ABB India Limited (500002) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the ABB Limited Q2 CY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sridhar, Chief Financial Officer of ABB India Limited. Thank you, and over to you, sir.

Thank you. Thank you, Raman. Very good afternoon to all of you, ladies and gentlemen. So this is the Q2 analyst call to discuss about the performance of the quarter, April to June 2020. So I have with me Mr. Sanjeev Sharma, the Country Managing Director; and also the other business heads who run the various core divisions in India, right? And also I have Sohini and the communications team along with me listening to this particular call. So over to you, Sanjeev.

Thank you, Sridhar, and thank you, everyone, for joining in for this call. And I hope each one of you and your family members are keeping safe and doing whatever is necessary to ensure that we pass-through these challenging times. It's no different for the businesses, when we are running the businesses, but during these times or any time when we have challenges, I think it is the value system of the organization that comes into play, what we really actually stands for. And that's where we look at the -- that becomes our north star to take right decisions towards our employees, towards our customers, towards our suppliers, community at large in which we live in and also all the other stakeholders that we connect with and we impact. So I'll take you through some of the highlights for the quarter 2. So while we are navigating through COVID-19, our focus areas in this kind of a scenario has been prioritizing the health and safety, sustaining the business continuity and also managing cash and cost in a very effective way because these are the elements which we have to keep it together to make sure we are able to deliver predictable performance. And here, I had to mention that on the health and safety front, we have a country task force. And also at each location, we have a task force, which meets daily and continues to adapt to the new situation that is developing around our plants and our offices. And there are standard operating procedures, which are again further adapted at the locational level teams. So this has kept us in a good speed, so we could ramp up our operations quickly after lockdown was lifted on May 4. And since then, we have been running good operating schedules in most of our manufacturing locations. Most of our offices are work from home, but there again, I think productivity levels are not affected. Now with respect to sustaining the business continuity, this challenging environment provided new kind of techniques and methods by which we can serve our customers. Most of the customers are all across the country, and our experts are either in Nashik, Bangalore, Faridabad or in Maneja, in Baroda. So we could continue to serve our customers using the remote logging-in techniques that we have developed, wherein even we could help a customer in Northeast of India to carry out the shutdown of a very large refinery and all the procedures client wanted us to do. Normally, we will send the engineers there, but we could manage it from the -- from our Bangalore center itself with many of our experts working from home. And this is one example, but there are many such examples wherein we could maintain the business continuity and also special operational performance, even commissioning some of the robotics projects remotely for many of the projects or the electrical projects for our customers. So we have been adjusting our capacity to demand, but it has been the run rate we see, the days we have been operating is quite good. On the cash and cost management, we have made structured efforts to reduce discretionary expenses, and we did it successfully with a very -- in a very collaborative way across all our 16 businesses. And we -- also, our employees made a lot of sacrifices during this period of time to make sure not only we contribute to society, whether it was in the PMKSY fund, matched by our CSR funding to the same extent as our employees have contributed, but also on taking some other measures by which our cash and cost liabilities on our balance sheets are reduced. And they're quite measurable and they look quite good. We -- immediately before the lockdown, we made a high focus on our cash collections and payables. And there, we created a lot of efficient measures. And we ensured that this company stays debt-free and also have enough cash on the books to fund our foreseeable operational obligation. And we succeeded in that as well, and Sridhar will talk about it a bit later. And we are making only critical business investments, which has a direct impact on customer and creating value for the customer and also creating an acceleration for the revenues for our business lines. Now this picture, I think if it is observable to you, I think we are quite lucky, and we say, we are fortunate that we have a very disciplined workforce all across the country. We have plants in Nashik, Faridabad, Baroda, Bangalore, multiple locations. And everybody adopted by taking a pledge, "we will keep not only ourselves safe, our families safe and our colleagues safe," and everybody adapted to the new normal social distancing as well as sanitization and lockout tag-out procedures in all the locations. So that was the reason it was easy for us to convince authorities that ABB is well prepared to carry out the operational activities, and authorities have been very supportive to us wherever we are present. We have been making special efforts to get closer to the customers. I did talk about virtual tools and remote technology we have deployed in a big way. We have allowed many of our cloud services to the customers available for free for next 1 year, so that the customers can take benefit of it during these times when our -- we are not able to make some kind of physical visits to them because of the movement restrictions. But all those tools when they're available in the hands of the customer, they could also experience the power of remote and digital technology, and also how ABB can serve them with the new technology and new methods and new techniques. And that has created a very new level of confidence in our customers. We also have, for the segments and the cross business, core discovery workshop. So the huge number of customer interactions have taken place in the last 3.5 months. I must say, it has been very efficient and very productive for both customers and us because our experts sitting in one location are able to connect with the customers across. I think this is a new learning and new adaption by our customers to receive our expertise from a remote location. And also our own technology for our own operations also helped us to continue -- good to carry the continuity. The -- some of the highlights have been, for last quarter, we wrote an MoU with Titagarh Wagons to supply the excitation systems -- sorry, for -- to supply the equipment for their wagons. And also scatter orders from the energy major, which is the largest scatter system operating in the country. I think we are going to upgrade it. And we also have the Kolkata Metro, which is buying technology from us. And so is the case for Nepal's biggest hydro project and data centers, and of course, the wind projects receive our induction generators. So you can see that we are present in multiple market segments. In fact, almost 18 to 19 market segments we serve with 16 distinct business divisions, which have a unique proposition and product lines of their own. And this metrics of multiple products for multiple market segments, it creates quite a good flow in the market in terms of order flow and the revenue flow. And even if when there is a cyclicity in different market segments, we are able to still perform better because if one segment is down, there's another one which is picking up. On the quarter 2 2020 results, overall business did impact due to the lockdown because last week of March and practically mid-May, I think operations and the movement was severely restricted for all of us, and I think all of us felt it. So during that period, the order book got impacted as COVID-19 uncertainty has persisted. But I have to mention that when on 15th of May, when we started, so May was better than April, June is better -- was better than May, and we see that July is better than June. So the velocity of the orders as well as revenues for the days we are operating, if I compare it with a similar days in the 2019, we are 10% -- double-digit higher run rate that we are experiencing during this period, both on the orders and revenues. But of course, we can't make up the lost days. But I think lost days are lost days that has been corrected by us in correcting our cost and our cost cash liabilities in the balance sheet. But going forward, the velocity and the effort and the connection that we have with our customer, that seems to be showing us a good run rate as we go forward. So there are a lot of opportunities towards the plant upkeep, reliability and optimization and customers are investing. And you know that most of our customers are large industrials, medium-sized industrials and also a lot of infrastructure players, railways, metros, data center, food and beverage, industry, buildings, hotels, residential buildings. There are a number of market segments that we serve with different products and services. So we do feel that the large and the medium-sized segments are doing well. Lower segments because of the credit flow is expected, so we are seeing some sluggishness there, but I believe the moment the credit situation gets sorted at the real estate level, et cetera, we will also see good flow there. But anyway, our exposure on that side of segment is minimal. We have a fairly large exposure to the large side of the industrials and the infrastructure project as well as the medium-sized projects, which are reviving quite well. On the Electrification side and the Motion and Industrial Automation and Robotics and Discrete, all these 4 diseases have been focusing on some unique proposition for their customers. Like Electrification, now carries out virtual factory acceptance test, which is very productive for the customer and us because we carry out the similar test and give the assurance to the customer. And that has helped to carry out the revenues because customer doesn't need to visit us. And also focusing on data centers, metro, water, automotive is paying off. And we also have a very solid partner ecosystem developing for the Metro EPCs, data center development and digital SMB, health care. All these segments, as we engage more, I think the reward ratio is quite good. On the Motion side, we have business continuity, 24/7 remote for many applications -- with many applications for critical applications of the customer. We are monitoring and supporting them. And also our moved focus on transportation like railways, metro, digitalization and services, I think that is paying back. Large proportion of business is from low to moderately impacted end market. So that also is reasonable for us. So on the IA, yes, we did have some challenges. But then the -- our IA team -- Industrial Automation team is engaging with the customers in a very good way. The FPS team is making virtual visits. And also we record digitally what customers want, and we are able to kind of create quite a good conversion ratio during this period of time. F&B and electronics customer continue to invest. So that's where Robotics is also penetrating because Robotics were overly exposed to automotive industry. But now we have diversified into other market segments. Still, there is a weakness there, but then we do believe Robotics and Discrete Automation has a long way to go, and we are investing in this business because we see future growth opportunities in this area. Service and export portfolio. Well, service, we have been expanding services businesses because we are in this country for 70 years. We have a strong installed base and very good loyalty with the customers. So that pays off by preparing more and more services-oriented businesses. So each business have a good solid service strategy. And on the export side, given that we have a very competitive manufacturing base here and we have localized most of the technologies, now our group has started opening up the global markets for us to export out of India. And also some geopolitical headwinds, which are developing looks like for our -- all the 16 business divisions who are localized and who have good competencies in India. I think as we go in next quarters and years, I think they'll be able to take benefit of it, and not only serve Indian customers, but more and more customers overseas. So this is the business outlook during this time, like which are the segments which are working well for us and which are the ones where we have a little bit more challenges. But here, you can see that engaging in multiple market segments and spending time where the action is, I think that's what is paying off because we are deploying our resources where there is a good movement rather than trying to go everywhere. That is for the greenfield businesses. But for the services businesses, all customers, irrespective of what color you see, they are served with the same velocity and same kind of strength because all customers require these services support. But in terms of CapEx investment and the incremental investments, I think the ones in the green and yellow, they are the ones who are under our strong focus. Now I'll hand it over to our CFO, T.K. Sridhar, to talk to you about the financial highlights for the last quarter. Over to you, Sridhar.

Thank you. Thank you, Sanjeev. Yes. Okay. So we are looking at some numbers at this point of time. So if you look at the comments what we did for Q2. Right, on the orders we have INR 1,200 crores, right? This is basically what we are talking of in the 45 days plan in which we had got to work, right? And compared to the previous year, we were down by 40 percentage, just a bit of an inflection which could be a data point for all of you guys. In the last year, for the Q2, we had solar. Solar is a part of our operation -- performance numbers what has been provided so far. So while solar as a business stream was very much top line heavy, but when it comes to bottom line it was not so great and attractive upon the proposition, and that's the reason why we had already taken an organic auction over there. So the numbers relevant to what solar was there included in the previous year, orders were INR 240 crores for the quarter. And for the H1, which is the full 6 months, it was INR 400 crores almost, right? So this is basically on the orders. And the revenue, it included INR 139 crores for the quarter of Q1 '19 -- Q2 '19. And H1 2019, we had INR 307 crores. So this is basically numbers what is included in the performance values. So when you guys look at the evaluation, this is some data point which you could consider to normalize. So the revenues were down 43 percentage, right? And as Sanjeev was mentioning, if I do a linear relative calculation as to how it is for the quarter, so we definitely saw an uptick, and this is also a result of a pent-up demand, which could not be despite in the last couple of weeks of March, which also came up as in revenue in the Q2, right? So -- and profit after tax and then the profit before tax, I would come up with is INR 21 crores compared to what was INR 113 crores. And the impact of solar was very negligible as what I was saying. It doesn't make any material difference to that, a couple of crores here and there, but still broadly the numbers in that same range. So we are talking of roughly around about 80 percentage down. And we had an exceptional item because the solar transaction consummated in Q2, and that's why the fine tuned number gave us an exceptional item of INR 2 crores, right? So overall, the profit before tax was INR 23 crores. So I will dwell upon that more elements as to how this profit came up and what are the major triggers for this going forward, right? And I would like to then go to the order backlog. Order backlog is INR 4,671 crores, and it remained pretty much steady with the previous quarters as well as the quarter ending March as well. So in the nutshell, we have a visibility of these orders getting executed. The order backlog is strong. So they are some customers who have a potential to execute. There are not much of slow-moving orders or we don't find anything which could -- which needs to be held back other than fine-tune it according to the project schedules of the customer, so which will happen. And so going forward to scenario what could unfold in Q3 and Q4, probably, I think, we should -- assuming that we don't have any impact of the pandemic as it's today, both the customers end as well as the suppliers end, right? So I think we should -- this order should be executable in the coming 2 quarters to come. And of course, there are certain project orders, which will definitely move into Q1 '21 based on that delivery schedules. And so -- in other words, the book-and-bill scenario remains the same as what it was in the previous quarters as well. So coming to the cash balance, we still are holding on to INR 1,500 crores roughly as a cash, which is there. So we did have a dip in the last quarter slightly, but I think we came back to normalcy in this particular quarter, despite we had a lesser number of days to work on. But the focus was both on collecting cash, not only from our trade items, but also from certain items like, which will have absolutely -- which is non-trade items like tax refunds and other stuff, which helped us drop off the cash levels. We also make sure that the CapEx, what we spend is more focused on what is required rather than what could be basically futuristic and what it is. So in other words, it's also -- there's also a CapEx rationalization. So overall, I think this quarter was a quarter where we learned quite a lot, and we had to adapt to a lot of changes in the external markets as well as the internal way of working. So it was -- I would say, it was a learning quarter for all of us and then probably the same with the other market as another customers as well. So I think this is something which you guys are looking for. I know the -- on the orders, right, if I go by division, so Electrification, it's INR 504 crores. And if I remove the impact of the solar, which was there in the particular business, we would be in the range of -- compared to the growth, the growth percentage would be a minus 5. Otherwise, it looks pretty much a 40 percentage. So it would be roughly around about 7 percentage, 8 percentage of de-growth, if I remove the solar in the comparable numbers. So Industrial Automation, we had a good strong Q1, but Q2 was very subdued, and it's more driven by the market sentiments and also the CapEx rationalization by the conventional metal sector and the other core sector customers. And the next one was Motion. So Motion is a business which is definitely growing in certain parts of this thing. So we had a large order in the last quarter, which was not there in this particular quarter, and that's why the Motion business definitely has a lower order in this particular quarter. And Robotics is -- as everyone knows, we cater to the automobile in other sectors, that being sourced, so which is saddled with a lot of headwinds. I think that was basically an issue. So overall, I think the orders definitely, we did find a challenge, right? So I think as more from the customers' cash availability standpoint, to take an investment decision and also the less number of days what we were. Because as you look into ABB, I think quite a few -- a strong portion of the orders come from the channel partners and the OEMs and the other distributors. So they, in turn, supply to the various industrial customers. So it's also dependent on them as to how they could see the cash rotation and the cash system helping them to forward the business. So on the order booking -- on the order backlog, right? So we -- it is equally spread across all the divisions, with majority of the Electrification, Industrial Automation and Motion. So all these orders are executable. We have a clear visibility as to when they will execute it, right? And -- so we are confident that as the market opens up and demand, the customers start to execute their projects, I think this should definitely happen. So this is around the cost structure or the financial summary of the -- how did we perform. And if you look at it, we had definitely a good saving. The material costs remain consistent, right? So we are at 65 percentage, 65.2 percentage levels. And so it remained consistent with that. That means we have been -- there was not much of an impact because of the volatility in the market prices or in the ForEx prices per se, on the realized part of it. And when it comes to the personnel expenses, we are -- we definitely did take some actions. I mean there were certain actions like leave accruals where something which we took a decision that will not be accrued; the bonuses; the performance incentives, which is accrued on a normal 100 percentage basis was fine-tuned to an estimated level of what we call performance, which is expected from now on because as Sanjeev was mentioning, a couple of months of capacity, which has lost is lost. We can do nothing about it. So naturally, then the other results had to be fine-tuned to those particular new levels of achievement, what we will do. And so that was an impact of what we had already implemented. And also, we had taken some structural impacts in terms of how we fine-tune our manpower in terms of hiring and sort of stuff. So this is broadly how it happened. So I think it's a contribution also because in these times, it's pretty clear that all parts of the organization have to contribute. And so we as employees of the ABB and organization, we make sure that we stand up to the occasion, rise to the occasion, to set a benchmark for ourselves. And I think this was done across globally as well. And so India also follow the same, but good part is that we implemented it in a very swift mode, right? Within in the last, I mean, 6 to 7 weeks, I think we did an -- we've made sure that these particular actions are implemented, communicated and employees are taken into confidence to make -- to help them understand the situation and adapt to the new way of working. So this could -- definitely, this means this would be -- these particular levels of cost and personnel expenses would be valid for this year. But going forward, there is only for this, particularly, there is a special sort of a situation what we need to deal with. Going for the other expenses. Other expenses, I think, I would say, it's driven by both. One is, of course, the discretionary spend, which we -- that will be a permanent sort of reduction. But when it comes to certain other costs, which is basically like travel or like communication expenses or any staff welfare expenses or something like that, which actually will come up as and when the business picks up, right? And so there are as and when that's what we call the -- we address the cost in 3 different buckets. One is the material cost, where the businesses have to look at closely as to how they could negotiate -- renegotiate, I would say, with the existing vendors for the supplies for the future orders, A. And B is about -- let me tell you, it is not an easy task because quite a few of our vendors are from MSME vendors. So we need to -- it's a tight rope walk. We need to really balance as to how we can push the vendors to what extent, and we make sure. But I think most of it, it's more we are focused on design optimation so that material cost, any change which comes then stays with us for a longer time. And the next thing is about the PeX. As personal expenses what I'd explained to you. And when it comes to the other expenses, I think it has 2 parts. One is definitely the ForEx impact, which gave us -- compared to the previous -- and if you all remember, in the previous quarter, we had roughly around about INR 50 crores as an impact on the -- on due to volatility of ForEx in the results. But in this quarter, I think we got a gain of INR 34 crores, which helped us, I mean, to improve the numbers, right? So that's a part and parcel of the game because we look at PBT as an end look to reckon with. And also, the other expenses, discretionary spend, like what I was saying, is about the travel, the advertisement, the communication expenses, consumables and the rent. So we are also looking at how do we look at our real estate footprint to make sure that going forward we are in a reasonable way managing it, and also in terms of how we spend on our stationery. I mean, in other words, let me tell you to be in a nutshell, this situation pushed everyone of us to rethink how do we conduct our business in a -- current situation in a new way of working, right, and then adapt it as we go forward when the demand -- when the market opens up. So it was an interesting quarter. That's what I would say. So interest costs remained flat. And also the ETR is at -- remains at 20 -- 25 percentage, 26 percentage as per the new standards, what we have. So new guidelines for tax. So this is something which I've already spoken of, right? So this is something which I will not spend much of a time. So this is something which I would look at. So PBT bridge. So coming from previous year same quarter. So compared to that, we lost almost INR 240 crores on account of share volume and the mix impact. We also spend a bit of more cost on the IT because we need to make sure that our future products are IT enabled and the way it could work. And I was mentioning to you, INR 34 crores came up as an upside on the ForEx. And we had savings in terms of the group fees, the receivable provisioning because we focused on a lot of overdues to be collected, so we could be successful with that collection because that would help us, and of course, the third-party services and all were minimum compared to what we used to normally take. So because the people who are available, they're already there to carry out the work. So that was very selectively used. And so that's why we arrived at a PBT of INR 21 crores on a lower base. So overall, I would consider this as a reasonable performance in this particular points of time. And so this was -- and good to say is that we did not have any extraordinary incomes like what we had in the last quarter as well or the quarter before in terms of solar or in terms of income tax refunds or something like that. So but I think we still managed to scrape through the numbers in a reasonable way. So -- and this shows about the trend of how it is. So Electrification products and Industrial Automation, of course, a challenge. Electrification, Industrial Automation, it's more based on the revenues, which will pick up, and then we should be able to do better profitability going forward. And there's more about the capacities what we had. And Motion had an impact of the ForEx last quarter, which has regained back, and similarly on Robot Automation as well to a certain extent. This is the pie of how our business are. So predominantly dominated by EL and MO to more than 75 percentage. So that remains consistent with the previous years as well. But if you look at it, I think slowly MO and EL are becoming more stronger. And hopefully, when the demand picks up, probably a correction could happen with respect to Industrial Automation also picking up some orders and becoming a bit more larger than what it is today. This is my last slide. So this is about how do we see our businesses getting structured with, so in terms of channels, in terms of geography, in terms of offering. So if you look at it, in this particular quarter, we had definitely a lesser number of -- a lesser export content than what we normally used to have. I don't think -- and this was more also driven by the fact that the other geographies were not ready to accept the material or they were also having the same issues that what we had. The transportation of the material was not so smooth, as what we have -- as what it should be normally. So this is also one of the reasons to why we have a poor -- we have a slightly reduced offtake on the exports, part of it. And when it comes to the other segments, part of it, we remain consistent with the previous this thing. So overall, I would say, the distributors, the direct sales has been subdued at this point of time, and that's more been reflecting the sentiment in the market. And -- but whereas the sales to the system integrators, panel builders and everything is sort of, I mean, picking up as what it is in this current situation. So coming to the other dimension of projects and services, it's -- I mean you can see that large CapEx is not on the -- not picking up is reflected in the share of orders, and sort of projects not picking up in terms of their contribution, total revenue profiling. So that's how it has seen. So overall, we still remain on the product and service supplies as a major stream of revenues going forward. So we did not clarify -- we did not have in this particular quarter any major issues in terms of legacy projects impacting us in terms of overruns or delays or something like that. So we are keeping a close watch on that because that's absolutely an important point at this point of time because there are quite a few customers who could be vulnerable in the current circumstances. So as for the assessment what we did in Q2, we did not see much of that. So we hope so that going forward we don't have such circumstances grow, right, and which is not -- which is beyond our control, and as everyone would agree. So I think the pandemic which we are facing at this point of time, right, if anyone guess when it could sort of normalize and come back to a situation where we were at in the last year. So I think we need to give some time to make sure that we have a reasonable uptick in the revenues and this thing. So -- but while we look at it, it's good that we are aware that this could impact us, probably the way it is warm and what it is at this point of time, but we are prepared to handle it as it go -- as we go forward to make sure that the organization of the -- all engines of the organization are working in tandem. So this is it from my side. Thank you very much. So Raman, we can open up for the calls -- for the questions and answers, please.

[Operator Instructions]

Just to let everyone know, so while we get the questions, right, so Sanjeev and myself will try to answer the questions. And where it requires certain division specific focus, we will also request the respective division managers to give in their views, which could be a good viewpoint to share.

We take the first question from the line of Abhishek Puri from Axis Capital.

Congrats for a decent set of results in the tough environment. Sir, 2 questions. First, in terms of the net working capital, the cash flow has been negative. What has been the reason for debtors and inventory and other current assets all two have gone up, if you can speak about that? Secondly, in terms of Automation business, the Industrial Automation business has posted the best revenues -- I mean the decline is the least, let me put it that way, while other segments are much weaker. So despite that, why are the margins lowest amongst all the sectors in IA and Robotics? Is the cost structure high or is the import component high and that has led to the hit? Or is there any ForEx component that has also led to the hit, if we can elaborate on that? And any change in the direction that you have seen post this pandemic in terms of technology, in terms of essence for some of the specific products and sectors, especially digitalization and automation products if their demand and inquiries have gone up? If you can elaborate on that as well, please.

Thank you, Abhishek. So let me answer to you on the first question, which is the net working capital. So when you look at the -- I know that you are picking up this particular question, and there is also a question came up in the AGM in today's AGM. So we are looking at, this is the balance sheet and where you could see the assets -- net working capital movement of -- an adverse net working capital movement, and that's how you look at it. So we need to remember that we still have a non-novated contracts of PG, which still going through ABB debit at this point of time, right, which is -- so which is definitely causing this particular, I mean, disproportionate movement, right? And that would -- I mean probably, right, so we are at almost, I would say, quite close to where we would have all our contracts novated till the time it is as per the delever scheme approved by the core. We have those particular contracts passed through ABB books. And that's how you see a net working capital movement. So -- but while I say this, I think we need to look at -- I mean this would throw up a question as to then if this has been the net working capital, how did we still manage the cash? And I think there, I would like to tell you. So we had a different sets of actions. One was net working capital focus, which was driven by the businesses. And there were other items like tax refunds. We almost got INR 88 crores of tax refunds in this particular quarter, right? And also the sale of solar, which gave us somewhere in the INR 57 crores of 600 -- INR 60 crores of money, right? And also the other agreements and other sales to PG, which also gave us the money. So in other words, what I want to say is that in today's scenario, we are not looking only at operating cash flow, but also we're looking at free cash flow so that we are able to manage cash as a resource that is available to the business for conducting the future business -- for future trade transactions, right? So -- and this anomaly will remain till such time, the PG is able to -- business is able to set its foot on ground after novating all its contracts with the customers. As you know, this takes -- it's a lengthy process, takes time because we are dealing with government department, government customers, so they have their own processes to adhere to. So your next question was about the profitability of Industrial Automation and why it is low and so is Robotics? I think and here, it is clearly coming up as revenue, which did -- which I mean if you typically look at Industrial Automation, it has 2 very vital components, which is exports and services. And -- both these 2 components of the businesses were not active at all in the Q2, right? So A, I think the service was even though we could do remotely certain definite projects in terms of how we could continue our business with the customer. But the mobility of the service people to the sites was badly hampered. And so that did not give us the leverage to push our service revenues. And also the exports, as I was mentioning, was also beleaguered tower stuff. And when it comes to Robotics, you can understand the revenue levels are far too low compared to what they would normally used to produce, right? So while I say this, I would like to tell you, so we are also getting trained on -- retrained, rather, I would say, as to how do we set our breakeven points and the fixed costs with the new levels of what we need to work with. So this is a journey which we have started. So I think which will come into more legible scenario going forward. So over to you, Sanjeev on the...

I think there was one question from you about change in direction in post-COVID world, Abhishek. So I think it's not a speculation or projection, but I think what are the likely cases that will happen. In the number of market segments we operate, we do see there are very strong players with their balance sheet and there are some weak players. So one thing we'll see in current market segments, the consolidation will take place because of that reason. So it means you will have medium-sized and larger-sized companies consolidating themselves their positions. And we also foresee that there will be investments in productivity, energy efficiency related issues because companies which have a good balance sheet, they will typically invest in these kind of assets so that they are able to create more distance from the lowest cost competitors who could be struggling going forward. So investment in Industry 4.0, Robotics, Automation, and also energy efficiency equipment, we do see there the trend already forming and the inquiries also suggest in that direction. So large players, stronger players going more and more creating a distance there. Then, of course, the segments which will consolidate and which will expand in a way, will be in the data centers. I think we see just because of digitalization and also the kind of the services that needs to be provided locally as well as the data needs to be managed locally, and the expansion of the usage of data by the population, the data center business is expanding quite rapidly. So that's something we will see -- there will be a much, much larger expansion there. And also, there is going to be a boost in the electronics manufacturing. We already see. And you may not know, electronic manufacturing actually is a big user of robotics. And that's, again, we see a lot of play for us coming up, and so is the case in the food and beverage and pharma industry. And there again, we see quite a good uptake and absorption and adaption of Robotics technology in the food and beverage and pharma side for in different parts of the application. So that's why though the Robotics numbers quarter-by-quarter may look at slightly weaker on the back of their exposure to automotive, but at this point of time, we are investing in those -- that business because we see a forward trend in the robotics side that it will expand, given the penetration rate of Robotics per 1,000 people or 1,000 person is pretty low, quite low relative to comparable economies in the world. I think that's an area we will see that the growth will come. Now of course, Services. I think they will pick up quick back. And also I mentioned before, exports is something, again, with the geopolitical issues. We might see some traction there. And also given post-COVID world, there'll be different pressures in different corners of the world. I think India has capacity and the training now among the people and among the employees of companies like ABB, which can not only engineer, which can not only manufacture, not only service, not only project manage, but also manufactured at a very competitive rates and also in a good productive levels relative to the world. So I believe that kind of forward-looking trends emerging and then we keep on watch. I think we will see how the whole world opens up. There are a lot of surprises in-store for us, but we are adapting as we go forward.

[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Funds.

Congratulations for good numbers despite challenging times. So my question is, first to Sridhar. We saw a sharp drop in the other expenses, absolute basis as well as on a percentage of sales. So what percentage of this is actually more sticky and will stay here? And what actually can come back? You mentioned one item there is an FX gain. So I'm not sure whether it's classified in that. The second, again, is on the previous question, sir. A follow-up. In the parents call, it was mentioned IA margins actually came down because of inability to service, and some of these recurring AMCs were not active in the lockdown. So that impacted in that. Once the situation comes back, we'll see the margins back to the double digits. So any color here? And last is on the automation side of the business, maybe more structurally. When I look at ABB versus your peer set on the automation side, so 2 areas where I see an opportunity for ABB or whether gaps, is the building automation side and second is on the warehousing side. So any efforts on that side would be useful.

Very good. So thank you, Bhavin. So let me answer the first question, which was more focused on the other expenses. So other expenses reduction, the major portion is what I was mentioning, is due to a favorable ForEx compared to the previous quarter. And as I -- if you look at the slide, what I have given to you is on about INR 43 crores, right, is the impact. So if you probably adjust that, so you will come to a revised number. And on that -- if you look at it, so there will be certain definitely certain expenses, which are volume-driven, right? And there are certain expenses, which are fixed, irrespective of volume-driven is absolutely. I think you guys know this fundamentals, right? So the volume-driven expenses like packing, the freight, the sort of consumables, right, and all these things will go with the revenue increase, right? And also the C.H. debt fees the management fees, which are all revenue linked, will behave in proportion to the revenue topic. But there are certain expenses, which will not behave, which is more -- is like travel, could be a new normal. Today, we don't travel. So everything happens over or we would say, there may not be so much of travelers what it used to be earlier, right? And in terms of using branding or other stuff, I think, could be less, not much of events which will happen, right? And whatever we talk at this point of time is something which will stay for some time till the situation becomes so growth-oriented and demand picks up so volatile, so steeply that people have to travel and sort to network and try to get the things done, right? And also, when the projects open up and people are -- have to go to the service side to make sure that the customers are attended to, right? So I think this is the first quarter where we have seen that we have come to this particular expense level at this point of time. And my guidance could be on this particular feet. It is only at this point of time, we have to give some more -- a couple of more quarters to understand how this particular cost attributes behave with the response to the market, right? So this is what I would say about it, right? So coming to the other question of, Sanjeev, on the...

Yes, I think there was a question about the global call and the IA margins, Service and AMC. So it is true because at the moment restriction, Service and AMCs do get impacted. But we also allowed, during this period of time, certain digital services should be offered free to the customer because in these times we need to support our customers. And since we can't physically be with them, we have given them enabling tools so that they can carry those activities themselves or they can interact with us remotely. And -- but at the same time, the continuity -- business continuity is not only for ABB, business continuity for our customers is very important. But as a side effect, most of our customers who never used to use these digital services and technology before, they are getting used to it, and I think that will become sticky when we withdraw our offer of not delivering them for free of cost. So that's one change that will come. But yes, it is just what it is. During this period of time, we had a lot of missed days of serving the customers with the -- within the aim. I think AMCs are not that affected because we are able to deliver our commitments remotely. While the physical service where we need to deliver, those elements have been restricted either from the customer side or our inability to travel during the lockdown periods. Now with respect to your comment on building automation, warehousing, you're absolutely right. I think building automation is indeed our -- one of the focus areas. And Electrification division and partly our Motion division has lot to offer there in terms of efficiency. Just to let you know, the whole of Delhi airport is on ABB automation systems. The many new hotel chains, which are coming up, they are on ABB building automation system. And you can check with the owners. Not only it provides better comfort to the al bet, but also aced into a lot of efficiencies -- energy efficiency. So definitely, it's part of the trend. And India, there has been a less absorption of this technology, but it will catch up to the other trends we have in other cities. So that's a good area, which we have, and we have best-in-class technology there. Warehousing and logistics has been -- because of the advent of e-commerce, I think there's a big move. And also because of GST rationalization a few years ago, there, again, I think multiple avenues through our channel partners, we are able to tap into those market segments. Yes, we have a good growth in those segments. And we do see it will continue to grow in a good way going forward.

The next question is from the line of Bharat Shah from ASK Investment Managers.

You see in the case of ABB, it was at a vantage point of some very interesting remaking or reordering of the world manufacturing in industrialization, like you described it is Industry 4.0. So many important technologies, digital technologies, Robotic Process Automation, Industrial Automation, energy efficiencies, mobility, 3D manufacturing and what not. Despite all of the external opportunities, and with the internal preparedness of ABB to deal with each of these opportunities. If you see over the last 7 years, performance of ABB has been on the top line kind of barely it's rolling and on the bottom line, even more indifferent. So when do you think ABB will rise to its own potential? As always to -- we saw the state of very interesting and exciting opportunities, which have been in the environment?

Okay. I can take that. See, ABB's mix of businesses was very different when you take -- look into last years. We had the power grid business part of it, solar business, which went to higher in the lower cycles. And now we are out of those businesses. Power grid is a separate company itself. It will deal with the Codman business as well as utility business and some industrials on their own. And you can listen in what their strategy is. And also on the Solar business is into a company which is somewhere else. Now if you really look into...

Yes. Sorry to interrupt. I'm not referring to nearly the recent changes. There has been a series of structuring and restructuring over 6, 7 years. I am saying on a longer-term basis, when you cut through all of these changes, whether that we satisfy this to where we are and whether we think going ahead our true potential? Is it a opportunity? When do we see it being the harness?

You're right. So I think I was referring to you since you mentioned about the last few years' performance. So on a relative scale, yes, the portfolio mix has changed dramatically within ABB. And now it's about 75% is our products business; 15% is services, ABB India Limited; and about 10% projects. So the velocity of the business in relation to the market demand that will grow as we come out of this pandemic situation, we see that velocity happening for us because the product business, even after the lockdown, as I mentioned, the run rate that we have on the product business is much more robust even during the period when we operated post lockdown. So we do see that velocity happening purely based on the nature of the business that we will carry forward. That's number one. Number two, if you really closely watch the market trends and you watch our portfolio, wherein you talk about Electrification, basically whether it is going to the distribution systems into the smart cities or the industries, Robotics and Automation, Industry 4.0 trend, Industrial Automation and the Digitization, wherein all the large industries are digitizing their assets, that falls into the sweet spot of it. And the Motion business, which is purely on the energy efficiency basis, the best-in-class portfolio, that's a play we are placing. So if you see the global trends of energy efficiency and managing energy properly, also doing the higher productivity by Automation and Industry 4.0, that's where our portfolio is positioned at this point of time. So that's kind of a trend we foresee that we will ride going forward with our 16 distinct business divisions that we have in the company, yes.

Would you see -- if you take a gaze into the future over what kind of a time frame do you believe the size of our business probably will be a little double given all the exciting opportunities, and internal preparedness of ABB? Would you say it will be 3 years, 4 years, 5 years, when?

So I hope my answer doesn't disappoint you. I'm not looking anything beyond December this year at the moment. Given the pandemic situation we have, we are not really projecting ourselves forward. We are really managing our operation and the safety of our employees and the operation and the cash in a very, very stressed situation we have today. So that's where we have the scenario for likely scenario, best-case scenario and worst-case scenario. That's what we are operating. But we do have a strategy which is in place for each and every business division, and that's where you can see the multiplier growth. So if you have listened to our global -- new CEO kind of direction, he is looking for ABB at a global level to operate 15% EBITDA margin level, and that will have a corresponding effect on all the units globally. So that's where our ambition gets set.