Bloodbath in infra sector, fund crunch affecting nos: ABB

There is bloodbath in capital goods sector, power and infrastructure market, which so far have negated all improvement measures taken up to boos performance, says Amlan Datta Majumdar, Country CFO, ABB. ABB India reported a 22% fall in net profit in the April-June quarter.

  Also Read: ABB India April-June net profit fall 22% on weak order flow

 

Q: How do you see the company performing in the next quarter?   A: The cost of funds is very high, there is a liquidity problem in the market because nobody wants to really borrow money at this rate. So combined with that, the margins have been muted. While our operating margins are looking better, if you look at profit after tax (PAT), net income is not so attractive. I do not expect a large improvement in margins unless the market booms, the chances of which are rather less. It is difficult to predict what will happen in the next couple of quarters.

Q: How do you plan to pare debts?   A: ABB for a long time used to be a debt-free company. But in the last one-and-half years, the way the market has moved, with RBI keeping rates at very high level and other issues in the financial market, the availability of money has become expensive. It is not only expensive, sometimes availability itself is doubtful because those who are in large infrastructure projects have a little bit of stretched balance sheets. For the time being, ABB India wanted to support most of its customers. So on the one side, most of the receivables have gone up.

ABB is continuously reviewing if there are any risks that the company is creating in the whole process. We do not see any risk today. All risks are covered. But the working capital is going up mainly triggered by receivables.

 

ABB has Rs 500-600 crore borrowing in its balance sheet that they are unable to push to their customers because then their projects will be under big stress. But the company is cautious, its policy is cash over revenue. But there is still a problem on working capital, he says. Interest rates have gone up but also the rate of interest available in the market is extremely high today. ABB is able to get it at one of the best and cheapest rates from its bankers because it is a triple A rated company, but still 10 percent interest rate is not low and that is showing up.
So the company performance is very likely to be in line with what we have seen so far but we are working on a lot of cost improvement measures so bottom-line could show and increase and we have a strong pipeline of orders which we are quoting for so it can also slightly improve in the second half of the year.