could be due to a favourable product mix. ABB has been increasing its services business where the margins are higher. The first quarter margins are generally very low as ABB books revenues on completion but may incur expenses for carrying on the projects. Despite the sharp surge in the price of inputs such as copper, ABB's material costs were under control. To an extent, the rupee appreciation could have offset the input price. ABB imports close to 30 per cent of its input requirements. Outlook: Year 2004 could witness a substantial jump in revenues and profitability. The stock appears to have impounded the higher profitability. ABB trades at a premium to its peers such as Siemens and BHEL. In the year 2004, order booking appears to have received a further fillip. With SEB's and private players such as Reliance accelerating investments in the transmission and distribution segment, future business prospects appear bright.
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