ABB eyes higher exports, enhanced facilities in FY09

ABB has declared its results for the quarter ended June 2008 (Q2). The company's net sales were at Rs 1616 crore versus Rs 1401 crore.

Biplab Majumder, Country Manager and MD, ABB said this year the company has completed capex of USD 100 million and is putting new facilities in Bangalore, Baroda and other locations in Nasik. The company currently has 37 projects and so there is a huge capacity addition that it is concentrating on, he said.

Ravi Uppal, Chairman, ABB said that the company is moving into the services sector and is trying to come into spaces like energy conservation and efficiency which he believes is the need of the hour. "We continue to move into the new segments and generate new revenue streams," Uppal said

Excerpts from CNBC-TV18's exclusive interview with Ravi Uppal & Biplab Majumder:

Q: Start off by lining up this quarter’s margin performance, and whether you can hold that  the next few quarters?

Uppal: The company has done a robust performance in the first half of this year and the profit has increased by about 28% corresponding to the same period last year and the EBIDTA level is about 12.5% compared to 12% at the same period last year. So things have been increasing steadily and do not see any kind of threat to the margin in the months to come. We will maintain a steady performance and we have got a very healthy order stock at this moment which at current rate of production covers nearly nine months of our turnover and that’s a very good situation we are in.

Q: A brokerage report mentioned that about 95% of revenues being booked in India, there is a chance if there is a slow down there would be pressure on ABB. Do you see any kind of a slowdown as far as the Indian orders are concerned?

Uppal: I can't speak for the whole economy but the segments in which we are operating the core industry and the power prospects is bright right now, we are constantly looking at our enquiry pipeline and the orders and making and there is nothing there to suggest that there will be any kind of a slowdown in the order intake.

The other point is that we are also trying to create our own opportunity, we are moving into the services sector and significantly we are also trying to come into spaces like energy conservation and efficiency which we believe is truly the need of the hour. So we continue to move into the new segments and generate new revenue streams but as of this moment, to touch the bottom line, we don’t see any kind of a slowdown in the rate of orders in our system.

Q: Where is the order book right now for ABB and more importantly how long you see it  flowing out for and for how many quarters do you have a visibility right now for that order book to be going through?

Majumder: We have this thirty-second quarter of a sustained profitable growth and the current backlog is almost 46% more compared to the same period last year. It’s about Rs 68 million today and at these rates, we have at least nine months of backlog in our kitty already. The new orders are in the pipeline and in the metal space as steel, aluminum and also in the utilities. I don’t see any let up in growth in utility and the industries that we are serving, so the order pipeline will continue to grow at the same pace and we will have another successful year in 2008.

Q: What’s the capex plans looking like because you have just completed a capex of USD 100 million, what’s the plan for this financial year?

Majumder: This year we have taken another USD 100 million and a little over than that about RS 500 crore and we are putting new facilities in Bangalore and new facilities in Baroda and other locations in Nasik. So at the moment about 37 projects are on. So there is a huge capacity addition that we concentrating on, and to take all this the challenges of growth in the years to come and also to serve some of the other group companies within ABB with the products that we have been trusted with to manufacture for the whole group.

Q: For many companies from the infrastructure and capital goods space this time around, interest costs are beginning to show up. Lending rates are going up too and that is beginning to show up or hurt the performance of many infra/cap goods stocks. Do you think that is going to be a problem for the industry over the next few quarters because even for you capex plans are quite high and aggressive?

Uppal: You have to look at the impact of interest rates from two perspectives. How would it impact us, our own operations? You know that ABB for a very long period has been a debt free company. We are in a very comfortable cash position. We don’t borrow money to finance our own investment programmes.

As far as our customer industries are concerned, most of them are producing commodities or producing services that are essential in character. So, if there is going to be a hike in interest rates it will have some kind of impact as far as the cost structure is concerned. But given the fact that the goods produced are very essential in character, I am sure there will not be any let up in buoyancy.

We are talking about infrastructure, construction and all related services with that - oil and gas, metals, cements, et cetera. There may be some very marginal impact as far as the demand from the capital goods sector is concerned.

For us our exports have also grown over the last six months in a major way. We have had almost 50% increase in our exports. We are giving an increasing allocation to ABB India to cater to various markets in the Middle East, Far East and also to the other continents.

So, we are going to maintain a fairly balanced portfolio in which ABB India’s export earnings will continue to rise and on the domestic space once again, we are very happy that we have maintained a position of leadership in most of the domains that we operate in.