ABBNSEMay 10, 2022

ABB India Limited

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Management on call

Sanjeev Sharma

MANAGING DIRECTOR, ABB INDIA LIMITED

Tk Sridhar

CHIEF FINANCIAL OFFICER, ABB INDIA LIMITED

Sanjeev Arora

PRESIDENT, INDIA, MOTION BUSINESS

G Balaji

LEAD, PROCESS AUTOMATION DIVISION, ABB INDIA LIMITED , A IB IB

Key numbers — 38 extracted

26%

hts, we had the strongest base order growth in our first quarter of calendar year; orders were up 26%, revenues were up 21%. We improved value offerings and our operational efficiencies led to doub

21%

t base order growth in our first quarter of calendar year; orders were up 26%, revenues were up 21%. We improved value offerings and our operational efficiencies led to double digit PBT percentage

rs,

arily published our Business Responsibility and Sustainability Report, (BRSR) 2021 as early adopters, and if you had a chance to look at it, if not please, have a look at it, it will show you detail

33%

eration can support them to support customers outside India, and that saw a good traction of plus-33%. Services order, which again is a backbone of our installed base we have created over last 70-p

100%

ho we are increasingly serving to our locations in the country. We have reached already in 2022 100% renewable energy in all our campuses. And this is something if you recall my last year's presen

90%

nergy productivity and these are the targets for each location. Waste rise recyclability is above 90% in most locations and we have committed to be a zero waste to landfill target which we will achie

85%

around our locations are able to get that benefit. Same way, just to give you a business flavor, 85% of our business comes from these market segments. The dark green and light green are the ones w

15%

s from these market segments. The dark green and light green are the ones which are growing at +15%, +10% and the yellow or the orange one is sub-10%. But if you really look into the budgetary prov

10%

om these market segments. The dark green and light green are the ones which are growing at +15%, +10% and the yellow or the orange one is sub-10%. But if you really look into the budgetary provisions

Rs.2,300 crore

rter again was a very critical and solid performance on ground. So, talking about orders which is Rs.2,300 crores roughly and this is sort of a quarter which has probably given the highest of the orders. Why

Rs.1,936 crore

ecause it's all coming from base order. Even when we compare with Q4 '21, we have a base order of Rs.1,936 crores and this is fully made up of base order. This is a clear indication of the customer connect an

year, but whereas compared to the previous quarter which is sequentially we have slightly low by 6% is negative. And I think that's more from the point of view of how the scheduling is done for exe

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Guidance — 20 items

TK Sridhar

opening

“Subrata Karmakar who is in the Robotics and Kiran Dutt who leads the EL business are not able to join this call because of their customer engagement, but we will be able to handle any queries with respect to their business within ourselves, right.”

Sanjeev Sharma

opening

“On the ESG framework especially the environmental, social and governance, we have adapted our group's 2030 target based on SDGs A IB IB A » » and then we combined it with the Indian flavor of BRSR and national ESG requirement and we have created ABB India ESG focus area.”

Sanjeev Sharma

opening

“Waste rise recyclability is above 90% in most locations and we have committed to be a zero waste to landfill target which we will achieve over a period of time.”

Sanjeev Sharma

opening

“We have a target for water net zero reduction target.”

Sanjeev Sharma

opening

“We have created this as a kind of catalytic project as an example for authorities as well as for the other industries in the area and we are finding that the people are getting inspired to take up similar project.”

Sanjeev Sharma

opening

“They will be sponsored for four years of engineering.”

Sanjeev Sharma

opening

“But if you really look into the budgetary provisions, you will see that then the budgetary provision, even the orange areas are getting boost and there will be a cycle of investment in those area.”

TK Sridhar

opening

“We have a solid order backlog of Rs.5,230 crores and that's something which we see will be executable in the coming quarters and we have sort of arranged ourselves to deliver them on time, without any disruptions, which is in our control.”

TK Sridhar

opening

“So, what could be the focus areas going forward?”

TK Sridhar

opening

“Definitely, we expect that there could be headwinds of supply chain disruptions and we must gear up for that and some parts of geopolitical impact, which we should also expect to continue.”

Risks & concerns — 8 flagged

What the business has done is about to pass A IB IB A » » on this particular impact to the market, because we have very less of orders which are probably having a variation clause, because we don't have projects, we are more in the short cycle businesses, and that is something what we have to necessarily pass on this commodity impact and impact of the business and that's what the business has done to remain profitable.

— TK Sridhar

Coming to personal expenses, there is definitely a slight increase compared to the previous quarter same time and that's more because there is an impact of annual increments which comes in.

— TK Sridhar

And good to see, compared to the previous quarter same time, we have a lesser positive impact of commodity variation, exchange variation as what we say, but despite that, we did 10.1% in PBT.

— TK Sridhar

And what I did not add into this is the impact of interest cost and the corresponding inflation with the RBI coming up with this, so that's something which we have not added to this, but that we will also keep on watch.

— TK Sridhar

My first question is on the sharp commodity inflation that we have seen over the past two months, though it started to taper off but do you perceive any impact of this steep inflation both on near-term margins on the short cycle orders that we have in the backlog as well as do you foresee any risk to demand either in terms of delays or postponement of orders in the near term?

— Renu Baid

So, both for organic and inorganic, there are things in play, and we hope that's where we will be able to use our cash meaningfully in the volatile markets, but at the same time we continue to consolidate our portfolio and market position.

— Sanjeev Sharma

So, first you have the volume impact, then the mix impact of the business is what we deliver and also we have the impact of what is the sort of the supply chain efficiencies which we operate.

— TK Sridhar

That is something which is foremost and most critical for us this year and we do not want to get disturbed to look at how it translates to PAT in immediate future because we are in the next two years we do foresee certain headwind and risk as what you see, for example, the geopolitical stuff was not visible one quarter before, but we got impacted badly because our exports which are there or the global outputs could be impacted like that.

— TK Sridhar

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Q&A — 8 exchanges

Sanjeev Sharma

It is true that the inflationary pressures are being felt across the globe and also the supply chain disruptions, we are equally aware and also our customers are equally aware and both sides are equally sensitive to it. So, whenever you have such a situation and you are not uniquely a participant in inflation of input cost as a company, then what happens is that distribution of that cost is much easier to the customer base. Customer understands where we are coming from and there is a less resistance and since there are supply chains which are squeezed in the marketplace, customers are also ver

Firstly, when I look at your order in flows up 26% YoY, I'm just trying to understand how much of that is driven by the price increases that you may have taken in the last couple of quarters and how much is actually the volume increase, so if you could help us understand and if you exclude that what kind of growth it would look like?

Sanjeev Sharma

I think it's a good question. So, what we will do is, we will have to do a bit of analysis there. Definitely, as the inflation expands and the price expands, there is a definite effect of it, but I would say it's a mix of solid demand plus the price expansion. But let me give you a bit of a flavor with Sanjeev Arora who runs our motion business. So, maybe one of the A IB IB A » » businesses he can pick up so that he gives a bit of a kind of a micro snapshot of the business so that it gives you a flavor. As in the earlier question you must have heard that how the raw material prices are hurting

The first question that I had was more on margin. See, at this point of time you are a double-digit PBT margin. Could you give us some color on the journey towards the double digit PAT margin that you may want to kind of think through?

Sanjeev Sharma

I would again repeat what I said last time. This question of course comes every quarter. So, I think the first step which we had to reach is to post a credible double-digit margin at the PBT level year-on-year. So, we first started to reach that in Q4 of '21 and this what I mean is without exceptional items because exceptional items is something which we don't consider, it's a one-time topic. So, that's something which we would like to stabilize. So, when we embark on this particular journey, so there are definitely a lot of headwinds in respect to various topics A IB IB A » » which comes. So,

So, you saw the segment picture I showed you. When you saw a high green and slightly less green and yellow, that represents our so-called view of market formation. So, dark green means 15%+ growth in the enquiry base. Then when we talk about light green, it is 10%+ market A IB IB A » » growth. And then we look into the yellow one, it is say 7%, 8%, 9%. So, that correspondingly we get to see the enquiry build up there. What we are saying is that the yellow one which is basically the core sector, there the next cycle of CAPEX has to start and we have started seeing the kind of the preparation by

Sanjeev Sharma

I'll answer it partly and then I'll invite Sanjeev's comment because he's a master in this area. So, as far as we are concerned, we are producing products in the company. When we call it products, so you understand there are three types of products. One is called you have the Manufacture To Stores, (MTS) products wherein you produce it, put into a box, you get an order, and it gets ships out. Then there's an MTO product, which is called Made To Order, wherein the same product which is MTS, you put a relay or some kind of add-on accessories and then it gets shipped out. And then you have ETO pr

Margin is a product of various elements into that. So, first you have the volume impact, then the mix impact of the business is what we deliver and also we have the impact of what is the sort of the supply chain efficiencies which we operate. So, do we have this particular track within the company? Answer to that is, yes. Can we sort of share it with you? Answer to that is no because that's something which is sensitive for the market and it affects the competitiveness of any organization for that matter. So, now how do we drive this is very important. Every business definitely has a KPI that t

TK Sridhar

First one is about the employee strength. First of all, in today's market, employee is one of the very key factors with the backlog which we have or any company has it. We need to make sure that the employees are retained. so that's something which we want to do. So, while attrition is good but attrition beyond an extent is something which will hamper our deliverables to the customer. So, that's something which we do not want to run. Typically, when it comes to digital and automation skills, that's something which is very sought-after skill in the market and that's something which we want to r

I would say it’s safe to assume. I think it's a similar pattern. I don't have Kiran right now; he was engaged somewhere else, he would have given you more precise numbers, but I think it's safe to assume what Sanjeev Arora replied earlier for the motion business. Ravi Swaminathan: The growth in the process automation business has been on the softer side. The run rate still in terms of orders it's more like 400, 450 crores. The last quarter was kind of more like an exception, while the other two segments have grown consistently whereas this segment has been on the softer side. Any particular re

Sanjeev Arora

Process automation has got two major businesses which is energy management divisions, another one is the process industries which caters to cement, mining, steel sector. So, as Sanjeev was saying, those customers lie in the 7-8% growth sectors which is a core sector. So, naturally their growth will not be as exciting as what EL & MO is posting at this point of time and they are also project business which is more cyclical and depending on CAPEX this thing. PA, if you want to look at, it we need to look at a three-year rolling average or four-quarter rolling average and that gives you more colo

I just have two quick questions. First is if you see the electrification product division, the growth has been pretty strong, more than 30% vis- à-vis last two to three year average. Is it right to say that this segment is where we've seen the maximum addition in mandates both globally and domestic market the addressable market expansion? And can we see the profitability scale up in this segment in line with that in terms of potential?

Sanjeev Sharma

So, I would say, we have four engines and I think since you are the market president, I am sure analyze these securities for all the companies. So, I like our portfolio because it has a different aspects of it, but motion and EL, I would say they are part of our growth portfolio. PA is more cyclic because the CAPEX needs to come in. As far as the robotics is concerned, it’s really a high growth segment for us. So, that's how it is. In terms of global mandate, EL and MO has a very strong kind of a global mandate because they already have a very good footprint in the country, high localization,

ABB India Limited Plot No. 5 & 6, 2nd Stage, Peenya Industrial Area IV, Peenya Bangalore 560058 Karnataka CIN: L32202KA1949PLC032923 https://new.abb.com/indian-subcontinent

Management

Speaking time

Sanjeev Sharma

Moderator

TK Sridhar

Renu Baid

Sanjeev Arora

Ankur Sharma

Aditya Mongia

Amit Mahawar

Registered Office

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Opening remarks

TK Sridhar

Thank you, Faizan. A very good afternoon to all of you to the Q1 2022 Analyst Call where we will definitely discuss about performance and the overall initiatives what the company is taking. So, I have with me on the call, Mr. Sanjeev Sharma -- Managing Director of ABB India Limited, Sanjeev Arora -- President for Motion business in India, and G Balaji, Process Automation Division Lead. Subrata Karmakar who is in the Robotics and Kiran Dutt who leads the EL business are not able to join this call because of their customer engagement, but we will be able to handle any queries with respect to their business within ourselves, right. So, thank you very much. I'll now hand over the call to Sanjeev to take us through what happened in Q1 and later on with the financial results is what I would explain a bit more, right. Over to you, Sanjeev.

Sanjeev Sharma

Thank you, Sridhar. Good afternoon, everyone. Thanks for joining in this first quarter of this year. I'm quite pleased to report the numbers as well as the developments that took place around ABB. We also had the AGM this morning which was concluded at about 1 p.m. today. Very good interest from the shareholders with respect to the development they saw in 2021 and we see that continuity in this year as well. A IB IB A » » To give you some highlights, we had the strongest base order growth in our first quarter of calendar year; orders were up 26%, revenues were up 21%. We improved value offerings and our operational efficiencies led to double digit PBT percentage before exceptional items. And also, we went ahead and voluntarily published our Business Responsibility and Sustainability Report, (BRSR) 2021 as early adopters, and if you had a chance to look at it, if not please, have a look at it, it will show you detailed insights into what ABB and its teams have done in last one and a hal

TK Sridhar

Thank you very much for giving an overview of what's happening on topics which are non-finance. So, now we come to really a hardcore of how we have performed in Q1. First of all, this quarter again was a very critical and solid performance on ground. So, talking about orders which is Rs.2,300 crores roughly and this is sort of a quarter which has probably given the highest of the orders. Why I say so because it's all coming from base order. Even when we compare with Q4 '21, we have a base order of Rs.1,936 crores and this is fully made up of base order. This is a clear indication of the customer connect and our penetration to tier-2, tier-3 cities are really working and the underlying demand situation is reviving. This is just to take a clue from what Sanjeev was saying about the LO areas which have been sluggish, we have started to look at investments in their area of expansions as well. So, all the divisions across ABB, so we have 20 divisions working presently in India. So, all of t

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