The Hindu Business Line : ABB sustains growth momentum

ABB India’s results for the calendar year ended 2007 reflect the continuing growth momentum witnessed by the group in India. Sales and net profits for the CY 2007 witnessed an increase of 39 per cent and 44.5 per cent respectively.

This has helped the company maintain the last three years’ revenue growth at an average of 37 per cent.

Margin expansion

Numbers for the fourth-quarter ended December also remained robust with operating profit margins expanding to about 14.1 per cent. The margin expansion has come on the back of a decline in raw material costs as a percentage of sales.

This has come about as a result of inbuilt variable price contracts for large equipment such as transformers, wherein the company can pass on any raw material hikes to the customer. ABB also imports some components from its parent for projects in India.

The appreciating rupee against the dollar may also lend support to any further margin expansion.

Robust order book

Order book for the year ended 2007 stood at Rs 7,668 crore, a 36 per cent increase over the previous year. Even as the power segment followed by automation dominated in terms of revenue contribution, the company received several transmission and distribution projects in rural and urban areas thus capitalising on the Government’s spending on power.

The company has also stated that it has received huge orders from the cement and steel industry in Jordan and West Asia. This, combined with the parent’s plan to treat the Indian arm as an outsourcing hub for its global operations may provide diversification and mitigate any risk of slowdown locally.

Entry into lower range

The ABB Group announced renewed capex plans for the Indian arm a couple of months ago. However, the expansion plans announced recently were for lower range of power equipment (765 kV).

While ABB’s competency in these areas could well provide competition to smaller players, profit margins may become less lucrative unless volumes in the lower range remain robust.

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