ABB India Limited (500002) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to ABB India Limited Q2 CY 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. Do also please note that no unauthorized recording of this call is permitted. The same will be available on the company and [ CEDAR ] website subsequently. I now hand the conference over to Mr. T.K. Sridhar, Chief Financial Officer from ABB India. Thank you, and over to you, Mr. Sridhar.

Thank you. Very good morning, ladies and gentlemen. Welcome to the Q2 2021 analyst call for ABB India Limited. So I have on the call along with me, Mr. Sanjeev Sharma, MD of ABB India Limited, and then all the division representatives on the call: Mr. Sanjeev Arora, manager for Motion Division; then Kiran Dutt to represent Electrification Products; and I have Subrata Karmakar from Robotics & Discrete Automation; and also G. Balaji from Process Automation. And also along with me, I have the other communication colleagues, [indiscernible] and other people. So over to Sanjeev to take them through what happened in Q2 and outlook later on.

Thank you, Sridhar. Good morning, ladies and gentlemen. Thanks for joining the quarter 2 2021 highlights call for ABB India Limited. We will present you business highlights, which I will talk about, and then I'll hand it over to T.K. Sridhar to give you financial highlights. On the operational highlights, we had a significant increase in orders and revenues year-on-year basis with double-digit growth across all business units. Overall, a strong performance. We had improved profitability year-on-year, and the margin growth was supported by demand and cost optimization. Our H1, that is the first half cash generation was solid. We continue to prioritize health and safety for our employees, our contractors and all the people who are connected with us, including their families. And the vaccination drive is our priority as we go forward. Maintaining operational efficiency and customer connect is the core strategy, and that has been working for all of our divisions as we've seen in our operational highlights. We have a solidified ESG plan with 10 steps, which is under implementation. And we are seeing significant progress there and significant allocation of resources in that direction. Next. COVID focus areas, as I said, vaccination is our go-to strategy. We have about 80% of our employees and contractors vaccinated. And if I add another 10% who were recently contracted by COVID, so about 90% of our workforce, direct and indirect, have the antibodies for COVID. And we would like to see that by September, second vaccination is done, so that we have much more surety, security, which goes directly into our business continuity. Restarting operations. All our operations are working, and wherever it's possible, we have work from home arrangements. And many of our employees continue to work from home, who don't need to come to factories. We have refurbished our medical centers in all locations. We have trained our doctors. We have trained our medical staff. And also, we have prepared a comprehensive -- a guideline for how we shall manage third wave. And we have a proactive signal-based strategy that we will detect early signals if third wave is becoming a reality. And we will act ahead of the curve rather than in the middle of the curve like we had in the case of second wave, wherein everybody was surprised. Next. So the overall story has been around demand, which has been strong, especially in the short-cycle business. And we saw growth across most businesses and multiple market segments. We had systems and service orders coming back. There is more potential for service orders to come back as customers allow more visits from our service engineers, and process industries and optimization, energy efficiency, management and stabilization solutions are in demand in the marketplace. And on the discrete side, there was a broad-based order growth supported by automotive reinvestment. So we are seeing some green shoots in the automotive sector, especially among the OEMs. Next. So you can see the orders were up 41%. Our revenues were up 45% for the corresponding year, last year. Now the areas wherein we find a significant uptake of orders and our success and our hit rate has been in the area of data centers. So we secured good orders for electrification products, a range of products that go into it, like GIS substation, E-house, which is the prefabricated house; switchgears, low voltage equipment; ring main unit and medium-voltage switchgears. And the recent orders we had were for data centers in Noida and Navi Mumbai. Power distribution in significant infrastructure projects. We had some success in Jammu and Kashmir and also North India corridor for Regional Rapid Transit System. So similar projects, our product space and our solution fit is quite good, and we foresee this area expanding going forward. We had our portfolio going into renewable energy and also a good uptake and good support coming from food and beverage market segments. ABB India's commitment to greener future is in alignment with our global strategy, wherein our group is committed for EV100 program, wherein ABB commits to electrify its fleet of more than 10,000 vehicles by 2030. RE100, which is climate group. Here, we commit through sourcing 100% renewable electricity by 2030. And EP100, ABB is committing to establishing energy efficiency targets and continue deploying energy management systems at the company site. ABB India has a very focused 10-point ESG framework. Following indicators are well defined, and they are being nurtured for last many months. So we are focusing on green infrastructure. So all our sites, we are going to have a gold or platinum rating for our campuses. And we have broken down what it takes to get there. Same thing on the energy efficiency improvement, renewable energy, ESG, emission reduction, water conservation, material conservation, waste management and circularity, green supply chain and customer product stewardship and life cycle innovation and biodiversity. In fact, our focus is so well spread in each and every location participating with a focused growth, as we interact with you quarter-to-quarter going forward, you will see significant progress. And we have some low-hanging fruits wherein already the projects are under implementation; and a few of the projects which require special attention, they will be budgeted as we go into the budgeting cycle for the next year. So we do see a significant movement of the needles in this area in coming quarters. So at this point, I hand it back to Sridhar to take you through financial highlights, and I'll join you back when there is a question-and-answer session. Thank you. Over to you, Sridhar.

Thank you. Thank you, Sanjeev. So we get into the interesting part of how we performed in Q2. So I would say the highlights, if I look at Q2, probably it's a strong recovery in June. Of course, there were intermittent disruptions because of the locally administered lockdown. So I think we lost almost 3, 3.5 weeks in totality of working time in all our factories on an average, which is reflected in the revenues as what you see. I think as Sanjeev said, it was growth across all business units, and also, needless to say, the cash collections were perfectly stable. And we also see definitely service businesses, which was pretty much muted for the last few quarters due to the mobility constraints, has started to pick up. So this means I think going forward, when customers try to revamp their installations, we should expect more stable growth in services. So I think this is basically how I see with compared to Q2 of 2020. So this is how we see, so 41 percentage on the orders as what we see, all of these orders. Revenues went up by 45% and 320 percentage increase in profitability is by sheer mix of revenues, very stable operations and naturally we definitely -- the intensity of the disruption was absolutely quite different when compared to the previous year. So that is to be held in mind when we look at these particular numbers. But when we look at probably and when we compare this with Q1 '21 or Q2 2019, and I think we see that it basically had we reached the revenue levels of what we have done in these 2 quarters, I think profitability would have still been better. So that's something which we looked at it. So this was Q2 '21. But I would say orders, we de-grew by 7 percentage. Revenues, we had a shortfall of 13 percentage. Profitability, this is before tax, 30 percentage, and PAT by 55 percentage. So this is how we look at it. But on a half year basis, orders definitely went up by 11%; and revenues, of course, double digit again, 22 percentage; and profitability exceptionally well before exceptional items; and PAT definitely higher as well. So this was something which we looked at it. And the focus areas definitely will be for the next few quarters to come, is look, make sure that we have the accelerated performance on the base KPIs, which is orders, revenues, cash and profitability. And we also look at the improving the cash balances, again, looking focus on cash and collecting more and making net capital -- net working capital more sharper. So can we go to the next slide? Can we go to the next slide, please? So this -- as this slide tells about how our P&L account looks like. If you look at it, we definitely see material costs of 66.4 percentage, whereas the previous year was 65%. And this is definitely on account of commodity prices, which are hardening. This is something which we'll have to look at how we pass it on to the market. There is always a lag. So this is a focus area for us going forward because of the demand moving up and commodity prices, especially steel and copper strengthening on their price levels. We are definitely going to hone a different strategy as to how to deal with that. And the next is about the personnel expenses. As you see, personnel expenses is higher compared to the previous year. And we need to understand the previous year. We definitely had taken very drastic measures because it was pretty much important for us at the time to react as such, which included with respect to restricting the incentives, restricting the [indiscernible] and stuff, which is not is not available to be done or not required to be done in this particular quarter. So that way, that means we remain steady. That's very important for us to retain the people and motivate them for the next coming quarters, which is very -- which is poised for growth. So that's something because of which the personnel expenses are higher than the previous quarter. And other expenses, as you see, most of them are revenue linked, which is basically the freight, the group fees and everything else. So that being the case, I don't think we have spent anything much, which is very extraordinary. And travel and entertainment remains to be at very low levels because of reasons well known to all of us. And the good part -- other good part, which I would like to say is, of course, interest costs, which was definitely higher than the previous year and higher than the previous quarter as well, so it's substantially low. And I think that's reflected because of the good cash reserves which we have, and we're making sure that our focus on collections, despite the disruptions, is quite sharp as we needed. So I think in a nutshell, the improved performance is due to improved capacity utilization, which is very important for all of us because we knew how to manage the COVID. So that's something which we learned from the previous year, just because we anticipated that there could be waves to disruption. So then how do we need to isolate our factories and work and also how do we quickly ramp up the people with the vaccination drive what we could do is something which definitely came in very handy for us to manage the Q2 performance. The next slide, please. Can we go to the next slide? [Technical Difficulty]

[Operator Instructions]

Thank you, and sorry for the technical glitch which we had in between, which I expect it will happen because that's how our system -- this thing is not [ lost ]. So share of total orders... [Technical Difficulty]

[Operator Instructions]

Yes. So we were on the share of total orders, revenues and PBIT by division. And if you look at it, the patterns are quite similar to what we had from last year as well and the year before. So all EL, MO, PA and the same is pretty much in the same line when it comes to orders and revenue. But more interesting is to see the profitability pie of it. So we could see that PA, right, for the automation, which was basically had facing challenges on project execution and delayed projects. And as we all know, we did take some provisions last year. And now they are back on track so that now we are seeing a good momentum in the PA, and that's why their share of profitability has definitely increased. If you go to the next slide, please. Yes. The next slide talks about the -- this is more about diving deep into the segment-wise performance. And we are coming to Electrification now. I think Electrification gained very extensively because of the volume under mix, which supported the margins quite substantially. So there is an order book of INR 575 crores, and they are looking at a backlog of INR 1,365 crores and pretty much solid. So we see that these orders would come up for execution in the next 3 to 4 months. So revenues, I think there was an increase across all businesses in the year. Of course, we did have disruptions, that is needless to say about it, but we also saw some early signs of recovery in June. So -- and PBIT, volume was slightly less, but I could say that they were definitely hit by the hardening of commodity prices. But I think what was offsetting that particular impact was the mix and better price realization. Next slide, please. Motion. Yes. On the Motion, if you clearly look at it, very stable. These are one of our growth engines for the -- currently which we have, right? So orders, we definitely looked at INR 731 crores. And they were slightly muted for the quarter sequentially, but I think they would definitely move up because we lost some time in Q2. But other ways I think it's very good customer connect. The -- our strategy of reaching to channel partners and our customers in Tier 2 and Tier 3 is really paying off, both if you look at EL as well as MO the impact is registering on ground. And we were still able to do good revenues of INR 500 crores and a good profitability of INR 55 crores on this particular division. And needless to say, I think the higher revenues and low voltage multiples and drives is something which we looked at as a come back. But the services business has also contributed to a higher margin in Motion Division. Next slide, please. Process Automation. I think here, you could see really a reversal of the trend, which is sitting in order of INR 362 crores. I think this is in spite of the fact that we had not so much of customers working in the second quarter. And so they are sitting on a backlog of INR 1,410 crores, clearly executable. So no slow-moving orders or nonmoving backlog as what I would say. And the good part of it, the system orders are slowly looking at making a comeback. That's a good sign, which we are seeing. And when it comes to the revenues part of it, yes, there were certain disruptions, but I think this would definitely be converted into good revenues going forward. PBIT, of course, at INR 16 crores, and that was more contributed by higher service revenue which we have. The next slide, please. Robotics. This is another business area, which we definitely saw some traction even in Q1 and also continues to show stability in Q2 as well. So orders we booked INR 65 crores in the quarter in all the base orders from different industries. So the automotive segment is what we see is showing early signs of recovery. And we've also got some good orders from paint systems from the auto OEMs. So revenues, again, here also, we saw service becoming steadier than what it was earlier and profitability at INR 5 crores. As a percentage, it could slightly be muted for the reason the mix over here was more of a trading revenue which was the first one to go when we looked at the total schedule of the projects which we had earlier. So I think with that, hopefully, in the volumes, which will gear up in Q3 and Q4, we should be back on track. The next slide. The next slide is the outlook slide. Before I turn to Sanjeev, I think one more bit of information, which normally used to be asked is about the unallocated portion movement. Unallocated portion in Q1 '21 was roughly INR 67 crores of loss. And when we compare to this it was INR 23 crores of loss, and that was primarily because of 2, 3 reasons. I think normally, the first quarter is a true-up quarter for quite a bit of unallocated fees, which happened. So -- and if you look at it, the December quarter was pretty heavy for us. And so naturally, the true-up impact came up in the first quarter. And also the rules of CSR accruals of 10 -- of nearly INR 10 crores, which we accrued because it was the rule in the first quarter as given by the [indiscernible] institute was to accrue it, whether we spend or not in the first quarter. And then this was basically revised in Q2, that it is to be done only on an actual basis with a catch-up in Q4. So to that extent, the adjustment has been done. And also the next part is, which is definitely impacted as the actuarial valuation. So we had a higher loss in Q1 and compared to Q2. So these are sort of the key attributes for how it look like. And the next question would be so if this is cumulatively, we are at INR 89 crores loss, so what could be going forward, what it is. So I think given the situation what we have, I think we should be something -- it moves in line with the revenues, as we've said, quite a few expenses over there. And also we don't -- we will not have these impacts as what we saw going forward. So naturally, it should be double of this as what we could see. I mean there's a ballpark number, but I think it should be in and around that particular area. If there are anything else, we would definitely call out in Q3 if you are expecting something which is different. So the other thing is about service and exports, that also could be another important form and sort of a data point, which should be requested. So I would definitely answer that during the question-answer session. So they remain steady. So service revenues are better than the previous quarter. But service order is a bit muted. But exports, again, orders are better and revenues a bit muted. So that means this is basically this quarter, the orders remain steady, in other words, and the revenues were a bit muted because of the disruptions that we had. So we would -- I would definitely share the percentages or data points later in the question and answers. Over to you, Sanjeev, for the outlook.

[Operator Instructions]

All right. So Sridhar, are we opening question and answers now?

Sanjeev, we are on the last slide, which is the outlook slide, so where you could probably throw some light on it from your side of it, and then we go to the question and answers.

So all of you know that ABB India Limited has 18 business divisions out of 21 divisions. And the 3 divisions that we don't have in this country are the ones which are more U.S.-centric. So all these 18 divisions have strong local footprint, not only in doing business, but also manufacturing and high value add and plus delivering customer services. And many of these divisions also are exporting. Increasingly every year, they have more exposure in that direction. And the 18 divisions do this business in these many market segments. So you can see there's a fairly wide spread of the segment exposure. So if you create a metrics of 18 divisions working in different market segments, which are going through different cycles, one is due to the natural market cycle and also the impact that happens due to the COVID, it happened due to the ESG agenda or CapEx, et cetera. So this is how we have mapped and that's our understanding of the market segments. So the ones you see in green, they are tracking well. Yellow, orange and red, they are the ones who are tracking in such a way that they have a potential to come back. And we are seeing good investments being planned, which will come under execution as we go forward. So we continue to take a very cautious look on the demand and supply imbalances of each of these segments and also how the ForEx volatility, geopolitical and COVID risks are playing into this. And also which are these segments which will also come under strong ESG pressure. And much of our portfolio also supports organization, which are driving strong ESG agenda in terms of energy efficiency and also bringing about more operational productivity within how they develop the products and solutions. So we do play this whole picture. And at this point in time, we feel fairly confident that how it is played out post wave 2, we will see that many of the segments seen in yellow, orange and red, they started playing better as we go forward in the coming quarters. So that's the outlook and the cost optimization continues to be our focus. And since we are into the short-cycle business, if we adjust the prices in relation to the increase in the commodities, we are able to ride over the impact of the movement of the prices on the commodity side to a certain extent. That's my take and my view on the outlook, Sridhar.

Thank you. Thank you, Sanjeev. So we can now open up for Q&A -- now for Q&A.

[Operator Instructions] The first question is from the line of Parikshit Kandpal from HDFC Securities.

Congratulations on a decent quarter. So my first question is on India. So we have seen tailwinds both on the [ TLI ] side as well as [ China ] strategy. So for our 18 divisions and our plants and manufacturing in India, so how are we looking at ramping up given the growth which may come up in the revival sectors which you highlighted in yellow and red. So over the next few quarters, what's your strategy on expansion in India. Have you mandates from abroad for building out new factories or expansion in the current factories. So if you can just touch upon that. So that's my first question.

Right. So we do have a green signal from the global teams as well as global executives to look into the both organic and inorganic opportunities in the country. And each of the division managers is developing and has developed a strategy in terms of the expansion for domestic orientation, how the demand is playing out. And also, given the size and the depth of the operations and the quality of our operations in the country, how they are able to participate in the other markets on behalf of the global division. So that work is on. Many divisions have completed it. We have a clear picture. And accordingly, it will get implemented going forward. So for us, we have 5 distinct locations where we do manufacturing, which is Faridabad, Nashik, 2 in Bangalore and 1 in Baroda. We have significant land bank available across our locations. And also, as you can see, our balance sheet, the cash position is quite good. So for both tackling our organic as well as inorganic aspirations. So there's a comprehensive work done. But these are the things which we watch very closely with the demand developing in the market and how the demand sustains. And given our history of 70 years of manufacturing and incremental increase in our manufacturing footprint, I see this continue to grow. And I do see, given the situation that we have, the geopolitics, how it is playing, we will see more action here in the country.

But have you any numbers like over the next few years, that would be the potential CapEx that will get incurred?

Well, as I said, that each division is -- does have the mandate to expand. And that's something, I think it will show up in their kind of provisions and the proposal to the global divisions for the approvals. And once that is in place, we will be able to consolidate and give you the comprehensive picture.

Okay. And my second question was on eMart. So you have created a digital marketplace on our website. So what has been the response there? So are you seeing incremental traction in the sales coming in from that segment? Just can you just touch upon that, how has been the success of the digital marketplace, eMart.

EMart has been very encouraging. I do have the division presidents for Electrification and Motion, who primarily push the products through that. And we started in a way that we can give good customer experience. So I'd like to invite comment first from Sanjeev Arora, his experience on eMart, how that is developing and followed by Kiran. Over to you, Sanjeev.

Yes. Thank you. Thank you, Sanjeev, and thanks for this question. I think this is a happening thing. And for ABB, in certain products, we are the leaders actually in coming up on our company platform. So if you see it in the last couple of months, and we have seen a steep increase in the number of inquiries which have come through e-Mart. And with this, not only we are able to cater Tier 1 cities, but also Tier 2, Tier 3 and other districts because now as you see that everybody is very tech-savvy, and this is going to play a vital role. The only thing would be that the reach, if we are increasing, we also need to give the response in 24 hours, which we are addressing to and also the deliveries, what happens to the customer, that also happens within 24 to 48 hours. So that is our second objective. And I see a very good growth momentum in this. That's all from my side.

Thank you, Sanjeev. Kiran?

Okay. I think on the e-Mart side or the digital platform, I think we have -- we stand the first-mover advantage. And the kind of inquiries which have been -- especially during the pandemic times, I think that's been tremendous increase in those periods. What has happened with this is we were able to have, Sanjeev also said, in terms of the increase into Tier 2 or Tier 3 cities as a visibility, I would say the reach increase in terms of a lot of other cities as well has happened, where our presence was limited earlier. So the reach, I think, is the main important aspect to e-commerce. The other point, what I would like to mention here is on the portfolio visibility as well. So there are many customers, in terms of the visibility, they look at the portfolio in a very narrow perspective. But I think given the situation now in terms of the broader perspective of the portfolio what we have, I think it's a tremendous advantage for all of us to ensure that we get the visibility of the portfolio itself. On the whole, I would say, it's kind of a digital marketing tool, not only that we get online orders, but having said that, in terms of online, it's also giving you visibility for off-line orders as well. A lot of inquiries are coming there and then getting closed offline as well. So I feel it's a great tool and having the first-mover advantage, we are still -- we are reaping the benefits out of that. That's it from my end, Sanjeev.

Thank you, Kiran. So just as an additional comment. As you know, we are now selling these industrial products over e-Mart, so we always ensure that the selection done by the customer is correct. So that's why some human interaction is still required, and that's where since the interface is digital, so it's much easier for our customers to choose the right product against their data sheet and their specification and also inquire with us if they are making that selection right. So I think it's a great productivity for both ABB side as well as for the customer and also improve the customer experience. So I would say we have launched it, we are experiencing it, customers are experiencing it. And you will see that it continues to leverage and continues to grow as we go forward.

The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance.

I had a slightly longer 2-year time period kind of a question. So our quarterly order inflows, they've been in that INR 1,600 crores, INR 1,700 crores per quarter range for a fairly long time. I'm not looking at just this quarter. Obviously, it's a COVID impacted quarter, but a very long time we've been in that INR 1,600 crores, INR 1,700 crores, INR 1,800 crores and annually in that INR 7,500, INR 8,000-odd crores number. Just trying to understand, given all the positions from your side in terms of the pickup on the CapEx, given what we hear from a lot of other industry in terms of a CapEx recovery, whether it's the school sector, whether it's data centers, et cetera. When you look at the next year or 2 years, do you think you can cross the INR 10,000 crore, INR 12,000 crore annual run rate in terms of orders. So that implies a INR 2,500 crores, INR 3,000 crores quarterly run rate. And which of segments do you think will [ exert when the segments ] ride up here. That's all from my side.

Thanks for that question. So see, last nearly now 1.5 years, we have a quite a disturbed period in the market. So creating a linearity during this period is not wise for any one of us. But at the same time, since you are talking about a little bit of stressed period going forward, but also, we should look back the period we have gone through in the last 3 years, wherein we have made significant changes in the company in terms of portfolio readjustment, wherein we have carved out Power Grids Division, we have the solar business that have gone out, and also, we have announced a couple of businesses that will go out as we go forward. So given all that in, what we have now is a portfolio which is almost 70% products, that is it is short-cycle business. we have only 7% projects, and we have rest of it into the services and solutions that we provide. So this particular kind of product portfolio has a very high elasticity when it comes to the demand side of the market, both for the local as well as the export market. So with this positioning, what we find is that the recovery that we have whenever the down cycle comes, whether it is because of COVID or any particular market segment coming back or going down, I think the elasticity is pretty high. So that's why when you draw an overall portfolio of 18 divisions going into about 18 market segment or 19 market segments, that provides us the kind of a very stable base for to run the company and the business in a very steady way and grow in a steady way as we go forward. So that's what I see going forward, that the mix of this segment and the cyclicity of this cycle -- the segments, that's the base for us for the domestic market. And as they grow, we will have a corresponding growth on our business. And also on the export side, as we continue to expand our export, that will bring the base volumes from there as well and services as well since we have a large installed base. And apart from that, we are adding and we continue to add into our product portfolio. And that product portfolio, whether it's in the energy efficiency area, in the areas wherein the ESG is taking the center hold in all the corporations, all those trends which are holistic and very strong going forward, I think those are the ones which will bring us the growth going forward. So we are a very growth-oriented company, but as Sridhar said, we are very selective where we see growth because we first look for profitability than volumes, and also, we first look for cash, then revenues. So we will continue to have that strategy going forward. And in an organic way, we will continue to grow. And as the markets pick up, I think we will see the acceleration on it. We watch very closely our capacity utilization. And once we get a sense that it's coming to a good level, we started spending over capacity. So that will be our recipe as we go forward. So you are -- the numbers that you painted, whether it will be INR 10,000 crores, INR 12,000 crores, I don't know which quarter, which month it will be in future. But I'm pretty sure the company will grow from this level that we have seen so far.

The next question is from the line of Renu Baid from India Infoline.

I have 3 questions. So my first question is when you look at new product portfolio, so in new areas such as powertrain for EV vehicles, as well as mobile robotics, what would be your comments. So to what extent -- so A, if you look at the powertrain part of the business, ABB has solutions for heavy vehicles like mining equipment, et cetera. So what are the group's portfolio in terms -- and plans for entries at all into the generic passenger vehicles, the 4-wheeler market? And would it require a significant portfolio realignment. Also aligned with this on the recent acquisitions for mobile robotic solutions, to what extent do you think it can expand the end markets and the opportunities in India? That's the first question.

Thank you, Renu. Thanks for this question. So I will invite for powertrain, a comment from Sanjeev Arora. And for this recent acquisition, which actually expands our reach into the market segment, especially the logistics side, I'd like comment from Subrata in terms of how he sees that as a business opportunity in India and the penetration of it. So first, Sanjeev Arora.

Sorry, Sanjeev, I got disconnected while the question started and just now got connected while you were speaking.

So Sanjay, let me repeat, Reno Baid, IIFL, has asked that in terms of expansion of the portfolio, how is about powertrain strategy? And given that we have a portfolio globally, how should that play out in India? And what is the group's view? And what is your view on this business?

Right. So if I get that correctly, and if not, then you can please intervene in between. But then when it comes to the expansion part, this is a story which will remain. And this has been the story for last many years for us as Motion. You will see the expansion plans, the new products, which are in pipeline in a short span as well as for the long-term strategy. And we are trying to go on the upscale of economy on -- for manufacturing. And not only in India, but then we are also catering -- our export business has also picked up very well. We have full backing from the local country management as well as the global teams. And shortly, you will see a lot of things going around in Motion business on this piece, but in...

But Sanjeev, you may like to mention about specifically, if you like, on the electric powertrain, whatever strategy you would have.

Yes. So my question was asking, the group has powertrain solutions for heavy vehicles like mining equipment. And so how would that solution pan out for India and for other passenger vehicle or 4-wheeler segment? Do we have a portfolio and can that come to ABB India?

Okay. Thank you. Okay. So if we see the portfolio of the heavy vehicle and the mining part, we are actually pitching in. It's new subject right now for India. And we are in touch with a few of the OEMs as well as even the end users, even when you talk about the mining industries, the coal segment, I think those people we are getting in touch. We have this portfolio globally available. And we are also in our plan looking into the business case. We will develop this portfolio locally also as the things moves in the right direction. But I can tell you we are on top of it, and you will soon see some of the developments on this piece also.

So Renu, there's a...

So basically, current environment, we don't have a portfolio, right, for the powertrain solutions or electric motors, motion combined for EV vehicles per se and probably might be -- is it something which can come in future, but nothing as of now?

So if you see, there are 2 parts to it. So 1 is on the automobile part. The -- for the EV vehicles, for the cars and the other equipment. But when you talk of the heavy vehicles, when they are moving, that is off-road what you call. So when you talk of the trains, the excavators, so these segments, we are already present globally. And we -- that's what I'm trying to say that we are in touch with the local OEMs here. And there is a definite marketing strategy, which is -- which we have put in place on this piece. And soon, you will hear more on this subject as we progress further. Currently, we are not manufacturing them -- that in India. But soon as the demand picks up and we have OEMs, you will see a lot of localization in this piece also.

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

Just wait. We haven't answered Renu's second question about the robotics on the mobile robotics. So if you allow, we can -- I can invite Subrata Karmakar to comment on what is the impact of it in our robotics portfolio.

Sure. This is Subrata from Robotics & Discrete Automation business. You must have already seen by this time that ASTI is a Spanish company and we recently acquired ASTI. And what is the result of it? We would be able to bridge the gap of mobile robotics. I see that is a fantastic technological company, ASTI. They have a very good range of product, which is catering to mobile robotics, and India and globally. Of course, in India also, I am seeing the huge demand on -- when we talk about that warehousing automations. And then when I go to the automotive industry, and all are talking about flexible automation and [ congreal ] automation, the more and more autonomous vehicles and more and more touchless application we are having in medical industries. I feel strongly that acquiring ASTI will help us to bridge all the gaps of that product portfolios. And Indian industries within 2 to 3 quarters, we're having -- we will be seeing that huge effect out of this acquisition. So I think the Indian industry and companies benefiting especially the automotive industries who are looking for flexible automation and [ congreal ] automation, including the medical industries who are now looking for touchless industries and warehouse automation will be huge benefited in the future with the products from ASTI.

Yes. Thank you, Subrata. So Renu, in other words, what we do is when we have such a proposition and a solution available, what we do is there are certain customers they are aware how to use it and then there are customers who are digitizing a lot and they are also looking for solutions on the prototype basis and also on the scale basis if they have a good collaboration globally and the global partner uses it. And that's what our experience has been opening up new market segments in robotics and warehousing automation. And given that there's a lot of attention on the warehousing as well as the mobile robotics in order to move things right from the lab space to warehousing, I think we have a very high confidence that we will see a good penetration in the country. And I think we'll keep a tracker of it. And as we meet every quarter, I think we'll keep informing you how the growth is. And the picture that you see on the screen, you will see some new segments popping up, which we will start focusing with this market segment. Next question, please.

I think Bhavin was there on the line, we could connect with Bhavin.

My first question is implications for the ABB India shareholders on the recent 2 announcements by [ its parent ] on the sale of the mechanical power transmission and IPO of EV chargers?

Sale of EV chargers and which 1 you said? There was a...

The mechanic power transmission and also [ IPO ].

Bhavin, what did you say, could you repeat your question, please?

Sure. Question is on implications for ABB India shareholders for the sale of mechanical power transmission business announced last week and IPO of EV charger business.

Okay. So as far as the mechanical power transmission business is concerned, it's essentially a trading business for us. It's a very U.S.-centric portfolio, which -- any OEMs catering to that market, they buy it. It's not a very large business, just only trading business. And in the yesterday's Board meeting, we are in line with the global intentions and also a company has been found which is interested to take over this asset. We took the -- we presented this case to the Board and Board also has given us the approval to go ahead with this transaction. And it will be -- it has been assessed by the 3 valuers on a fair value basis and that's how it will be transacted, Bhavin. On the EV chargers IPO, EV charge -- EV business has seen good growth in the global. If you have been following ABB group, group finds EV charging business as a very high-growth business and they wanted to provide its own pedigree and its own space to grow and also make investments and do acquisitions. So they are creating this as an outside ABB platform, wherein this can take the opportunities as they come forward. In India, EV business is still at an nascent stage. So there are not significant volume we do in this area, but though we are supporting some big OEMs and certain -- but there's no manufacturing of EV chargers in the country.

The second question is on the Process Automation business. Sridhar mentioned that the legacy projects are now out. Could we expect double-digit EBIT margins to come back, which you used to see prior to 2019 calendar year?

So if you were following that, Sridhar, I'll pass it on to you, just had a qualitative comment. If you follow the press conference that was done by the group in last week, you will see that the process automation has a backline globally. That process automation is back, and the last quarter has been particularly good for them, and it has been the double-digit profitability globally. So I don't see any reason why this will not drag in the same direction, given the construct of this business. Over to you, Sridhar, if you want to add something?

Bhavin, a couple of other the things. So what I would look at it is that they had definitely a legacy impact -- legacy projects impacted in the last quarter -- the last couple of years, if I agree. And but at the same time, their volumes were pretty much down because the market was not supporting them in terms of the orders. So it was a double whammy at that point of time. But going forward, I think, which is the legacy impact is mitigated, but we also keep in mind that the legacy projects to close is not easy in normal circumstances. So it has its own challenges to bear with. But I'm sure that those challenges will not be so intense as what we saw in the previous quarter. But the good part of it is that the market also starting to revive for metals businesses as well as the oil and gas businesses. And with services trying to track in the right direction, we should be better off. But I would not comment on any sort of a percentage at this point of time. The reason is because we were just out of it, and it is too early for us to comment on or give a direction with the numbers, the quantitative direction, I would say. So allow us 2 more quarters. Allow the business to come out of the struggling period as what it saw in the last 2 years. And hopefully, I think going forward, if we are able to see a credible 2 quarters, next time, I think then we could definitely build an hypothesis going forward.

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

My question is on the CapEx recovery in the core sector or heavy sectors. Now in during the 4Q conference calls, various steel and metal companies have announced capacity expansions with CapEx worth up to about $15 billion, if my bottom-up calculation is correct. Now in that light, how do you look at that opportunity? Because I noticed that on your outlook slide in the presentation, these industries like metals, oil and gas and steel ranked low on your target segment access. So what is the potential opportunity that you see coming out of this CapEx plan and which segment would it pertain to? Would it be process automation and electrification? Or would it be across all segments?

Thanks for that question. This is not representing that our low interest in this segment. We are seeing these segments are tracking low at the moment. The macro environment, what we do is whenever we find that the segments which are playing out better and has a better flow, we pay more attention to that. So that's the reason you will see we have good traction in our orders, et cetera. And that's where our efforts go in. Now with respect to these market segments, this is an opportunity. So you can see all these yellow, red and oranges, once they start tracking up and they joined the light green or dark green ones, a few quarters down the line, as the plans are being made by the steel companies, even Tata CEO mentioned that they want to double their capacity. As they proved it by, I think these will join us in the growth cycle, and much of our portfolio really benefits when that happens. I also have Mr. Balaji on the call. Balaji, would you have any specific comments in terms of how you see the CapEx formation taking place in the core sector?

Yes. Sanjeev, as you rightly just informed earlier that this is how the markets are structured and does not talk about ABB's interest. And what we see from the market is we are seeing there is an improvement coming up, especially in the steel and the oil and gas sides. Definitely projects being announced. What we can look forward is how fast these [ materialize ]. And the teams are quite engaged with the customers to offer our solutions.

Okay. Just 1 more question. I just wanted to know what is your current capacity utilization across the manufacturing plants? Because as you mentioned, about 70% of ABB portfolio now is short-cycle orders. So let's say, if we go through third or fourth wave of COVID and lose more time because of lockdown, would it still be possible for ABB to recoup that revenue growth? Is there adequate capacity headroom available to do that?

So on a qualitative basis -- I'll let Sridhar give you the number. Qualitative basis, yes, we do have headroom at this point of time for the near-term growth to come in. And that's where our business area managers and the divisions are already on the drawing board in terms of projections and possible projection of the growth that is being seen in the market and also not only the market and the interest of the group to use India as a base for exports. Combining that, we are already planning a few steps ahead around that. So Sridhar, any specific comment or data you have on the capacity utilization? Of course, we have 27 factories, so each 1 of have different capacity utilization. You have an average number?

Yes, sure. Sure, Sanjeev. So I think I'm more than glad to share that number. So we are at the range of between 80 to 85 percentage of capacity utilization. And this is a blended when I look at it. There are some things like new plants which they're operating at a still lower level, but there are, of course, matured plants like motor which are doing. But I think what we are looking at is like any other organization would do. All our management have built scenarios as to what could happen in case of COVID impact or if what could be the best case scenario if the COVID does not there, it doesn't impact us. And so these plans are pretty much ready. And looking at those plans, we are very confident that we have adequate headroom to cater to the growing needs of the customers. So -- and needless to say, I could give you 1 example, probably, I think, in preparing for the future, we have the GIS plant expansion medium-voltage switchgear, which is happening in Nashik, and which would be ready by probably end of next year, and that should be -- we are able to see that demand well before. And also it caters to the export requirements of the group. So I think in that way, as one way to supplement to this question, I think even Sanjeev mentioned, land banks are very much available, and we have adequate capacities to build further on that.

And 1 case in example is robotics. So if you remember that right in the middle of pandemic last year, we expanded the capacity of robotics because we could see the market around the corner. And that is being rich evidence for us because the capacity as well as capability of the team has grown multi-folds, and the best of the projects which are at -- I think customer finds very high confidence we do it. So I think most of our divisions have a good nose to the ground. But at the same time, we don't act too much in haste and too much ahead of the curve. I think it's more of the incremental change and sometimes we have to go for a kind of a greenfield, just to add a large capacity because the market in a particular segment is growing much, much faster.

The next question is from the line of Charanjit Singh from DSP Mutual Fund.

Sir, my first question is, in one of the presentations, you had talked about different end markets being moderate growth and low growth. And from -- one is the growth perspective in top-quartile bucket. What's the kind of growth rate which are each of these buckets? And in terms of our portfolio exposure to each of these segments because [indiscernible]. So what's the exposure there? And in terms of end market sizing, if you can share some info.

That's a good question. So I do have -- okay. So what we -- just to give you an idea, the segments which you all see in the right top corner. So we have double-digit exposure on that. The one you see on the left, forward distribution, again, we have a double-digit exposure on this in terms of our orders and revenues there. And if you -- low single-digit kind of exposure there in that segment. And if you go down in the steel, oil and gas, mill hazards and mining, despite the low CapEx, we have a high double-digit exposure to the 3 market segments. So that's why as the CapEx revised in this area is very, very welcome change for us because we get a very good pickup in this particular category. Also the segments like building in infra, textile and pulp and paper is again in the double-digit revenue and order base for us. And when it starts picking up, that also helps a lot. And then there are segments which are, by nature, are going at a much faster rate, like say, water and wastewater and the segments like data centers, et cetera, which almost -- which is growth rates are as high as 18%, food and beverage is 14%, pharmaceutical is 13%, water is 10%. So if you really see that maxed, one is the underlying segment itself growing faster and then our exposure to it and then our opportunity to penetrate that more into the Tier 1, Tier 2, Tier 3. If you mix all that, I think that gives us a fairly good leg room to run.

Just to supplement to what Sanjeev mentioned, I mean a good amount of double-digit growth also comes from the bottom sector, which is steel, oil and gas and mining. But even though we see that the CapEx could be pretty much less or be more regarded in some way. But I think from the ESG agenda point of view, there will also be a lot of changes in that particular industry. And we, with the portfolio, which will cater to the requirements will be better placed when the change happens in those industries. So I think we need to wait for how the ESG agenda plays out in these particular sectors. And naturally, then it could be definitely a better position to look at going forward.

Okay. Sir, that was very helpful. And thanks for the detailed numbers. Sir, the other question is on the pricing part. In terms of -- we have seen that when the overall market was running at a very slow pace, most of the capital goods had real issues in terms of [indiscernible]. A lot of businesses have become commoditized. So right now, when you look at our entire portfolio, what portion do you think is very commodity kind of a business, where the segmentation or competition is really intense. And there, we have a very significant pricing power. And in terms of price hikes, whatever we have taken in the different portfolio, you can highlight that in the last couple of quarters. That's my last question.

So yes, our ability to pass on the changes in our core portfolio, which is short cycle, pass on the cost as well as adjust the prices is quite good across these segments. And I think that has been visible and that was done. But at the same time, wherever we made commitment for the customer, and we didn't have a provision in the contract, we honor those commitments. Now when it comes to pricing power, there are pricing power comes from one is by like how much market share you have in a particular segment or how good is your portfolio and liked by the customer and also the sensitivity of the segment to the quality of the products that they use. Like in case of data centers, most of the operators, they want the best and best in class of technology to go because the reliability, availability, maintainability and the serviceability of these infrastructure is good. So what happens is that by virtue of that ABB product portfolio falls on the highest category of reliability. So those segments, they even try premium to get ABB into their products. So same thing goes for food and beverage, same thing goes for power distribution wherein there's an interest. But then you have certain segments wherein we have no pricing power like railways, wherein it is based on the tenders and also it is on the reverse auction base. But since the volumes are good, and we have an ability to adjust ourselves to the railways' expectations as we go forward to an extent as possible, that's something we can play out. The intensity of competition was high in water and wastewater because they used to allow everybody and anybody to participate. But given that now the availability, reliability equation is building up in that segment, we do have specifications changing, which are asking and demanding more energy efficiency solutions, more energy, efficient motor drives and the high-reliable components. So suddenly, you find that the competition evens out. So you're not really competing with very low-scale competitors. So accordingly, then the price moves up as well. So across our portfolio and across market segments, it differs as we participate.

Yes, I think we will go to the next question, it probably should be the last question because we have extended the time knowing well, but we had a longer commentary to make.

We'll take the last question from the line of Mr. Amit Mahawar from Edelweiss Financial Service.

Sanjeev, I have 2 quick questions. First is consistent commentary has mentioned about giving increased accountability to global locations and also establishing greater transparency. My question is, how has it helped you or the entire leadership team at ABB India or empower you through to rework the competitiveness in Indian market, which is very tough? That's the first question.

Okay. So that's your question. It's a good question. So what happens is different organization and different division goes through different maturity cycles. So what has happened now given the global direction, so the pressure or I would say the aspiration of each division is very high on being the #1 or #2 in the market. So that's the bottom line. And the performance has to follow. So there is a tremendous interest of the global divisions to look into large markets and India is one of those. And also, we do the same. We empower our local division managers. And 2 effects happens. One is that there is a direct accountability, but also what -- it gives us an opportunity to also to mature the leadership across the company at the division level, wherein we run the mentoring program, we run the coaching program, and we make managers better coaches so that they can lead their teams better. So overall, this transparency and this expectation really has a lot of positive impact and effect across the organization. So me and Sridhar don't chase them for performance, but we really participate in making sure that which are the impediments they have by which, whether in terms of production, in terms of manpower or in terms of participation in the market and making it easier even for the smaller businesses, part of our portfolio to scale up quickly. Robotics was one example because now it's on the accelerated path. Same way, there are different businesses which are large and they have a good position in the marketplace. What is it that we do that we keep complementing our portfolio, keep creating more penetration in the market, increase better customer experience so that the moat around those leading businesses is better. And then there is an automatic unfiltered support falling from the global side into this business in terms of portfolio support, technology support. And then we have a lot of local support available to these businesses, so that they can perform and act in the market in a seamless way. So that's 1 effect that comes. And then, of course, other part of the transparency is around the movement of the best talent. So every job that gets published within the company, which is available, it is not done by specific pocket. It is published and everybody, every employee who feels or she feels that -- she or he is capable of doing it, they can apply for it, and they are properly interviewed, and it's an intense competition for the jobs that open up. And I think that transparency is also helping mobilizing of the talent from 1 division to the other because if they have a logjam in 1 division for growth, we are able to grow other divisions and then they are able to contribute to the company. So these are the kind of certain effects which we can see. And I can see a lot of positive energy in the organization. Organization much more simplified, much more focused and much easier to get things moved and also take a view forward, whether organic or inorganic side of it.

Sure. Maybe last question from my side, vis-a-vis you already covered the preparedness there has been of new segments. Now given that we have a portfolio of conventional businesses where we have a lead market share and a lot of new portfolio, how should we see over the next 4, 5 years, on matured revenues even in new portfolio, the margin differential? You can be qualitative here and also you can give some innovative example for our understanding, Sanjeev.

So as a principle, we don't give future guidance. But since you asked this question on the qualitative bar side, I think the portfolio, one is that once there's enough demand in the marketplace for a portfolio, if it is well established, then it's more of creating and keeping the moat around it so that we continue to make that as a preferred solution for the customer. As far as the cost of businesses and the portfolio which is new, it tracks well. One is by our localization and second is by the acceptance of the market and in the other sides of the market as we go forward. So going forward, I do see robotics and flexible automation, which is on a kind of a size-wise a smaller business, it will grow much faster. Our energy and the -- energy efficiency portfolio will grow much faster in the mix. And also our electrical portfolio, especially the building automation as well as the switching portfolio, I think that will find a high portfolio, a high demand because now there's a clear understanding in the market for the high reliable components rather than buying something which is on the lower price. So there's been some market developing. Of course, still stays very competitive, but then there's an appreciation for quality because the people have significant investments, and they don't want to short-circuit that. And then on the process automation side, since we are exposed on the metals and mining, oil and gas, steel, power projects, et cetera, it's a -- direct correlation is with the OpEx and CapEx spend by these particular market segment. Our solutions are well-proven and all technologies available as these segments start tracking. So there'll be a bit of a cyclicity in this segment, but I believe these segments have seen quite a low investment in last few years after there was a high in 2007, 2008. I think it is quite mature for that CapEx cycle to start. So they will also, in the next 3 to 4 years, you will see a good mix coming from this side. Railway and metro. Metro segment continues to expand. And there again, I think we will see a significant growth in the -- on the metro side. And as railways electrifies, we have certain part of our portfolio, which was water and wastewater. So I feel our portfolio and the market segment, which has to play out in the next 4 to 5 years, our portfolio in the market segment, especially Indian market is at a sweet spot. And given different emerging markets, how they have behaved with our portfolio and given where India is in terms of its cycle of investment and aspiration, I think we find ourselves at a sweet spot of it. And both new and old portfolio will keep playing the mix as we go forward.

Thank you. And before I conclude the call, I think there were some data points which I had committed I would share, which is on the exports and the services. So on the services portion of it, so we were 18 percentage of our revenues came from services; and for the half year, also, it remained 18.5% to 19%. So that's how we are tracking and the service level that compared to the previous half year, which still was at 18 percentage. So that means this has slightly increased. And in exports, we see definitely a good order inflow in this particular quarter. So in this quarter, 16% of orders came from exports. And our revenues were slightly muted because we did not have 3, 3.5 weeks of working. So we are at 12 percentage of our revenues from the exports for this quarter. Yes. So with this, I thank you very much. I think we definitely extended the call by almost 20 minutes to make good the disruptions what we had on account of the technical issues. And also, there were some quite interesting qualitative questions around the market piece of the business piece more than the numbers. So thank you very much for the call, and thank you very much for joining this. So I thank all the management, the communication team, which could put it together on this. So Sanjeev, thank you very much. And we should talk again once again in the next 3 months to come.

Thank you very much. On behalf of ABB India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.