ABB India Limited analyst Q&A

The first question is from the line of Renu Baid Pugalia from IIFL Capital.

Congratulations for the strong results. My first question is, Sanjeev, if you look at the order flows, excluding the automotive large order in RO, your broad comments still have been fairly positive on the ordering environment as we look for CY '26. Given that metro order also we've announced for Jan, how should we look at the order inflow momentum heading towards the next calendar year? And in general, what are your views on the broad investment sentiment? Have they improved? Are they still same? The y're expected to accelerate over the next year? That's the first question. And second, our margins for last year on an annualized basis were about 16%, excluding impact of the New Labour Code. And now that incrementally demand outlook and volumes are looking better, how should we look at the margin environment for the next 12, 15 months? Can we expect margins to improve? Have they bottomed out? Or are they likely to be range bound the way they have been for the last 3 to 4 quarters?

I can take the first part. Thank you, Renu. Thanks for the question. Second part, Sridhar, you can look into future and give an answer. So as far as demand outlook is concerned, it definitely looks positive as confirmed by the business leaders who are running different businesses. So when we look into the aggregate demand outlook for ABB India, what it really means is how is the demand outlook is for each of the 18 businesses. So we have the sum total of all the businesses. So right now, we feel that there is a demand building up after a breather in early quarters of 2025. At the same time, it is never a good idea to declare a victory or declare a trend with one quarter results. We shall continue to watch how the quarter 1, quarter 2, quarter 3, quarter 4 builds. I think that will show very clear indications on how sustainable and how resilient the markets are. But as we look into our customer engagements and also the market segment engagement, it seems to be moving in the right direction in our view.

Which could be the key end markets which are driving this?

So if you go into our chart, wherein you see you have a spread of emerging market infrastructure as well as the core industries. So emerging market segments are going really very strong. And also the middle segment, which is infrastructure, where, again, we have good traction. And core industries, which were kind of, I would say, muted in past, but that forms about 52% of our volumes. We are seeing good green shoots and good signs there. There is a good mix of orders coming from the core industry, especially metals as well as in the chemical, oil and gas and other market segment in the core segment. So that we are seeing investment profile increasing in the core segment as well. And that segment, though it is low growth for last many quarters, given that it is 52% of our volume, if that moves, it moves us quite well. So it's a combination effect of al l the 3 core areas that we focus on there.

Thank you, Sanjeev. Renu to follow on your question for the margin thing. On the profitability and especially on PBT over the 5-year period, we have a good traction at PBT level. So today, 2025, we closed at 16.9%, give and take another 0.5 % for the Labour Code impact. So, we're talking of 17.5%. Last year, we were 20.5%, no doubt about it. And I think that gap is more attributable to the reasons which were not on the company's control, which is of forex and commodity prices and also the stabilizing of price in the market. So therefore, the premium what we could normally get on account of demand supply situation is something which was not possible in 2025 and also as we had QCO. So now going forward, how does this basically pan out? I think I go back to the slide which Sanjeev said as to what is happening and what is going to be the play in the market. I think there is a bit of a good view that the markets are going to revive with the private capex, which is expected to happen in 2026, thanks to the budgets and also the trade impacts, which are giving a bit of a positive sign at this point of time. So having said that, I think what will remain and risks to manage is, of course, forex and metal prices, right? And our ability to respond to the market with a balanced view between how much price increase to do and how much we should absorb depends on total market situation as such. So, having said that, I think a trajectory at the PAT level, we're talking of between 12% to 15%, still holds good, right? And I believe that if we have volumes kicking in more than what we are growing today at 6, 7%, probably that should give us an extra mileage to manage and do a margin accretion.

Sure. And do you think there'll be a positive tail impact from rating change for motors from IE2 to IE3 standards towards the second half of the year?

So Sanjeev Arora is with us. Sanjeev, did you get the question on the IE2 and IE3?

See, if I may get that right, then you can please correct me. I think you were talking about that if it moves from IE2 to IE3 minimum efficiency levels for India, what would be the impact? Am I right? Did I get that right?

Yes.

Very good question, and thanks for that. I think it is high time that we mature towards IE3 and IE4 efficiency levels. And if it happens, a welcome move because now if we talk about India growing not only domestically, but also exports, all the majors, what you talk internationally, all the countries have moved to IE4 as the minimum efficiency. And if we have to grow on export part, machinery has to have that kind of motors with that efficiency levels. So I think that's one. Second part is that this will not only help in improving our exports, but also the sustainability and the energy efficiency theme, which is core to ABB's pillars of operations. So with this, we can save a lot of electrical energy, which can be utilized for further expansions. And just to mention that, more than 50% of our own production ha s already moved toE3 and IE4. And we have been pioneering this efficiency theme in India and also have brought IE5 technology, which is again induction technology, free from permanent magnet, already introduced and customers are accepting that with open arms. So that's my take. I hope I've been able to give you answer.

So Renu, just to sort of round it up, right? So we are INR 13,000 crores company, out of which Motors is one portion of it. And out of that, IE3, IE5 another fragment of it, right? The entire company is just not driven by motors, but it has 18 divisions, right, which contribute to the entire volumes of the company. And therefore, it is a sort of a product of all these 18 divisions working together. Can we move to the next question, please?

We'll take the next question from the line of Atul Tiwari from JPMorgan.

Sir, would it be possible to throw some light on what proportion of your cost of goods is imports from EU as of now? And what is the weighted average tariff that you pay on that?

So I think it's a very operational question, right? So most of our imports are from EU because all of the factories are from EU, right? So I think that being the case, if we are 10% on exports in terms of revenues, we are almost 20% is on imports, right? So I think we are still exposed to imports and net importer as such. So I think that's basically what it is.

Okay. And sir, any color on weighted average tariff that you pay as of now?

Okay, sir. And sir, QCO impact, has it continued in this quarter? Because I mean, based on the news flows we gather that government has kind of rolled back most of the QCO orders? Or is that a wrong impression?

Okay. So let me give one bit of answer, other thing, I will pass it on to Kiran to supplement that. See, in 2025, we took a strategic decision, as what I mentioned, to stock our material to cater to our customers with it from imports, right? And that imported material will get consumed in the next 2 quarters, right? So therefore, we will have a bit of a higher material cost, which we foreseen at this point of time. So now coming to the next part of the question, which is how is the QCO playing out? Kiran, over to you.

Thanks, Sridhar. Thanks, Atul, for this question because it's a very important topic, and we have been discussing this particular topic from the past 1 year. And there is nothing called the rollback of the QCO. Just to make it a bit understandable. It's actually the timelines which have been enhanced for testing. So that's the crux of the story, where the government has very clearly indicated that QCO for sure is going to be implemented, no doubt in that. The first phase is already in flow. And most of the companies, even the peers and us have already tested our products and solutions as per QCO norms, whatever is the policy, and we have already got it done. However, for the second phase of implementation, the government has given some more time due to the availability of labs, which are required. And that is where all the manufacturers, including ABB, are following this particular process and following the policy of the government. So it's only a question of timelines. It's not the question of roles.

We'll take the next question from the line of Umesh Raut from Nomura India.

My first question pertaining to 23 diverse market slide that we mentioned, where if I look at the breakup now, on a quarter -on-quarter basis, certain industries have moved towards lower or modest midterm outlook segment, especially larger sectors like auto and food and beverages. But I think despite that, we are mentioning our outlook as being more of optimistic in near term. And second, within these 3 segments, if you can help us with the contribution from emerging industries and infrastructure and transport. I think in opening co mment, you have mentioned core industries contributing about 52% to total volumes for the company.

I will give some light on the contribution. I go back to whatever composition is, 10% is exports, 90% is domestic. And this 90% of our revenues come from all these 23 market segments. And out of this 90%, I think 52% is what Sanjeev was mentioning is from the core sectors and the balance 25%, 23% is between emerging sectors and the automotive. So that's a broad split. It is 23%, 25%, and that's how it is.

So just to let you know, I think your analysis is right, but life is not as linear as we mentioned. What happens is when these segments which are so-called emerging, they become a larger size. Rate of growth, the% rate of growth normalizes, they move there. But at the same time, the size of the industry has become larger. And also with our strategy and our portfolio expansion, we go for higher penetration. We also go for more customer coverage. So then what happens is that also correlates to the net growth rather than linearity with the way the segment is moving.

We'll take the next question from the line of Mohit Kumar from ICICI Securities.

My question is, sir, can you help us understand the order prospect for the data centers? Are you seeing larger prospects compared to, let's say, at the beginning of CY '25?

We have Ganesh Kothawade, our ELDS leader as well as Kiran on the call. So I'll hand it over to Ganesh. How do you see data center market building up going forward?

Okay. Thanks for this question. Myself, Ganesh Kothawade, I'm responsible for Distribution Solutions Business of ABB India. And as it's a very emerging segment to the electrical industry. And we see a very strong demand coming from the data center. And there are not only the hyperscale supporting of the data centers, but there are a lot of big Indian houses, they also have a very big plan to put up the data centers in India. And apart from the big hyperscale data center, there are many data centers which we see in the pipeline, which is coming from the co-locations also. So in an overall, we are very optimistic and see a very, very strong demand and the inquiry pipeline, which is coming from the data centers.

Thank you, Ganesh. And Ganesh supplies directly into data center or to the people who are building those data centers. And Kiran's portfolio, that also has a good exposure to data center, but that's typically dealt by our integrators and channel partners. How is that building it up for Kiran for the products and the solutions our panel builders trends?

Thank you, Sanjeev. Very important question, Mohit, and very interesting and emerging market as well at this point of time for us. You are seeing the AI Summit happening, and you know that the data center is going to pick up because of this AI Summit as we ll. A lot of limelight and a lot of interest being shown by the consumer as well. So when it comes to the system integrated part or even -- for example, for even the direct supplies, I think both hyperscale and co -locations are seeing a very big trend in terms of the capacity is being utilized at this point of time. At the same time, new capacity is coming out. And we are seeing megawatt capacities now and going towards gigawatt capacities as well in the future. So it's quite a very interesting topic at this point of time and the system integrators are really leveraging the opportunities available in the market. And we believe that this is a great opportunity for all of us to get into it and give the right solutio ns. And you also saw in the opening comment made by Sanjeev that we have also secured a very large low -voltage switchgear order for one of the largest of the data centers.

So the way to see ABB portfolio is that when we say we are focused on hyperscale and the midscale data center, that is our direct supplies into them. And what Kiran deals with is the all data centers because they are connected close to where our panel builder and our channel partners work. So basically, we kind of cater to the complete bandwidth of the data centers, wherein in the low end of the data centers, we have more low-voltage solutions and some medium voltage solutions going. But in the midsize as well the hyperscale, we have the portfolio that flows into it. And, of course, not to mention the UPS, which is a product, which is very much liked by the data centers because it's a fault tolerant UPS, wherein it can be kind of serviced online while it is working with 100-kilowatt modules. So there are very good design advantages our portfolio has when we deal with the data center segment in the different market segments within data center.

Yes. And Sanjeev, I would just like to add one more point. In the recent budget, the tax holidays up to 2047 is also going to make India market very attractive to put up the data center for those numbers.

We'll take the next question from the line of Amit Mahawar from UBS Securities.

I just have one question on the pace of ordering, both base and large. We concluded CY '25 with a reasonable growth of 13% base orders. We hardly had large orders until the last part of December. Do you think 2026 is a year where you will have, not only da ta centers, I can see INR 15 billion, INR 16 billion in the order book now from data centers? That's a large number for you. But also from metals, we have two, three other segments where the large order can outperform significantly in the '26 period. And also in base orders, it's been 2 years that the channel partners have been very, very conservative, which cyclically looks better now that for exporters in India, the tariff barrier concern is behind, the budget was supportive. Private segment for all the companies that report numbers has been going up. Do you think '26 is a year of very significant shift in the ordering run rate the last we saw 3, 4 years ago? So any comments on both base and large orders with some color?

So since the large orders typically come from our Automation division and also some of the ETO orders and ELDS, Robotics and many others. So let me give this opportunity to Balaji. Balaji, how do you see the process automation or automation market at this point of time? And how do you see the project pipeline developing in the energy and the process industry side?

Yes. Thank you, Sanjeev. From a context of 2025, I stated that the markets are quite muted until the first half of the year, and then we started some movements and that resulted in order conversions as well. 2026, I would say that the momentum is there. Th ere are definitely movements. I think from specially to, say, an energy industry that deals with oil and gas, power, specialty chemicals and pharmaceuticals, we see some very good opportunities in power, especially power generation, which has been quite low for past few years. We have a good pipeline of opportunities in power generation. Refining is still strong. There are good opportunities in refining. So in both these cases, we have Greenfield opportunities, which means these are new projects starting up from ground. We also have a good amount of opportunities in the repair and modernization, which is an ongoing activity. So that should cover the base orders from the repair and modernization and the large orders coming in or opportunities available in the Greenfield. Similarly, in the process industries that deals with the metal, mineral, mining, these heavy industries, what we also see is there are quite a good of opportunities for the big-ticket items, and we shall continue to stay close to the customer and see how much we can convert during this year. But overall, I would say a positive outlook as things stand today.

The next question is from the line of Sameer Thakur from Ambit Capital.

Just to follow up on data center. What is the data center exposure in sales and backlog? Have you seen any acceleration in interactions in data center market? A bit color on that would be great?

So data centers, actually, you get some large orders, it becomes large in the pipeline. But in the 2025, we got a few compared to the previous years. I think in the backlog, which we have of INR 10,471 crores, I think roughly 10%, 11% would be data center orders.

Can I just squeeze one more. Just what's happening in the price for different divisions?

Well, customers always demand lower prices. That's the reality of life. And what we do is we continue to localize, make sure our portfolio is at the right cost level and meet the customers' requests. But at the same time, premiumization of the portfolio is taking place. So we have a good overall effect. So it's always a balancing act. And on the pricing side, but for 1 or 2 particular products, we don't see as such any critical pressures at this point in time.

The next question is from the line of Subhadip Mitra from Nuvama. Subhadip Mitra: So this is just a clarification on, I think, one of the earlier answers that you gave, I think, to Renu's question. I believe you mentioned 12% to 15% as the sustainable growth number. I'm not sure whether you mentioned that as a sustainable margin or the su stainable topline growth number. And also on this QCO impact, once the imported stock of materials is done, where do you see the sustainable margin stabilizing?

So let me answer one question. When I talked about 12 to 15%, I told about the PAT margin. So that's where I said that that's something which should be the corridor in which we should move knowing well that we have QCO issues, which will have to be handled for the next two quarters is what we see because that's the material what we have had. And also the orders what we will execute in the next 3 to 4 quarters is what we see, right? And that's what it is. Now coming to the growth of revenues, right? So growth of revenues at this point of time, if you look at our overall revenues, I think we have been growing at 8% at this point of time. So I think if you heard it, I was mentioning that the INR10,000 crores order backlog definitely has 30% of large orders, which got to be executed over the next couple of years to come. And that being the case, so then we need to really book orders in the market during 2026 for revenues in 2026, right? Our ability to book the orders and execute them remains. So I think we will have to make sure that our target is always to have double-digit growth on the revenues as well. So let's see how it proceeds, how the markets proceed, how these orders get finalized.

The next question is from the line of Harshit Patel from Equirus Securities.

So my question is on the process automation order. This segment has not kept pace with the other two large segments in the last 2 to 3 years, and you have also highlighted the delayed decision-making by the customers, and we have seen that correcting in the last quarter as well. So while the orders in the 4Q were strong, our order book is almost at the same level, which was there in 2022. So do you think we would have lost some market share in the 2 to 3 years or we have performed in line with the capex environment in this industry and it was just a factor of the delayed decision making. Just your thinking and the outlook on the same?

So we have performed in line with how the segment is developing. And what we find is that there are opportunities in the marketplace. We are very selective what kind of projects we do. We always go after high quality and somewhere where the value added by us is appreciated by the customers because we have a lot of domain expertise and specialization in the automation area. So if you really go back, I don't know how long you've been following this particular market segment, it's a cyclic area. And if you go back 20 years, you will find that there is a lot of cycles that come and go. And typically, if you have a down cycle, what we do is we continue to maintain the quality of our support to customers, so which shows up in the opex orders as well as capex orders and also the Brownfield expansions. So we stay engaged with the customers because we are the long-term partners for them. But yes, last quarter, we did see expansion. And as Balaji mentioned, that we are seeing now the pipeline building up nicely, and we hope that we can get a fair share of that in the coming quarters.

The next question is from the line of Mohit Pandey from Citigroup.

Congrats on a good quarter. Sir, just wanted to get more color on competitive intensity in the market. Last two quarters, you indicated Chinese competition as well, and we understand some of your European competitors are setting up incremental capacities in India. So in light of that, I just wanted to hear your thoughts around, please?

On the competitive intensity, I think at this point of time, it's largely domestic of the established players. Now as far as the Chinese players are concerned, I think last quarter, what we talked about was if the industrial goods imports are open, we'll ha ve to wait and watch and see what impact can come. We haven't seen any direct impact yet, but we do see in certain large projects wherein one or two customers when they're executing large projects, they may prefer equipment out of China. I think we have seen that in the past, but that was almost, in my memory, 9 months to 1 year ago. But it's not a kind of a very repetitive phenomena yet in the marketplace. As far the European competitors are concerned, I think most of the non -European competitors we have, they are already present in the market. But then, of course, as the market expands, you will also continue to see the expansion of the competitors. But you can see that we are a global company. We face all these competitors in different markets at a global or regional or the domestic level. We know how to kind of respond to such competitors. And our focus to stay number one or number two in the areas we operate stays there, and we continue to do what it takes to manage the competitive intensity. So I think going forward, I think if the market landscape changes, we continue to adapt accordingly, but we haven't seen anything new other than the existing competitive intensity offered by the established players.

Ladies and gentlemen, this will be the last question for today, which comes from the line of Parikshit Kandpal from HDFC Securities.

Congratulations on a great quarter. So first question is on the data center portfolio. So if you can help us understand versus the parent, so what parent is servicing globally? So what percentage of that we'll be servicing from India? And we also understand that parent has developed some very power-efficient solutions like SSDs, solid-state drives and transformers or is developing the solution. So when do we expect that kind of product to come into India? Because when these hyperscalers come into India in a big way, so it will mirror the global data center supply chain, so which may benefit us. So I just want to understand that the contribution, how much can it go from here on?

Our global management has highlighted the importance of data center for ABB, given our strong footprint of electrification. And you know data center is nothing but computing the power you require. That's the core. And then in order to support that computing power, you need to have a lot of power infrastructure that supports that computing power. So we come into play on the supplying the power at the low voltage level and the medium voltage level to the data centers and also the utilities which do the cooling of the data centers, which consume high-efficient motors as well as drives to support that p art of utility. So that's what our footprint is. And here, hyperscalers, especially they are experimenting a lot and researching a lot together with us in terms of how to make sure to not only create higher availability and reliability of the data centers as the size and the intensity of the power increases, but also how that can be optimized. So within that optimum scenario, a lot of new technologies are developed and being experimented. And as far as India is concerned, whenever any customer demands as per their design criteria, any of ABB technology is seamlessly available. It is not a question whether we have to get that technology in India, it automatically and seamlessly flows to us. It basically depends upon how the demand is forming and what the customer aspirations are during the design phase. And we keep introducing those ideas to the domestic data center players. And most of them are listening to it very carefully. And hopefully, that should come part of their design criteria in future.

As that was the last question for today, I would now like to hand the conference over to Mr. T.K. Sridhar for closing comments. Thank you, and over to you, sir.

Thank you, Michelle, for moderating the call. And all the people on the call, thank you very much for the interest that you have shown and your support and (asking for) clarifications help us go a long way in giving more data and more relevant data so that your decisions are better off. And thanks to the management who is there part of this particular call and aspirations there too. Thank you very much. We meet again in the next quarter call.

TK Sridhar Chief Financial Officer and Chief Investor Relations Officer sridhar.tk@in.abb.com Sohini Mookherjea Country Communication Manager sohini.mookherjea@in.abb.com

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