ABB India Limited (500002) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to ABB India Limited Q1 CY '21 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to hand the conference over to Mr. T.K. Sridhar, CFO, ABB India Limited. Thank you, and over to you, sir.

Thank you. Thank you very much, Janice. Good afternoon to all of you. I'm sure all of you are safe and your family members are also safe in this pandemic time, right? And thank you for joining this Q1 2021 analyst call. We had our Board meeting yesterday, and the results were displayed out in the market yesterday. And then we had the AGM also today. And that's why we are having the call a bit later in the day today. And in the meantime, I hope you could have a look at the presentations what we had already loaded in the website, so with this, I would like to hand over to Sanjeev. So on the call, I have all my team members, the management team listening to this particular call, and we'll be ready to answer any questions, which we would like to take in [indiscernible]. So over to you, Sanjeev.

Thank you, Sridhar. Welcome to quarter 1 for 2021 call. As Sridhar mentioned, these are very challenging times for all of us, for our employees, our customers, our partners and all of you on the call, I'm sure have been taking all the precautions during these times. Because in the next couple of weeks, I think staying isolated and also insisting with the family members, they stay isolated, is the only way to break this cycle of infection. So that's exactly what we are trying to do in the company, and we are running it to a level, which is at the essential level and try to keep the minimum exposure to our employees and our stakeholders. Now next, please. Sridhar, are we on the next slide? Maybe on my side, it is not updating, it looks like.

So Divya, can you go back to the first slide and come back to the next one?

That's all right. I'm logging in again. Maybe that's the reason. It's on my side. It's okay. It's refresh now. It's okay, I can see. So priority areas for our January to March 2021 quarter have been, obviously, health and safety, top of our mind. Ensuring business continuity during this period to find ways to stay connected with our customers and continue to serve them with our products and services. And also, at the same time, keep on watching the high growth segments, which are visible. But at the same time, also see the budgetary impact on the muted segments, who will find better life as we go forward. So that -- those have been our focus area. And of course, for last almost 1 year now, a very strict and short to our cost and cash management. Next, please. So if we look at it from the market segment, so we have seen good momentum across the market segment of our interests. And we have seen some key financial metrics pick up sequentially. So if you look into the orders, if you see sequentially, we had a jump of orders between quarter 4 to quarter 1 is almost 24%. And we have a stable revenue base. And I think we were able to execute and our customers could exhaust -- could absorb the deliveries as well as services from us. And we have a good improvement in our profit before tax, PBT. And of course, there is a one-off gain of INR 75 crore built into it, but still, on a relative basis, it is a good operational performance and improvement. Next, please. Now in terms of highlights during the past quarter, we maintain customer centricity and innovation at our core. So we did see installation of projects for [Mahindra] and sort of started to reduce water usage in [Shimla Himachal Pradesh]. This is basically a template for a city, whichever city wants to optimize the water consumption as well as distribution. I think we have solutions there. We implemented solutions for Chennai Metro by supplying drives into [indiscernible] system. All are, which we know as a kind of a cab-hailing company. They are setting up a very large 2-wheeler -- electric two-wheeler factory. It's a global scale factory, and they have been in dialogue with us, and they have entrusted our robotic solution for automation of their entire factory. We have been working with IOCL, and they have committed to 76 locations in Tier 2 and 3 cities to set up the EV charging stations with us and also energy-efficient drives to our commission for pharmaceutical major in the country. And electrification and flow meter solution for clean drinking water for [indiscernible] Smart City and Gujarat. I think we have been engaged with them for quite some time, but then we continue to augment their capacities and solutions. Next, please. Just to give a flavor of market segments, which are of interest to us and how we see them today. So it's self-explanatory. So we see that even the moderate-to-low segment, market segment in terms of right now the growth, we see that the -- these market segments are receiving some budgetary support. And they should also start moving well going forward, but we have to see how well they perform as we go forward in the following quarters, the next quarters. The largest e-commerce company in the country. They are using -- our solutions for setting up their data centers, which are growing at a good pace. Our robotic solutions are being deployed to an electronic manufacturer for a very large-scale component finishing unit. We are under NDA, so we cannot name the manufacturer. Same way, pharma companies are accelerating digitalization using our industrial automation or process automation solutions. And a lot of leading F&B companies are buying our energy efficiency and robotic solutions for end of the line palletization. And we see that this is a new category, which is open for us. We used to be in robotics, very automotive heavy. But now we see electronics as well as SMB and FMCG companies are users of our robotic solutions as well as there's a lot of focus on the energy efficiency for our Motion solutions are also getting a job there quite well. And I did mention that the water is one area of our focus, and we are seeing good traction there. Next, please. Well, with our presence in this country, we had a 70-plus AGM yesterday. So over a period of time, we have launched that we need to bring to India the best of global technology. But then at the same time, continue to localize it to a higher scale to develop the local supply chain, and it helps us by reducing our -- the import content exposure. And at the same time, improved spirit of made in India or [indiscernible]. I think we have -- we continue -- this is a kind of not only a local program, but it is a global ABB program. They really believe in making sure that we continue to develop local supply chain. And as they mature and as our product lines and solutions mature and those solutions are global standard and these products then start finding their way in the export market. So that has been a cycle we have been seeing in many of our core off-line, but this is an area which we continue to work on. Next, please? We have -- India has a very focused ESG strategy, which we are paying very high attention to now. Wherein we have a 3 phase program, as illustrated in the middle, we have Phase I, Phase II, Phase III. First phase, we are going into green factory buildings and green campuses. Phase II, we will go for green manufacturing processes. And Phase III in collaboration with our global product managers, we will have the green products as for our global and local agenda. So we are implementing at this point in time, site efficiency, innovation and design, water conservation, indoor environment and health, energy conservation and material conservation and focus. We have a 10-point ESG framework. And as you will see that every quarter when we talk to you, you will be able to observe some progress in these areas. This is a focus activity driven at the top management level with myself and my colleagues in business areas and divisions, they're fully committed to this program. Next, please. So the way we are working within ABB India. Sustainability is embedded in our business. So we are committed for low-carbon society, preserving resources and social progress, and we have a very clear dashboard which we start measuring it even more closely. Wherein the safety being on top of it, safety in all aspects of what we do. We measure our hazard, and we make sure that they get resolved very quickly. So right now, as I speak to you, the hazard resolution in our operation is at 98.5%. Health and wellbeing during COVID-19 period, we have taken measures to protect our employees, our contractors and our other stakeholders, and we continue to make sure that the right investments are in this area. Our CSR programs are built around 12 large community projects. And for last 6 years, if you see our track record, we spend 100% of our CSR money, and we commit to it. As far as the waste retracking is concerned, we are, at the moment, doing 93% with recycling. We work very close with our workers -- sorry, with our suppliers as well as our teams to keep on finding the opportunity how the base gets eliminated. And it's really done at a granular level, and we continue to find solutions with the packaging suppliers or whoever brings in material, which goes into the base bid. We find a way that it just recycled. At this point of time, we have a green power usage of 40% is renewable. And we already have a plan to continue to increase it. And you will see these percentages will increase as we go forward. We had a water reduction of about 30% in our operations as we noted. And we have in last 10 years, done 234 on-site assessments of supplier sustainability, and this program continues. Next, please. So promoting diversity through social responsibilities made on our top of our agenda. We are institutionalizing this program. At this point of time, we are sponsoring 100 medical [indiscernible], yes, coming from underprivileged background. Those who are interested in science and technology. We will financially support for their fees for 4 years. So entire piece, we will take not only that, our technologies they will work with them on regular times to give them a sense of new technologies in the market so that these young minds are shaped. And we will provide mentorship as well as internships to them so that when they are coming out of the 4 year, they are very well prepared growth. And we know that, by example, that if they come well prepared and they get absorbed in industry, not only they will become very good woman leaders and good engineers in future, but also there's a huge impact in the fact family and the family level of subsystems also improved in a dramatic way. So this is, again, is an area where we are committed. And we always like something which is institutionalized. So that's why we work with like in this particular case, [indiscernible] Foundation to sponsor this call, and we will continue to expand it. So there are many more programs. I think you will get to see in our financial report. And this year, yesterday in the Board meeting and today in AGM, we announced our reconstitution of our Board. And you will see that we already have 50-50% representation of Board members among women and men. So we have 3 women directors, and now we have 3 men directors. So we have reached that at the top of that pyramid. And the message to all management teams, different divisions and product lines is to make sure they are reaching that kind of objectivity and focus action for replacing new positions as well as hiring new ones and go -- consciously go for recruiting women, and I think we will see that change happening in years and months ahead of us. So with this, I stop here. Please go to next, and I hand it over to T.K. Sridhar, our CFO, to take you through financial highlights. So over to you, Sridhar.

So this particular slide is, of course, the information is already available to you through the press release and the end just to give some color on the orders. I think the last year, the same quarter, we had a major order from an industrial automation surplus also. And also, we had a good order from the raises for over traction, which indicate cars not there. So in other words, this particular order is fully backed up by the base orders from a different channels to the industry. So order backlog remains control, other than that remains pretty much very capable. So these are fully executable in the coming quarters, INR 4,300 crores, roughly which is there and EBITDA revenue of INR [ 1,629 ] crores. So inside of -- I think the expectation or we could have -- whether we could have done better, right, is something which depends on how the order backlog is executed over a period of time. And if you go back to how these orders have been executed, they have been collected in Q3, and most of them in Q4 of 2020. So with the execution times they had, I think they fall into the next few quarters to come, right? So that's how we see that the orders in the backlog which we have is fully more [indiscernible] in the coming quarters. So PBT, I think, was before, including all the exceptional items at 204. So we [indiscernible] 275 an exceptional item of, I'd say, a disposal of an effect. And profit after tax also we had. But I think I would say the highlight is the operating margins improved. And we did have -- we did see an increase in the material cost as what I have seen. I think there are a few reasons to that. One, of course, the project revenue is higher, and that's how you see it in the project automation revenues, which are ticking up. And the services there benefit it's more because of the flexibility of PTO move and [indiscernible] to the customer. So that's a 14 percentage during the [indiscernible] a normal rate is in about 17 percentage. So that's another reason. There's also we had the impact of the material cost, the commodity price is hardening as we have already have seen, right? So if you go to the next slide, Divya. So last but not the least, I mean, very important for us at this point of time is cash. So cash, we will -- we did have a good collection in Q1 as well. So we are having to reserve of cash is over INR 2,500 crores. So this is basically what I touched upon in terms of material costs. And then employees costs, [indiscernible] constant. When we did not take any cut at the point of time as what we had last year. So -- but I think it's more how we have faced all the people in terms of our loading and other staff report to how we have measured our personnel expenses. Also let number of third-party contract services when we have in the load, which has been done with lot of automation as well as in running the flow space as well. So the revenue expenses, as you see, I think we are at INR 257 crores compared to INR 300 crores levels normally I'm asking rate as what you would see. I think there are 2 elements to this particular topic. One, of course, we had a favorable ForEx gain, which is not the market gain, which is comparably in nature to the extent of INR 20 crores, INR 22 crores. And also, we had certain provisions, which we have done in the last quarter, in the cost of automation. So that was actually not there, but the [indiscernible] is one thing. And the balance is basically not due to but the savings in the cost are the expenses is what we see because in terms of travel, we definitely had some savings. Of course, we have the beginning in EG initiatives what we have been taken. You could see a good impact on the public cost as well, and the efficiencies have definitely improved over the period of time. So the exception item as [indiscernible] and the current tax rate is 25% [ the 6% ] gas what is normally there. Next slide. I dwell upon a couple of minutes on each at division. So electrification is on a very solid track. So they have a order backlog of INR 1,355 crores. I think they do see a good visibility of orders. I would say all the divisions in electrification has showed really a good momentum. And of course, based on the [indiscernible] of leverage upon the capacity uptick in the cost rationalization. So they also had before a favorable ForEx impact on the mark-to-market area. So can we go next. Divya, can we have the next slide? So motion. So motion electrification maybe from 75 percentage of our [indiscernible] business, right? So while a 20 percentage comes out across automation and 5 percentage from robotics at this point of time. And we definitely will tend to have a higher contribution to the profit margins as well. So notion to take you example as to how the [indiscernible] with capacity to [indiscernible] capture the market in each. So they've given a good profitability of INR 90 crores in the current quarter with a stable revenue as what you see, and we also see sequentially an order uptick as what is done or in [indiscernible] the glass trend. Next slide. Yes. Total automation is a bit come back in this particular quarter because we were definitely -- we saw a lot of headwinds in the last few quarters. In terms of others getting not finalized or getting delayed and so on and so forth. I think this quarter, they were able to turn around with orders from the -- from both the process industry or the energy industry. We hope it continues. So this is -- I mean we need towards order as to how the current trend, it stands out. And profitability, I think they had -- the balance sheets have become pretty clean and agile. So therefore, do you expect that this profitability should basically remain stable. Next slide, please. Robotics and discrete automation. I think this is again another story of a comeback. And I will say here I think on 4 to 5 quarters before, we were already thinking as to how this particular business is go. And we were very constant in saying that this is a future growth engine for ABB as such and especially in India. So -- and that's the reason why we went with an expansion of the factory in India. So -- and now you could see really the presence of [indiscernible] robotics in the market has been the traction. So we see going forward, I think we should be able to build up this installed base to expand the business. But in a gradual way as the industry tries to adapt to these new technologies. Next. Yes. So this is more or less what I do, so we on the electrical [indiscernible] and motion. They form the major part of the business. And of course, in terms of profitability, they tend to be higher or contributing to the bottom line. Yes, go ahead. So on the outlook, I think our first probably today, this is it, I mean, I would say, unprecedented in terms of intensity. While we knew this would come, but in terms of intensities for on our critical than what it was. Those analysis [indiscernible] before remains the first priority for us to manage. And of course, while we do this, we also look at the continued business continuing the business. So that's important, something which you need to understand. And we will focus on the growth segment as what some of you have already elaborated. And while we do so, I think we also have a task to do in terms of mitigating the headwinds of commodity and ForEx, which are key drivers to remain competitors for us. And also engage the stakeholders and customers to ensure that we are able to deliver to them, and we still compile the most of their mind space. So this is the last slide probably, Divya? Yes. So can you now open the questions [indiscernible], please?

[Operator Instructions] The first question is from the line of Renu Baid from IIFL.

Congratulations for good comeback on the performance side and the cash performance as well. My 2 questions would be, first, how do we look at the inflationary impact headwinds, both in terms of orders as well as performance on our -- I think, in the next 2 quarters for us, given that good share of orders of one. And what would be the share of fixed-price contracts in our portfolio today, which could have an impact? Second would be, if you look at the group, they have indicated carve-out of the e-mobility portfolio or partially monetization, not for the exit like PG? So what could be the likely implications for the India portfolio, which is still in the nascent stage because of realignment at the group level? And if you can give some comment on the revenue share and performance of exports and services, which I was looking in the presentation.

So Sanjeev, so let me answer 2 questions. Ended in 1 question of frames, right? And then the balance of the question, you could probably pick it up, right. So first question is simple one, which is what is the share of the business, right? In terms of exports, we were [ 10 ] percentage this quarter compared to what we used to do on about 13, 14 percentage. And this is a reflect because this reflects the situation of intake of orders from the other countries because they were impacted because of the cohort of this [indiscernible] for us. And so there are definitely restrictions on the movement and the update. And -- but whereas, we remain strong on the order intake, it says that or other of the backlog definitely has a good content of orders. The next thing about the inflation. So we see there is an inflation factor, which is being told by market accumulating a 6 percentage. And we need to see as to how this very much during the COVID. So but what I feel is that ours are all short-term orders at this point of time other than probably PA was in a longer time order which is smaller. And I think they are a few -- I would say, of the total backlog, probably 15 to 20 percentage could be these contracts, which are hedged towards price variations or any other variations. What we see to the balance being short term, I think they should not feel any headwinds. So they should be executed. We are already procured [indiscernible]. So next few questions, Sanjeev, I think we could pick it up.

I think the question was about EV charging business. So in India, as you rightly said, Renu is a [ massive ] stages. So the whole industry is in sense, but we are seeing a good growth here wherein the -- our lease starters or the people who are putting out their [indiscernible] out in the market, they are buying it for their showrooms or southern placements in the area. So we have a reasonable pickup, but we have a very strong business and very fast-growing business in Europe and North America and also in certain Asian cities. In fact, ABB is considered to be #1 in EV charging globally. So this particular business, the growth rate and the support it requires is very different than the ABB normal portfolio in terms of growth rates as well as support and the impact that is required. So on that basis, that's what I got that feedback also from the group that for that reason, they are going to place it out and let it live its own life because this is a new area, which is opening up, and it has a very high growth rate and a very flexible approach that is required. Yes, ABB is going to place it out and the planning is being done there. So as far as we are concerned, we don't fully manufacture it here. So we don't have a -- we have more of supply orders into the market. So I think as such, we don't have a very large footprint impact of it on India as such.

So at least it would remain in the listed entity for the time being? Or there could be some plans to carve it out of the list as you state here?

So I think typically, when the group decides in a certain way about the business, then what happened is the same bad entity will have its footprint across the globe, and they will decide where that footprint is and how they want to channelize it into market. So that visibility, we don't have it. But typically, before we decide on it, we take it to the local Board, we place the situation in front of the local Board and then both delegates how do we see the decision-making around that business.

The next question is from the line of Nitin Arora from Axis Mutual Fund.

Sir, the question is more from an order...

So sorry to interrupt you, please request you to speak a bit louder?

So the question is more from an ordering perspective and inquiries. So sir, if you look at quarter-on-quarter, if -- I don't know, will you be disclosing the Ola order number. But generally, quarter-on-quarter, we are seeing despite 6 months of country opening, everyone growing so far across industry, our base offering has come -- come to about INR 1,500 crores, INR 1,600 crores on an average. I just wanted to understand, are the customers taking more time here because of this COVID going on, the inquiry drivers are still -- I mean, the inquiries are still not getting executed into the order inflow? Or you think it will take a little bit more time there, the bunching up of what you think should happen in the second half. If you can talk about a little bit on that, including the -- any benefit of PLI or any infield inquiries from the steel sector, you are seeing that would be helpful. And the second question was just a clarification. What you said about a ForEx gain of INR 20 crores, that is getting reflected in the reported EBITDA. Is that correct?

Yes, you're right, Nitin. So it is getting reflected as a part of other expenses.

So in the segmental, where does it's getting reflected, if you can show because the margins in that case looks down. I understand the revenue growth is also lower because of you stated in opening remarks because of COVID and...

So first of all, the mark-to-market is more about a temporary gain or loss has come [indiscernible] And the next thing is that it is spread across all the divisions in ABB. So we have 21 business divisions and ABB and so this trend all of that. And it's a tactic, it is spread across all the ECA. So we don't have any 1 single division having an impact or something like that.

No, that's correct. I mean, we have to remove it the actual EBITDA. So that's correct. So just the first question.

Okay. On the order side, we -- as we explained, and you can see that on the robotics and automation, as we have been speaking on the last quarter, we see a good traction and good investments and good faith, the large-scale manufacturers are imposing on us. And also, we see when the new manufacturing is coming in. So it is being automated at a very, very high scale. So that is a positive sign for us for the machine automation as well as robotics automation. In the industrial automation side, we do see that the -- yes, there's an inquiry buildup. But core sector should pick up, but then we don't see that CapEx converting into orders yet. We do hope that in the third quarter, it should start forming itself, though the inquiry visibility is quite decent. In the electrification and motion, as Sridhar explained to you earlier, it's about 75% of our inquiry base. So I have the business leader, C.P. Vyas and Sanjeev Arora for electrification and motion available, allow them to answer it, how do they see the inquiry buildup in the market and the conversion, starting with you, C.P. for electrification.

So thanks, Sanjeev. What I can say, if you only see from the last November onwards -- or I said from October onwards, we see the positive range and we see the employee buildup, especially for the base order, and which are the required from the market point of view. But further, the second COVID wave which comes suddenly, which is the surprise, it may a little bit impact. But from the opposite point of view, we think for electricity point of view, reasonably good opportunity and important, banks are available at this moment from various growing segments.

Thank you, C.P. Over to you for Motion division, Sanjeev Arora.

Thank you. Thank you, Sanjeev, and good afternoon all. So to answer your question, if you see quarter-on-quarter, be it our Q3 or Q4 or our Q1 results. So we have been quite consistent from -- after the first hit of COVID. And I strongly believe that, yes, we have a good amount of inquiries and the projects were moving in the right direction. Not only the light industry, but also, you can see the investments in metals and cement. So all the core segments also have started showing the positive trends. So that's my take. I hope I was able to answer your question.

So we also have process automation represented by Balaji. Balaji, do you want to add something on the core sector?

I think you have covered it, Sanjeev. So we -- while the [indiscernible] bank is strong, but since these projects are slightly longer duration, so we expect more conversion towards the end of Q2 and possibly in Q3.

Thank you, Balaji. I hope that answers for you, Nitin.

The next question is from the line of Ajinkya Bhat from Macquarie.

Sir, my question is, you have talked about this big and landmark order from Ola Electric in this particular quarter. So my question is, is the entire order book in the Robotics & Discrete Automation segment? Or are there elements of it spread through maybe electrification and motion segments as well?

So currently, our commitment is for the Ola Electric but it's for Robotics division. So that's where we have booked the orders. And we have not booked the entire order. Yes, I think it will come in 2 ways, right, as the expansion takes place. And that is the case for many other orders, which we cannot mention because of our nondisclosure agreements with some of customers, we also have some other large-scale orders in our books. Which, again, the process has started, and it will continue to kind of give the benefit for next, I would say, 4 to 6 years, yes. So that's the kind of a scale we are looking at. So if you are -- if you -- if anybody was asking, whether we see some scale manufacturing coming to India, yes, it is coming. And whether they are using best-in-class automation technology, answer is yes. And yes, whether they're using ABB robotics, the answer is yes. Now when it comes to a very large facility being put in, then, of course, there is a scope for our Motion division as well as electrification division and partly for our process automation as well. So those things get generalized through our channel partners, also through OEM and what we do is whenever we see such a large capital spend, we connect with our channel partner, then they start chasing it. And I think that conversion of that opportunity is yet to take place.

Okay. So you're saying that the [indiscernible] is not yet booked. So until what period do you see that this will keep coming into the order inflows? Will it be for next 3 quarters, 4 quarters or it continuously come for the next 4 years, as you mentioned, as an eventual this INR [ 7,400 ] crores facility that Ola is planning?

So we don't do that particular prediction or a forward-looking statement, right? So I think what Sanjeev was mentioning is, ABB is very place for their future growth or an order expansion across Exel. So with the first phase where we have [indiscernible], think we could be a preferred supplier. So that's what I would say. But still, every business has its own commercial practices that if you go the way.

The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

I have 3 questions. First is in a data center, which normally people delegate 30 crore per megawatt, what is the opportunity canvas for ABB? And this has been mentioned as a number 1 crore driver. So some color on that will be very helpful. The second is a more leading question. When we see industry coming out, typically, steel, cement, when they see improved margins, they start working on efficiency and automation. Some color on that will be useful before they go in for last scale expansion. Are you seeing that? And will it -- is it reflected in your inquiry book? Third and the last question, is a very specific question, which is the information technology expenses. Before DPG was demerged, it was a combined company, it used to be 1.3% to 1.5% of revenues. And now we are seeing that has risen to 3.1%, and it has been consistently rising. If you could give color on that will be helpful because your peer set like Siemens, it is less than 1% globally parent, this expense is less than 1%. So 3% of revenue looks high. More color on that would be helpful.

Okay. So Bhavin, thank you for the questions. And I will answer the third question. But in the meantime, I think Sanjeev has got disconnected, so we've got to connect him back. So the first 2 questions for [indiscernible] is try to come in and articulate that we don't hear the question probably you need to repeat this once again, sorry for that. So coming to the IT expenses. I think this has been picked up from the annual report as where we are seeing this. If I get my [indiscernible] as payment to the group companies. So right. Okay. Very good. So now there is a technical input, which I would like to give to you over here. So while we need to understand PG reaction, PG is still getting supported on IT systems from ABB side. So they actually are getting there till IT systems up and running on their own, and they will require it for a couple of another 1.5 to 3 years to go, right? So what we are doing is that we -- while we are accordingly expense of expense, but the recovery from them for the services provided comes as a part of the other income over there, right? So as a part of the income, what we have so what we have. So on a net-net basis, if I exclude the so-called -- the cost of it to the CG and on the so-called credit from PG for this, right, it would still stay in the earlier level. That's what we are seeing.

Sure. So the 3% will come down to 1.5%?

1.5 to 2 percentage. So we are basically investing a bit more at this point of time to address the future digital means of the products and services, what we are coming up with. Plus also, I think there is more enhanced focus on account of cyber security and other protocols, which are getting enhanced. So this would be definitely the item which would have a spend, right? Coming to the other, comparing with other companies, I have -- I have very little to say because I do not know how the cost structure and the cost model was in the particular organization as such, right? So some people keep it as a part of the product cost, some people see it as an expense. And so that whereas we see everything as expensed other and on the material cost, which is pure material POS required to convert into equipment. Yes. So over to you, Sanjeev. So [indiscernible] for the benefit of Sanjeev, if you -- if I request you to repeat your query, please?

Sure. So data center has been identified as a #1 growth opportunity for ABB India, it will be useful to understand in a data center, which is usually 30 crore per megawatt CapEx. What is the role that ABB product contribute in that total CapEx? And how are you seeing this opportunity in the next 3 to 5 years? Second, is when we see pickup in the CapEx and we see profitability improvement in the commodity industry, they start with process improvement, efficiency improvement, and then they go for large scale expansions. Are you seeing that? And does ABB become a beneficiary because energy efficiency-related products, et cetera, is a prime focus for ABB?

Right. So yes, thanks for that. So as far as data center is concerned, I have seen this industry grow in my previous experience when I was working for global side of ABB. I was also the so-called the executive sponsor for Google, Microsoft. They were setting up their data centers in Singapore, Taiwan, also in Europe, so we were -- I was very closely [ integrated ]. So essentially, data center is nothing but a very high consuming electricity zone, wherein servers are very power hungry. And what they require, they need to be fed a lot of power at a low voltage level inside the building and outside the building is the medium voltage level. And of course, you need to maintain a lot of HVSE, wherein the motor drives and other elements get consumed. And then also you require a lot of software to manage the data center. So these are the sweet spots of ABB, very well established. And very high reliable products and solutions, which are appreciated by the large-scale data center providers. So if you really look into the data centers, I think scaling up in India has just started. We haven't seen the size, which I have seen outside India. But now the -- some large players have come in, and they are working with ABB for the last 2, 2.5 years. So they are kind of testing waters, then they are scaling up. So as they scale up, these megawatts, the amount of megawatts they consume in each location goes much, much higher, and they are mind-boggling numbers. And accordingly, we have an impact on the supplies of the power supply equipment that we do and also the software that is required to manage them. And also the pooling requirement, so then they repost through for our motion product there. So that's the data center story. It is in the early stages in India, it will scale up as we go forward. Now C.P., you want to add some color to it, how you see the data center as a business for you in electrification.

Something you've put in a proper way. And as I explained to be very clearly is the starting point. And it will be a good opportunity from ABB India funders for the both -- I'm not saying the electric cases, even also for our process automation side also because this residency part and the reliability part and the better [ segment ] part, which is really going to help ABB from the data center point of view, and we are connected with almost all the global data center to our ABB. So I see a good progress and good growth is coming in the future.

What would be the wallet share in a INR 30 crores per megawatt total CapEx opportunity for ABB India's products?

Probably, I think we can figure it out. And next time you do ask this question, we can give you some indication, but that's how we don't look at it. We don't calculate that at the moment. So then you add a question with respect to CapEx, profitability and efficiency, so yes, I think as far as the market is concerned, I think we are seeing a very distinct change in the Indian large-scale or medium-scale or the fast-growing industry. Their need to buy the best quality equipment and also looking for best in cloud energy efficiency. And best-in-class, what's the productivity out of what they spend on. I think that era has arrived here. And we believe that even mid to large-scale manufacturers and the CapEx spenders are looking for those opportunities, and they are pretty sophisticated in their evaluation now. And they're exposed to global technologies. So we don't see ourselves being run through with very hard negotiations against very local, local suppliers there. So we see that they are really looking for quality, and there's a premium for productivity increase and premium for energy efficiency if the technology provides it. So that's the trend we see.

The next question is from the line of Ajinkya Bhat from Macquarie.

Sir, just one question. On the margin side, now in this particular quarter, we have seen that the 2 big segments, electrification and motion have been a sequential margin decline, the EBIT margin decline in this quarter. Historically, these 2 segments have reported from where between 9% to 10% kind of EBIT margin. Going forward, is there any expectation that the these segmental margins would normalize towards historical levels?

So let me take this question. So when you're looking at probably electrification division, I think last time when we were [indiscernible], they had a huge turnover in Q4 and which is slightly flattish in this particular quarter. So that's basically a volume gain, which has paid out.

Sir, I'm sorry, but we are unable to hear you.

How come?

I can hear you.

Yes, sir, I can still hear you. Go ahead.

Yes. So if you're looking at on a quarter-to-quarter basis.

Ajinkya Bhat, are you able to hear us?

Yes, yes.

Yes. We can hear Sridhar, if you can allow the call to continue. Go ahead, Sridhar.

Okay. So I think yes, so I think when you look at the EL margins and the EL margins are definitely very stable and very [indiscernible] So that's me. Are you there on the call?

Yes, I think everybody else is able to hear, maybe there is some particular technical glitch from your end, because all of us can very clearly hear both from [indiscernible].

So probably, I think you could...

[indiscernible] Yes, please, continue.

So EL is in the right direction. And I think they have a strong mix of products and exports and also electrical solutions what they given [indiscernible] this year. But I think the margins will stabilize going forward. They have an import content, which they have to deal with. And I think, accordingly, on the other side, we will also have exports which will come in to [indiscernible]. So on a long-term basis or on a project basis, I think we are in the right direction according to us.

And sir, what would be the improvement levers, especially -- so ABB Global parent, for example, has said that CY '21 EBITDA margins could be in the upper half of the 13% to 16% range. That's obviously global numbers. Here in India, our current EBITDA margins are roughly about 7%. So would we be moving in that double-digit direction? And how soon could that happen? What could be the levers to achieve that?

You were talking about the blended total, right?

Yes. Yes. Yes.

Okay. So I think this is a very simple answer for me, okay? Why? Because we are operating in India and 85 percentage of our revenues come from India where it is a very competitive landscape. And when it comes to comparing it with the global, I guess, our endeavor is to go to -- first is to go to a double-digit PBT margin. And then we struggled towards the corridors what are set by the group, right? So our ambition is to definitely go to end double-digit at the PAT level. And that should definitely come up when the market start to support us. And we have free from all these disruptions, what we are currently taking. So what I mean to say is in a steady state, right? And then all the -- some of the support is available both in the market as the other economic factors. I think we are well entrenched to get to those particular numbers for the loan for the local level, right? So comparing it to -- I think if we come to the 10 percentage pack, [indiscernible] the operational biomass as what the group was saying, we should be near to that.

The next question is from the line of Sujit (sic) [ Sumit ] Jain from ASK Investment.

A question is on building technologies and data centers. Data centers, as we highlighted, one of the key opportunities that you have. But even Hitachi ABB talked about data centers as the key opportunities. So in these 2 segments, can these 2 entities compete hereon or there are areas which they will -- they have carved out for them like you, for yourself and Hitachi ABB for itself? And on EV chargers, will it largely be as it stands today? Will it largely be public intra or you'll also have IP with OEMs such as TV, TV player? And will you have B2C user interface platform, et cetera.

Okay. So as far as the Building technology and data centers are concerned. So even when [indiscernible] was part of ABB, aggregation was very clear. The power grid Hitachi has a high-voltage substation portfolio. So whenever you are bringing very large power into the data center. So it has to be stepped down from the grade. And you've created substation with transformers and switchgear for high-voltages gear, and then you step it down to medium voltage level. And then on that point onward, the ABB portfolio, a current ABB portfolio kicks in. So medium will stay lower. So that's how this aggregation was in past, and that's how the segregation and positioning is now. That was about the data center and a specific question to Hitachi.

And building technologies?

Sorry?

Building technologies? Can these 2 entities compete head on?

At last I know, as far as the Hitachi power grid had the solutions in the high-voltage switch gear, transformers, associated protection equipment and substation division. So these were the 4 divisions they have. So in the buildings, again, if it's a very large building, which requires a high-voltage substation. Of course, they will provide that. But going beyond that, I wouldn't know if they have a product portfolio for it. But if they want to act as an EPC buy the products on the market and integrate it, that part I'm not privy anymore because that's a separate entity and a separate company now.

Sure. And regarding EV charger?

As far as the EV chargers are concerned, yes, EV chargers are bought individually, but mostly in the -- if you go to the mature market. So typically, it's taken as a public infrastructure. And there are specialized companies who buy -- set up those networks, and then they run their power delivery as well as charging mechanism using this as an endpoint solution. And then it becomes part of public infrastructure and a reliable public infrastructure also require reliable EV chargers and that's where we become suppliers of solutions to such large-scale implementations.

Yes. So Janice, I think probably 1 more last question because we get a time limit, I think.

We take the last question from the line of Jonas Bhutta from PhillipCapital.

Just 1 quick question. So what we've seen this quarter is the unallocated expenses, again, go up much higher than sales growth. And now they account for almost 5.5% of sales, which used to be about 3%, 3.5% 2 years back. So is this again completely related to that IT expenditure that you explained about earlier in the call and [ possibly ] should we be annualizing this number of about INR 90 crores on the EBIT level as our unallocated expenses. That's my only question.

Okay. So very good. So thank you for those particular questions. So I think I will do a quarter-to-quarter comparison, okay? So the unallocated cost, if you look at it, has 2, 3 elements, right, so which I would like to explain, right? So why is it this way. So in this quarter, as you know, as per the current CSR amendment act, we have to account for the full CSR spend in the first quarter, and it could not be an actualized basis. So 1 of accounted for that is roughly another INR 10 crores, right? And the last year at the same time, so we had an income tax revision of almost INR 18 crores and therefore, and also a revival of a tax provision based on the orders, which we will see to the extent of another INR 4 crores. So I think if you eliminate these one-offs, so we would be in the same range as what we are annually. So I think our view on this equity laser shop, right, and it will remain the same as what we are excluding these one-offs. And to one-offs, what I told you, is only for that particular and we did not occur earlier in the next quarters.

So from INR 90 crores is actually a recurring expense of just INR 75 crores?

Exactly. You're right.

Well, ladies and gentlemen, this is time [indiscernible] as a last question. I hand the floor back to Mr. T.K. Sridhar for his closing comments. Over to you, sir.

Yes. So thank you very much all for attending -- for taking time to attend this [indiscernible] call in spite of all the challenges, what we have, what we are facing today. So is also some unanswered questions, feel free to write back to us. We will make all effort to give you all info required for ID analytics, right. And thank you for all your support and being with us during this COVID time. Wish you all pleasant day. Thank you very much.

Thank you. On behalf of ABB India Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.