>ABB: Second quarter current year 2010 (RESULT UPDATE)

ABB reported tepid 2QCY2010 results with revenues of Rs1,447cr and net profit at Rs38cr. The current quarter had to bear the impact of the exit cost from the rural electrification business in addition to the forex losses. Though revenues reported marginal fall of 3.9% yoy, the impact of the exit cost, forex provisioning and increasing pricing pressure eroded the profit margins resulting in a 54% fall in profit. We maintain Neutral on the stock.

■ Revenues stagnant, but net declines: Despite declining order accretion rate for the past few quarters, ABB India reported marginal 3.9% yoy fall in top-line to Rs1,447cr (Rs1,505cr) for 2QCY2010. As a major portion of the order backlog consists of large projects with long gestation periods, the company was able to report flattish revenue growth both sequentially and annually on the back of steady execution rate. The numbers at the operating level were hit by the 16.7%
increase in other expenditure, which could be attributable to the exit cost from rural electrification business. Besides the increasing pricing pressure, the company had to bear losses on account of exchange rate variations amounting to Rs23cr (Rs21cr) for 2QCY2010. EBIDTA margins, as a result, pruned back to 3.5%(8.5%) leading to a sharp 61% dip in EBITDA to Rs50cr (Rs129cr). Consequently, net profit dipped by 56.4% to Rs38cr (Rs84cr) for 2QCY2010. For 1HCY2010, the company posted 72% yoy de-growth in bottom-line to Rs45cr (Rs162cr).

■ Outlook and Valuations: ABB has been reporting disappointing results over the past several quarters amidst heightened competitive pressures. Although the economic scenario has been improving, we believe that current valuations factor in the same. At the current price, the stock trades at 34.7x and 26.1x CY2010E and CY2011E EPS, respectively. We maintain Neutral on the stock.

To read the full report: ABB