ABBNSENovember 18, 2022

ABB India Limited

8,738words
67turns
9analyst exchanges
4executives
Management on call
Sanjeev Sharma
MANAGING DIRECTOR, ABB INDIA LIMITED
Sanjeev Arora
PRESIDENT (MOTION) , ABB INDIA LIMITED
Subrata Karmakar
PRESIDENT & HEAD
G. Balaji
HEAD (PROCESS AUTOMATION,), ABB INDIA LIMITED
Key numbers — 40 extracted
rs,
rs which are driving the business growth. Mainly it is the solid order inflows from a mix of sectors, traditional and emerging. Our backlog has increased by 37%. This provides adequate forward visibil
37%
lid order inflows from a mix of sectors, traditional and emerging. Our backlog has increased by 37%. This provides adequate forward visibility for us, and exports are also making a good contributio
22%
solved as the data center footprint spreads across the country. We see a growth rate projected of 22% in 2022 and it's almost a $1 billion plus opportunity. I would like to talk about implementing
1 billion
rint spreads across the country. We see a growth rate projected of 22% in 2022 and it's almost a $1 billion plus opportunity. I would like to talk about implementing ABB India ESG strategy. We have a signi
100%
ng lighting efficiency and enhancement of utilization of Green Power. All our campuses now run on 100% renewable energy across the country. So, this is something which we are very proud of and this
Rs. 2,634 crore
er of solid performance, where we saw order inflows maintaining the momentum. We booked orders of Rs. 2,634 crore to be precise. And most of them were from base orders. So, we did not have any large specific ord
Rs. 6,500 crore
ause we were able to maintain the momentum. And backlog is at an all-time high: we are talking of Rs. 6,500 crore. This provides a lot of visibility for us. I would like to dwell upon order backlog as we go thro
19%
need to look at how and when will those order backlogs get executed. So, revenues, we are up by 19% for the quarter. I think this is also coming up from a strong order backlog what we had, along wi
10.8%
ution patterns which showed up from the flow businesses across the organization. PBT, we are at 10.8%. I think it's more from the fact that we delivered more revenues and those advantages of volume e
Rs. 45 crore
also the mix expansions probably helped us in this front. We did have an extraordinary income of Rs. 45 crore and that's basically for the second leg of transaction which we had for the sale of turbo busines
10%
e we measure ourselves as to how consistent we are. We are on track on our journey for delivering 10% bottom line. On an accumulated basis, we have reached 10.1% with this particular performance for
10.1%
on track on our journey for delivering 10% bottom line. On an accumulated basis, we have reached 10.1% with this particular performance for the quarter. Profit after tax margin was 9.6%, but we have
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Guidance — 20 items
T. Sridhar
opening
“So, we are not able to have Kiran Dutt on the call, because he is busy with some of the visitors over there, but I think we will be able to handle those questions as well.”
Sanjeev Sharma
opening
“is a front-runner followed by U.K., Germany, and China, and we expect India to continue to see growth in this area.”
Sanjeev Sharma
opening
“Also, the 5G tax exemptions, local storage of data, Digital India, Data Protection Bill, development of Tier 2, Tier 3 cities and cloud adoption will drive this particular segment going forward and it is at the early stage of development.”
Sanjeev Sharma
opening
“We also plan to make our suppliers participate, so that they can also understand how to carry out these green initiatives to create a much better green footprint across our supply chain.”
Sanjeev Sharma
opening
“In ESG agenda, we also have taken target of diversity and inclusion with internal and external focus.”
T. Sridhar
opening
“First of all, I think, these order backlogs are very solid, so we have a clear visibility of what will be the future revenues as such, but I think we also need to look at how and when will those order backlogs get executed.”
T. Sridhar
opening
“One is on the other income, I expect there to be questions as to why the other income is high.”
T. Sridhar
opening
“So, now, going forward, I mean, if you look down at the expenses, personnel expenses, more in line with the run rate, that represents the annual increases what we have.”
T. Sridhar
opening
“Therefore, that's how we see that while the flow businesses in Motion will follow a pattern, the system businesses will follow a delivery schedule which has been agreed with the customers for the project.”
T. Sridhar
opening
“So, these are project revenues, and that will probably start to deliver starting from '22 end onwards into '23, because they have to follow the project milestones.”
Risks & concerns — 9 flagged
Profit after tax margin was 9.6%, but we have to realize that this also includes a one-time impact of Rs.
— T. Sridhar
Profit before tax and profitability continues to remain strong and that's more from the revenues what we have and this time we definitely had an impact of FOREX and commodities as well.
— T. Sridhar
So, I don't think this story is over or any significant concern is developing for us in any segment.
— Sanjeev Sharma
There are always some market segments which goes up and the other ones, they go for a correction or slowdown for a period of time.
— Sanjeev Sharma
We do see that one segment or the other plateaus for few quarters because they have already let out a lot of contracts, or there is some concern in that particular market segment resulting in a plateau.
— Sanjeev Sharma
He does have concern in certain market segments, but let me qualify how does he see the overall market.
— Sanjeev Sharma
Do you feel any risk of pricing pullback?
— Deepak Krishnan
So, far what we have seen is that there was pressure on the supply chain, as well as inflation.
— Sanjeev Sharma
So, what is probably a challenge which every industry sees is about supply chain disruption and that is more with the Robotics where we have semiconductor-type issues which always exist and also something on the drive product.
— T. Sridhar
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Q&A — 9 exchanges
Q
My first question is, during the last quarter, ABB did commission their factories and they also implemented Industry 5.0 across some of their key facilities here. So, if you could elaborate in terms of the capacity expansion which you have undertaken across key segments? Are they predominantly for the domestic market or for the export market as well? And what could be the incremental CapEx plans for CY '23? A Illi
Sanjeev Sharma
Renu, thanks for this question. Yes, I think, as we publicly made known that we expanded the capacity for our smart products factory, wherein we made investments to increase the capacity, as well as increase the productivity and automation in that plant. This plant was inaugurated by the Global Division Manager, Giampiero, together with me and it is really catering to the domestic growth that we're seeing in the Electrification business. As we go forward, this plant has come to a sophistication which can match and even better any plant that we have in the world. So, typically, what happens is,
Q
Congratulations on a great quarter for order inflows, execution and margin expansion. So, on the Green Building side, you mentioned that all your buildings are now Green Buildings and powered by renewable power. So, I just wanted to understand, as a use case for the general market and your customer segments, how do you plan to replicate this success across your customers? And how big can this opportunity be for you?
Sanjeev Sharma
So, first of all, we don't see this as an opportunity, we see this as the right thing to do. When you look at the environment and you make campuses, as well as your product green, that's our duty as an industry to participate in the meaningful way in this sector. So, that's the first thing, that's our first motivation. And whenever we invest there, we always make a business case for ourselves that it is a right thing to do, so there is a positive ROI of it and we see positive ROI on all our investments. So, once we are convinced that using our own products and solutions in our own campuses pro
Q
And, at the outset, I'd like to congratulate the entire management for an exemplary performance. So, I have 3 questions. One is, you are tracking 18 end-user industry and markets. If you could just help us maybe on a cumulative basis all of the 18 sectors? The order pipeline that you would have, how has that been over the last 9 months or so because one of your peers had mentioned about plateauing of the order pipeline? That's question 1. Second is, we have certain portion of imports which come from EU area where we have seen energy cost spiraling. If you could just help us understand the impl
T. Sridhar
So, Bhavin, I will take the second and the third question probably and you could repeat the first question when Sanjeev comes in. Okay. So, the first question is, how do we look at imports from the EU area and how are we taking care of it? So, that's something which you had asked, right? Yes, we do have imports from European continent, that's absolutely clear. That's where our factories are, and we import material for quite a few of our offerings to the customer. So, now, the first thing is that, the contracts are more negotiated on a time-to-time basis when it comes to large contracts and tha
Q
I just wanted to understand, with commodity prices now sort of plateauing, how do you kind of look at pricing trends going ahead? Do you feel any risk of pricing pullback? Or do you think that we could maintain volume and value mix as we had done for the last 2 years? A Illi
Sanjeev Sharma
So, far what we have seen is that there was pressure on the supply chain, as well as inflation. And our customers participated with us because they understood that supply chain inflation is there. And when the supply chain inflation stabilizes, accordingly it will reflect in our prices. Now, at this point of time, we don't see any softening in terms of reversal of those price increases, because right now it's stabilizing. So, we will continue to keep a very close watch, as well as on the market demand and that determines how the prices are set in the marketplace. Sure, sir. And maybe just a fo
Q
Sir, I just have 1 question. If you see the 9-month results, right, , even if I adjust for the FOREX the profitability is almost touching 11%-plus. You mentioned about the capacity utilization of around 85% - 90%. I just basically want to understand on Motion and EP side, given that over the next 1 - 1.5 years, the pipeline of business in domestic market can be very strong, especially in low-voltage products in Motion and EP from railways and data center. Do you think the capacity for you will be a constraint in case we have a reasonable industry growth in these 2 segments? Or do you think the
Sanjeev Sharma
We have taken care of that. So, we don't work on a year-on-year or quarter-to-quarter basis. As we mentioned earlier, we are manufacturing it for 70 years. We have seen all possible cycles in this country. So, right now, the cycle that we are observing and even also our organic cycle that for growth we see in India, we are well prepared multiple years ahead of our planning and capacity increases. So, Amit, when we look at capacities, we are not only looking at capacities of ABB. One is, of course, we use our facilities to manufacture. But also important is that, we need to look at the capaciti
Q
The first question that I had was more on CapEx and I'll kind of give you a background. From what we could gather from you, there was an exercise happening between the division heads of India and ABB Global on potential organic/inorganic opportunities that may come India's way, wherein domestically you would want to invest. Has that exercise broadly happened? And can this be something that will drive your incremental CapEx plans a lot more than other things?
T. Sridhar
I think, similar to what Sanjeev was mentioning earlier and also, we have Sanjeev Arora also in the line, I think the plan for expanding is to make sure that we have our existing capacities optimized to the hilt before we start expansions, which is basically building a new factory as what we see. And in this particular journey, we did have certain expansions we have already done, and some more expansions will come in, which we cannot declare at this point of time. So, I think, for us, we see that we have the capacity to manage the next wave of growth that will come in and we remain consistent
Q
My first question is on the PBT margins on the 9-month basis. So, there is a 220 basis point expansion. Given that base would have a COVID impact and a FOREX impact, on a normalized basis, how should we look at it?
T. Sridhar
So, I think, you need to look at PBT before Tax and Exceptional, that doesn't include any one- off items. So, that's something which is reflective of a normal business scenario that we have. And I think there it's where I said we are at 10.2%. If you go to the financial summary slide, which is there in our presentation, that gives you an adequate input as to how the margins are and we will be stable with that. And my second question is with regards to revenue recognition, so is there any delay in this quarter apart from the Process Automation? I don't think we have any delayed execution, so we
Q
My first question is on our Electrification segment, where we are scaling up very nicely. So, now within that, how is the traction in integrated solutions for building automation? So, I think in the last 1 year or so, you have mentioned multiple times that our focus is more towards gaining more market share, which we missed out over the last cycle, if I am correct. So, have we been able to gain a significant market share in such building automation solutions in last 1 year or so? And just a follow-up to that would be, what would be the proportion of such system orders in our overall Electrific
Sanjeev Sharma
So, we have solutions, where we provide these to our integrator partners in the marketplace and they are the ones who provide the integrated experience for the building automation for our customers. We are seeing a significant pickup of the components which are being purchased and the solutions and products which construct those solutions by our integrators. And we know that this is a journey to educate our customers and especially the building with the higher credentials or higher rating, those are the ones we are targeting and we are seeing a good conversion across the country for our produc
Q
Thank you, Aman, I think, for conducting the call and thank you, everyone, for participating in this call and getting to understand how was our performance, and also thanks to the management who could participate in this particular call. So, on this account, wish you all a very Happy New Year and a good ending for 2022. So, we again get back to you in the month of February after our year-end results are there, which will be more interesting as we travel in this journey. Thank you very much.
Management
Speaking time
Sanjeev Sharma
18
Moderator
11
T. Sridhar
11
Harshit Patel
5
Parikshit Kandpal
4
Deepak Krishnan
4
Renu Baid
3
Aditya Mongia
3
Bhavin Vithlani
2
Harsh Shah
2
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Opening remarks
T. Sridhar
Thank you, Aman. A very good morning to all of you. It's a pleasure connect with you again after the Q3 results, which we just declared last week. So, on the call with me today I have Mr. Sanjeev Sharma, the country Managing Director for ABB India Limited. Then I have the Business Representatives - the leads in the businesses: Sanjeev Arora, who leads Motion business. Then I have Subrata Karmakar, who leads the Robotics; and Balaji for Process Automation. So, we are not able to have Kiran Dutt on the call, because he is busy with some of the visitors over there, but I think we will be able to handle those questions as well. So, without wasting much time, I hand it over to Sanjeev to take us through some of the key highlights of the quarter, and then I will follow it up with the commentary on the financial performance. Over to you, Sanjeev.
Sanjeev Sharma
Thank you, Sridhar, and good morning or good afternoon, everyone. Thanks for joining this call. I'll take you through some business highlights very quickly. So, in terms of business highlights, we continue to see positive momentum with strong financial foundation in this company. Our orders and revenue and profitability have been moving in the right direction. Consistent margin improvement and cash momentum is visible to us, and we're also doing some pioneering work in Green Factory Buildings, which have been recognized by the market. Just to name a few, we have been recognized by IGBC as the pioneers in the Green Building area, and the CRISIL rated us a strong ESG company. There have been multiple drivers which are driving the business growth. Mainly it is the solid order inflows from a mix of sectors, traditional and emerging. Our backlog has increased by 37%. This provides adequate forward visibility for us, and exports are also making a good contribution. I will give you a flavor o
T. Sridhar
Thank you. Thank you very much, Sanjeev. So, we come to the financial highlights for Q3. This quarter was another quarter of solid performance, where we saw order inflows maintaining the momentum. We booked orders of Rs. 2,634 crore to be precise. And most of them were from base orders. So, we did not have any large specific orders to say so. So this is a very welcome quarter for us, because we were able to maintain the momentum. And backlog is at an all-time high: we are talking of Rs. 6,500 crore. This provides a lot of visibility for us. I would like to dwell upon order backlog as we go through the slides for each of the divisions. First of all, I think, these order backlogs are very solid, so we have a clear visibility of what will be the future revenues as such, but I think we also need to look at how and when will those order backlogs get executed. So, revenues, we are up by 19% for the quarter. I think this is also coming up from a strong order backlog what we had, along with th
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