* Sales decline 9% YoY during 1QCY09 (December ending fiscal) owing to weak performance of both power systems and process automation businesses that saw sales fall by 13% YoY and 20% Y0Y respectively.
* Operating margins contract by 2.3% YoY on account of lower raw material costs and higher other expenditure (as percentage of sales).
* Net profits decline by 33% YoY during the quarter, largely due to a contraction in operating margins and a higher interest expense.
During the quarter, ABB recorded an order inflow of Rs 23 bn, which was 83% higher than the orders booked during 4QCY08. At the end of March 2009, the company's unexecuted orderbook stood at nearly Rs 70 bn, which is almost equal to its full year sales in CY08. With the 83% increase in orders received during 4QCY08, the company is of the belief that the sentiment in the market has considerably improved compared to what it was a couple of months back.
At the current price of Rs 487, the stock is trading at a multiple of 11.5 times our estimated CY11 earnings, which we believe makes it attractively valued. ABB's management has expressed its optimism about the power sector with utilities investing in new capacity and augmentation across generation, transmission, distribution and improvements in grid reliability and efficiency. It expects that despite the slowdown, focus on improving operational optimisation and improving energy efficiency in industries will continue to drive demand for automation solutions. Also, the company inaugurated a new manufacturing facility for automation products near Bangalore and commissioned a new service center for high voltage machines at Taloja, near Mumbai.
Short term concerns notwithstanding, we believe that the stock presents an attractive investment opportunity to investors from a 2-3 year perspective.
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