Thank you very much. We will now begin with the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask the question. The first question is from the line of Renu Baid from IIFL Capital. Please go ahead. Renu Baid: Yes, hi. Good morning, team, and congratulations for strong performance and also completing 75 years in India. My first question is, again, concerning the overall order backlog, which, while everything has helped, still, if you look at the end of the year, growth is about 12%. So, does this concern you that the acceleration that we saw in the last couple of quarters has slowed down, and any macro read-through of potential slowdown from private sector CAPEX or slowing government investments, anything that you think could be concerning or it's more of a transient impact and in two quarters, we see growth coming back? That is the first question. Sanjeev Sharma: Thank you, Renu. So, we think it's more transient in nature. I think we should observe as we grow in coming years and coming quarters, there will be strong cycles of growth and there will be moderation before the next cycle of growth starts, provided all the policy framework and all the planned investments are done as we see, which is available in the pipeline. So, it doesn't really concern us in terms of what we see. I think we already have grown quite well in the last few years. And I think 2024 saw some major events like elections and also some kind of impact on infrastructure spent by the government. And also we had very strong rains in parts of the country which had disruption. We can't have a direct correlation, but we feel those factors impacted it. But we are very long on India, as I
ABB India Limited analyst Q&A
Got it. Secondly, on the exports, while we have done quite a bit in terms of portfolio expansion of the export market, overall basis it's still about 10% of the business mix. So, what would be the next 3 to 5 year roadmap to increase the share of exports in absolute sense? And any tailwind that you see from the global of the U.S. tariff for the India portfolio here? Sanjeev Sharma: So, export journey, we see net positive for India, irrespective of what happens in the global markets and the others, because there are tailwinds for India in terms of participating in the global market. None of our businesses are overtly dependent on exports, but our operations are now in last few years with our investment world class. The productivity levels are quite good and matching. And also, we not only have productivity arbitrage, we also have labor arbitrage in this country with availability of manpower, which can feed different markets, which our global division managers are looking for. So, we have seen already the evidence of it in some of our businesses, wherein exports have grown sharply in the last few years. And that journey will continue. Export markets, in my role as a Managing Director of ABB India, I don't manage. I manage multinational corporations' presence in India, for India. But at the same time, we create the leadership mindset wherein we are export ready. But we allow our global divisions to decide how much they want to expand, and which markets they want us to serve from here. Renu Baid: Got it. And last question, if I can, for Sridhar. Last year we saw an impressive 5% expansion in gross margins. As you said, it's like a dream run. So, given the kind of mix that we have today and increasing competitive pressures, do we think a 40% plus material or gross margins is sustainable or we may have to invest back to ensure that we retain a higher share of the domestic market? T.K. Sridhar: I think, Renu, at this point of time, we will start with a bit of a caveat that I am not going to be a soothsayer over here, right. So, I think all our efforts are want to make sure that we have a margin corridor, as what we say, between 12 to 15% as to what we have in this particular revenue level. As I was mentioning, we had quite a bit of advantage, which we got from the price push strategy, right, into the market, which we got advantage. But I think now the markets are easing out and they are stabilizing. So, as we see this correction in the demand, which will sort of pan out in the next couple of years, I think a band of 12 to 15% of PAT level is what we would like to look at, right. So, that's the basically thing which we are at this point of time focusing on. Renu Baid: Got it. Thank you very much and best wishes, team. Thank you. T.K. Sridhar: Thank you.
Thank you very much. Participants kindly restrict to two questions per participant and join the queue again for a follow-up question. Next question is from the line of Sumit Kishore from Axis Capital. Please go ahead. Sumit Kishore: Thanks for the opportunity and very strong P&L performance in both Quarter 4 and 2024. My first question is on TK's comment regarding the plans that they have in place for the end use of cash. Cash is, you know, as a percentage of net worth almost 75% plus at Rs. 54 billion. What are you planning? That's my first question. Sanjeev Sharma: Yes, so firstly, we are distributing cash to our shareholders. So, it is 51% higher dividend compared to previous year. So, that's the first protocol. The second protocol is that the cash is getting consumed in our organic expansion, which are in plans and in play. So, you will hear about it as we mature them and as we open them up in coming months. We also have a pipeline for inorganic opportunities. And inorganic opportunities are carefully evaluated. And it's not based on how much cash we have. It is based on how much impact it will create for our customers and our businesses in future. And once we are satisfied, I think this cash can be fairly well utilized in both organic and inorganic opportunities that we see forward. T.K. Sridhar: So, I think, Sanjeev, just to add to your comment, it is also important that when we go on this growth trajectory, we will need to use cash to support the growth, right. Not only in terms of the CAPEX and the distribution of cash to the shareholders, but also from the point of view of the net working capital requirements which will be needed, right. So, that's also something where the cash will get consumed in the next couple of years as we have this growth journey. Sumit Kishore: Sure. And on the conversion of your profits to income to FCS, that ratio seems to have come off a bit. Is there anything we should read into how the working capital needs are changing? T.K. Sridhar: No, I think in this particular year, from the PBT standpoint, we have converted almost 90% of a PBT to cash, to operating cash. And 10% is something what we have used for supporting the growth in terms of investment in inventories, in terms of receivables which we need to collect, because it's a schedule-based invoice. Sumit Kishore: Sure. My second question is just to understand, you know, ABB's end customer segments better. Could you sort of help us break down broadly ABB's revenue exposure to, say, government-funded infra, which would include transportation CAPEX as well, you know, say the power generation (T&D), which is a utility-driven business, the process industry and the core industry segments, the new age sectors including data centers, and real estate. I think these five broad areas, how would ABB's end customers be mapped broadly? T.K. Sridhar: Okay. Sumit, I think I would give you a collective number, not segment-wise number, because it is too granular for us to give you at this point of time. On a collective basis, I think, first of all, our exposure directly to government customers or utility customers is absolutely very, very, very minor. Okay? Number one.
Industry is how much? T.K. Sridhar: I said that I am Level 2 or Level 3 in the chain, right. So, in terms of indirect exposure to government-led investments, we would be up there on about 35 to 40%. Sumit Kishore: Right. And new age sectors? Moderator: Thank you, Sumit. I am sorry to interrupt you. I will request you to come back for a follow-up, please. Thank you. A kind request to all the participants. Kindly restrict to two questions per participant. Next question is from the line of Vishal Baria from Bandhan AMC. Please go ahead. Vishal Baria: Hi. Guys, could you delve a bit deeper into which are the segments, sub-segments for us that are doing better and which are the ones that are actually not doing that great? And in terms of inquiries that we are getting, how do these inquiries stack up? What would be the growth and inquiries that you would have? So, what is the kind of order inflow growth that you would target for the year? Thank you. Sanjeev Sharma: So, we can give you a bit of a granular outlook based on our business figures. So, by electrification, I can start with Kiran Dutt. Kiran, if you can just at a labeling, you know, top-level side, which are the market segments you see the growth, and followed by Sanjeev Arora, and Subrata, you can put some color on it. So, over to you, Kiran. Kiran Dutt: Thank you, Sanjeev, and good morning, everyone. On the segment side, I think we are quite active and has 23 segments as Sanjeev spoke about. We have been working on these segments for quite some time and we have made a lot of inroads into these kind of segments. Now, for your question on what are those segments which are really giving us something more or something which is really supporting in terms of growth? Renewable segment or in terms of power generation, I think we have been pretty strong and this is some segment where we have been actively participating, and that's one of the things which is actually driving growth for electrification as such. Data center is a new segment which has come up, and that's something which is in the right path of growth, and we see a tremendous opportunity in India with so much of data being consumed by all of us, in fact, and then the investments into data center going up. So, that's something is an opportunity what we see and we continue to grow there.
Thank you, Kiran. Over to Sanjeev Arora on the granularity on the motion side, what you see on the market segments, which are more sub-market segments which you are seeing are going well for us? Sanjeev Arora: So, thank you very much, Sanjeev, and good morning to all. So, I would just take it from where Kiran left the topic. I would say that, you know, all the segments when we talk of how the bioethanol is playing, we are very sweetly placed in that. Our motors and drives are running that plant very efficiently. How it comes to the hydrogen part? And we are well equipped with our motors and drives, which will be used in the pumping stations, for the compressors and other applications. On top of it, how we power the electrolyzers? So, that is another upcoming segment what we see. Of course, the data centers are very, very key when it comes to really having a sustainable operation in data centers, how the HVAC industry is behaving there. So, it's very, very energy conscious. So, our world-class quality, reliable product are well accepted in the data center segment as well. And then when we talk of the transport part, how the expansions are taking place and we are in the journey, supporting our OEM in having the world class technology of the traction converters and traction motors to be the part of the story. So, I think these are the segments that we see as a new segment, which will really take a good lead. And apart from that, we do see, as mentioned earlier as well by the participants, the light industry, be it pharma, be it the food and beverages, and other light industries, they would see a good momentum. On the process part, I would like to highlight that, yes, some, I would say, headwinds are there in some of the process, maybe metals and others. But that is, I would say, again, as mentioned earlier, it's a transient period. But then our customers, they are fully bullish on this. And we see a lot of things coming that way as well on the process part. So, be it the cement, be it metal, be it oil and gas and other segments. So, overall, I think these are the segments which I would like to mention as a top view from motion. Thank you.
Thank you, Sanjeev. And Subrata, apart from your major exposure to automotive and auto ancillaries, what are the other sub-segments you see are interesting for robotics and automation business? Subrata Karmakar: Yes, good morning. Other than automotive, still I believe that automotive in terms of EV and ICE, both the engines are leading in robotics. In terms of demand, more than 50% of robots are using in these segments. However, electronics is at its very high momentum. Actually, this year or next year, probably, we will see that the consumption in automotive and electronics will be almost equal. And if not in the future, even remain same. Other than automotive and electronics, we see that food and beverages are doing fantastic growth. However, in the metal industries also, early sign-up automation. However, in robotics automation, but it is also doing well. I believe that the emerging segment in India would be the warehousing technology, which definitely is going to boom in two to three years. Thank you, and over to you, Sanjeev. Yes. Sanjeev Sharma: Thank you, Subrata. So, I hope that answers your question, Vishal. Vishal Baria: Sanjeev, just if you could give an overview in terms of the inquiries that you are getting. I mean, we have seen the order inflow numbers and your commentary has been very helpful. But if you could just delve on overall inquiries, that will be helpful. Thank you. Sanjeev Sharma: So, at this point of time, we monitor at a consolidated basis the project pipeline. We are seeing the uptick on the project pipeline, irrespective of what macro commentary you get. We are seeing an uptick of, you know, the project pipeline. There are certain market segments wherein it has plateaued, and that is factored in. But overall, net-to-net basis, I think there is a positive momentum on the project pipeline. Now, if you see the nature of those businesses, we have some very small customers and very large customers. So, it's a complete spectrum of customers we see as somebody who is building a machine, requires electrical components, drives and a motor, or you can have also a metals industry or a mining industry requiring heavy machines from us or a petrochemical industry or offshore platform which is looking for, you know, equipment from us, and of course data centers. So, if you really go by the market segment and by the businesses as well as geographies, towards the inquiry stack-up looks quite interesting. So, we don't see any so-called major weakness, but there are certain sub-segments and certain businesses, maybe a couple of them, which have plateaued. But you allow some breathing time and then they come back. Yes. Vishal Baria: Thank you very much. Moderator: Thank you. Next question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.
Good morning everyone and thanks for the opportunity, and congratulations on a superb quarter. My first question is that this is the first quarter where the quarterly numbers have seen a higher growth because of execution of large orders on data centers. Does this quarter should indicate to us that this kind of skewness in certain quarters because of institutional large orders will happen more often as we go forward? Sanjeev Sharma: So, to answer your question, the answer lies in the mix of our backlog and the book-to-bill business that we do every year. And that mix continues to change. And you can very well imagine, when the 18 businesses are operating with 23 market segments, you will have the passing of the backlog. The mix will keep changing from one quarter to the other. But the most important thing is that a strong backlog at 9,300 crores plus a strong pipeline which converts book-to-bill continues to give us good revenue visibility going forward. Yes, sometimes the service orders are strong, sometimes the large orders are strong, and sometimes we have execution of the so-called engineer-to-order business, which again is a very so-called value-added business. So, that kind of a spectrum will keep changing as you pass it through the quarters with the backlog and book-to-bill. So, there is no particular trend that you can say. And typically at my level, I don't look at quarter-to-quarter picture. I look at how we are developing as a company, how we have developed in last five years based on the investment we made during those periods and how we are setting our base for going forward. And I believe our mix remains quite interesting and we don't see any so-called knee-jerk quarters ahead of us. I would say we will have a smooth delivery of revenues to what we have committed to customers. T.K. Sridhar: So, Mohit, I think if you are asking last quarter, last year, in the 4th Quarter, we had a large order. Would that repeat in this quarter? We cannot say that because we have a pipeline. It depends on the issuance what happened. So, that's basically how we see it. Sanjeev Sharma: In an engineering goods company, I think if you go too strict in evaluation on quarter-to-quarter basis, I can go wrong in my commentary, and you can go in your analytics. Moderator: Thank you very much. Mohit, sorry to interrupt you. I will request you to come back for a follow-up. In the interest of time, we will take one question per participant. Next question is from the line of Mayank Chaturvedi from HSBC Mutual Fund. Please go ahead. Mayank Chaturvedi: Yes, thank you for the opportunity, sir. Sir, just one clarification on the slide where you show the growth segments for your businesses, high, moderate, and low. I just wanted to understand when you talk about the growth centers, is it on the order side or the revenue side? And as a follow-up to that, there has been a sharp deviation in the growth numbers that we assigned to each of these segments. For example, in the third quarter, in the last quarter commentary, high growth segment was growing by 20% plus, moderate was 10 to 12% and now it's 11%, 7 to 11% now. So, your comments on that.
So, first of all, these so-called high-growth segments, they used to be small earlier, but now their size has grown. So, you know, relative spend is growing, but percentage gets normalized. So, that's one reason. So, that means these segments that we are talking about, which were smaller earlier, now they are substantial in size in terms of expenditure. And our intake from them is good and accordingly the numbers get adjusted on the normalized percentage basis. So, that's one answer to you. Moderator: Thank you. Mayank, kindly come back for a follow-up question. Next question is from the line of Amit Mahawar from UBS Group. Please go ahead. Amit Mahawar: Hi, good morning, Sridhar and Sanjeev, and congratulations on challenging the streets margin assumptions continuously. Sir, I have one question, and I will focus on the Electrification division only. If you see, you know, it's been six quarters and this is the first quarter where overall orders are down, very, very sharply down. Can I say last two, three quarters we had a lot of emerging segment orders in electrification and this December is a blip? Any comment on the sustainability of this electrification order run rate? Thank you. T.K. Sridhar: Kiran? I would invite Kiran to give a bit of a color to that. Kiran? Kiran Dutt: Yes, thank you. Thank you, Sridhar. On electrification business, it's kind of a mix of product-based as well as project-based. You would find that there is a sharp decline with respect to Q3 and Q4. I think already there has been a comment from Sridhar on this particular topic, where we said that we did have a very large order, which was in Q3 for a data center. And that's one of the reasons why you would find a small decline in terms of the numbers of Q3, '24 versus Q4. But having said that, I think, as we have been discussing, the pipeline is quite large and we believe it's going to really support us in future growth. Amit Mahawar: Okay, Kiran. Thank you. Kiran Dutt: Thank you. Moderator: Thank you. Next question is from the line of Aditya Mongia from Kotak Securities. Please go ahead. Aditya Mongia: Thank you for the opportunity. I had one question. I wanted to get a sense from maybe the different business heads of the risk from increased competition from Chinese players. If you could give a quantitative or quantitative sense of segments, that is really helpful. And the context obviously is the trade wars what's going to happen. Thank you. Sanjeev Sharma: So, which business head is facing Chinese competition? So, you raise your hand. Sanjeev, are you facing Chinese competition? Sanjeev Arora: So, I would say that, see, let's visualize how things are progressing for us. Localization is the key and Make in India is the key, and we stand out really very strong in that. Moreover, when
So, in other words, Aditya, we don't see a one-to-one high intense competition on the MO portfolio yet. I think if our view changes, I think we will let you know in future. On the electrification side, I can speak on behalf of my colleagues. No, the intensity is not so high. In robotics, we have some supply chain going into China, which forms part of what we deliver to the market. So, it's more of our supply chain there. It's not direct competition yet. But there are some robotic suppliers in China, which will may try to make inroads. But what Subrata and his team play is on a very high-value-added way because robotics is not about hardware. It's about application engineering and converting the solution locally. And I think there we have an advantage. On the process automation side, largely no, but I had to qualify. There are certain sub-segments of the customers wherein when the very large customers are spending very high CAPEX, at times, they do get lured by some special prizes done by the Chinese contractors or Chinese suppliers. So, we did have one or two incidents wherein the Chinese players offered a formidable competition. But that is on the minority side, few incidents, not many incidents, I would say, at the moment. Aditya Mongia: Thank you. That makes it very clear. Moderator: Thank you. Next question is from the line of Sahil from Nomura. Please go ahead. Sahil: Hi, sir, am I audible? T.K. Sridhar: Yes. Sahil: Sir, first of all, congratulations on the superb set of numbers that you posted. My question was on the margins. We have seen the last couple of years, we have had this substantial improvement in margins. I just wanted to know that, and we are also much ahead of our peers in multiple segments. So, are the margins sustainable here? That's one part of the question. And second, what are you picking up on pricing on the ground? T.K. Sridhar: Sahil, I think I have answered this question in my dialog to earlier questions as well. I think probably the first question of what Renu had asked. But anyhow, for the sake of completeness, I would go with your question as well. So, today, I think we are at a high of 15, plus percentage on the PAT level.
I think we don't give that prediction granular to the division, right. So, every division has its own strategy and operational topics to deal with. So, I think we have to look for it in a quarter-on-quarter basis. Sahil: Sure, sir. That works. No problem. T.K. Sridhar: Thank you. Moderator: Thank you very much. Ladies and gentlemen, we will take that as our last question. I will now hand the conference over to Mr. T.K. Sridhar for closing comments. T.K. Sridhar: Thank you very much, Neerav, for conducting this call. And thank you to all the participants and all the management team members who could attend to this call and also answer to them. And thank you, Sanjeev and the Comms team who are ably supporting us. Thank you very much. Wish you a good day and good next quarter. Looking forward to talking to you in the next quarter again. Thank you very much. Moderator: Thank you very much. On behalf of ABB India Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.