ABB management held its annual analyst meet yesterday. Nothing incrementally positive or negative from our earlier view could be concluded out of the discussion.
- Orders were down 37% in 4Q08 as: 1) ABB exited the rural electrification projects business, creating a base effect (company did forego a Rs1.5bn order); and 2) awarding of some projects from PGCIL/SEBs was delayed.
- ABB expects the power business to continue its growth momentum; the automation business will likely be affected by private players’ ability/intention to add capacity. However, even on the automation side the longer term outlook remains strong in the Steel, Aluminum and Oil sectors.
- ABB continues with its internal capex with Rs700m-800m planned for CY09. The capex includes a new process automation products facility, potentially the only one of its kind outside Europe.
- Working capital cycle expanded with debtors increasing from 125 days to 140 days (of sales) as at end-CY08.
- ABB remains debt-free as at end-CY08, but net cash position has deteriorated from Rs6.5bn (CY07) to Rs2.8bn (CY08)
- Margins are likely to fall in CY09 as: 1) share of high-margin automation products is likely to reduce, and 2) automation products per se are likely to fetch a lower margin compared to CY08 due to increasing competitive pressures.
- Apart from power T&D, ABB expects future growth from Railways, Water, Airports and Wind Energy (exports to Europe).