ABB Ltd posted a net profit of Rs 38.3 crore compared to Rs 83.6 crore a year ago, on a marginal net sales drop of 4 per cent to Rs 1,446 crore in April-June quarter.
Although ABB management has given an open offer to accumulate the stock. But it seems that the ABB group is increasing its stake in ABB with only a long term view, considering India’s strong growth outlook. There are no near term drivers for increasing the stake. The company does not have any plan for significant capex in the near term. For the near term, the company seems concentrated in ramping up of production in its recently launched facilities.
Order intake in the first half CY10 looks weak but this is expected to improve in the second half. Order intake need to increase by two third in the second half in order to achieve the projected annual growth rate of 15% in CY10.
Profit margin is expected to improve in CY11 due to exit from rural projects, better supply chain management and other cost cutting initiatives. However, the margin pressure is likely to continue in the immediate term due to increased competition in the T&D (Transmission & Distribution) segment.
Stock looks like has entered in downward trend since the results were announced at the end of July.
Looking at the results, EPS expectations are at Rs.26.20 for FY11. Keeping this in mind, recommendation is to sell stocks of ABB. Support/comfortable buying opportunity could be around Rs. 630 levels.
