Expect margins to improve going forward: ABB

In an interview to CNBC-TV18, Amlan Datta Majumdar, chief financial officer of ABB says, he expects the margins to improve going forward.

Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying video.

Q: There is some disappointment on what’s come through on margin performance from ABB. The market was expecting to see a stronger run. Can you just walk us through whether something has kept margin performance subdued this quarter as well? What you are expected to improve to in the quarters going ahead?

A: When we see ABB portfolio, we have to see it in two buckets—automation and power; also in another two buckets— long cycle business and short cycle business. 

In terms of long cycle business, we had earlier larger challenges in our margins. While the margins are not yet so attractive, but you can clearly see there have been significant improvements. But the long cycle orders we have been executing are orders taken earlier. At that point of time, the price realisation and also our costing were not so effective. 

Going forward, we wish to see a better margin performance. But, yes, we had challenges to that.

Q: Your order inflow this time around for the quarter has come in at around Rs 2,200 crore. What kind of a growth do you hope to see by the end of the year? What kind of a run rate do you hope to maintain in terms of order traction?

A: Actually for ABB the year is January-December. So, for the full year, we had order growth of 29%. It was close to 60% for the quarter ending December. We don’t find reasons why it should be going down because we got this in a very challenging environment. We have made ourselves more competitive than we were a couple of years back. So, we hope the order flow continues. 

But of course one major factor would be the domestic policy decisions and what’s happening in the external environment. Let’s hope that something happens on the power sector reforms and also the investor sentiment improves in the industry side.

Q: So, for the next calendar year, what kind of targets do you outline for the order book? Also, you were telling us about the performance improvement in terms of margins. What is your target for the next calendar year or atleast the first six months of the next year? Will there be an improvement from this 3.5% level in margins?

A: Normally, as a matter of principle we don’t give guidance. But in terms of the growth, we think the growth momentum should continue for us. We are not only concentrating on our traditional business, but we are also getting into other sectors which are greener by nature, like renewable cyber security. So, order growth should continue.

In terms of margin improvement, we are working very hard on that. We are getting into business which is not a commodity today so that should give us a better margin. Also, we are improving our internal efficiencies. So, it should improve during the next calendar year— 2012. But it would be hard to predict, given a lot of uncertainties in the external environment.