ABB may find it hard to keep up margin show in coming quarters

ABB India Ltd’s September quarter earnings were better than expected on several counts. Thanks to a more favourable mix of products and revenues, improved utilization levels and price realization, and better priced older orders, operating margin expanded 580 basis points (bps) year-on-year (y-o-y) to a multi-quarter high of 15.8%, while gross margin was up 190 bps at 36.7%. The company follows a January to December financial year.

- Dipti Sharma

However, investors worry if ABB will be able to sustain such margin performance. This concern surfaced after the company said in its earnings call that it has benefitted from executing orders secured earlier at higher prices; however, these advantages will diminish as conditions stabilize. This hinted at potentially weaker gross margins going ahead. Given this, Nuvama Institutional Equities believes current gross margin levels are unsustainable and may remain under pressure.