ABB India Limited (500002) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to ABB India Limited Q3 CY 2021 Earnings Conference Call. [Operator Instructions] Please note that no unauthorized recording of this call is permitted. The same will be available on the company and SEDAR website subsequently. I now hand the conference over to Mr. T.K. Sridhar, Chief Financial Officer of ABB India Limited. Thank you, and over to you, sir.

Thank you, Aman. Good morning, ladies and gentlemen. Welcome to the Q3 2021 Results and Analyst Call of ABB India Limited. So on the call with me are the entire management team of ABB at this point of time and the communication team. So without wasting any time, I'll hand it over to Mr. Sanjeev Sharma, the Country Managing Director; right for taking us through Q3 results, followed by some synopsis on the financial performance later by me. Over to you, Sanjeev.

Thank you, Sridhar. Good morning to all of you. Thanks for joining in. If we could go to the next slide, please. Next. Next. So I'll give you some business highlights followed by Sridhar coming back with the financial highlights and later, we will have the question and answers. Now in quarter 3, 2021, we have seen a quite strong growth across multiple parameters. You can see that the orders, revenues, margins are growing at a healthy double-digit growth. And also, our customers have been very adaptive with us post COVID. They had -- they continue to use our remote project commissioning services that brings a lot of productivity for the customer as well as for our serviceability. Industry leaders like Tata Steel and many others are leading this path. And that's a new chapter in terms of how we deliver our products and services to the customers. It's a mixed hybrid model going forward, and we are quite happy to have it. We are also have been contributing to pharma industry and especially, much greater efficiency in clean rooms of critical vaccine manufacturers during these times. We help them build those rooms quite rapidly and prioritizing deliveries to them, and also power equipment, provision for metros, which are ever expanding and also Tier 2 cities where the demand for stable power distribution is increasing. We have expanded our low-voltage motors factory as was informed earlier. This gives us the ability to deliver very high efficiency motors because they consume lot of energy in this country, and we see a strong demand in replacement as well as new installations with high-efficiency models, especially with the ESG awareness as well as practiced by most of the industries and corporates, it's increasing. So we see a good demand for our products and services. Given that we are managing our locations, offices with good ESG awareness as well as practice, we have been recognized by [ NSG ] ESG indices quite favorably. Now if we look at the numbers, next slide, please. If you look at the numbers, all numbers are beyond pre-COVID levels. And this also represents highest growth in orders in last 5 quarters and last 5, 3rd quarters. Profit also is at a peak for the last 5 quarters and 5 years when you compare with third quarter. So this is something we are pleased about in terms of how it is developing for us. Next slide, please. The order growth when we talk about was largely supported by a broad mix from traditional areas where we are known for and also the new identified high-growth market segment we have been developing for last few years, and they're paying us good dividends now. Electrification business grew 44% compared to quarter 3 last year. Our motion business grew 45% compared to quarter 3 last year. And the contribution came from channel business, exports, packaging and so forth. Our Robotics and Discrete Automation business, which we always talk about, that has good potential grew 83% compared to quarter 3, 2020 and process automation also is gaining traction in investments in mining, mineral processing and cement. At the core sector, we see where our process automation is positioned, is coming back with good CapEx plans. Revenue, we have a strong backlog execution solid customer connect and service business, and this is leading to positive movement in the quarter, and we see this trajectory to continue to go forward. Next slide, please. We continue to use the best of ABB technology in our own manufacturing. So you can see that usage of robotics has increased in our own plants, which means more productivity. We are able to use the same space and are able to produce much more production out of -- for the same products, and even at a higher testing capabilities as well as higher reliability for our customers. Last year, during pandemic, we launched ABB eMart for our Electrification and Motion business in the country and this is our own e-commerce platform, and we have seen very good receptivity of this platform. And especially, we have reached Tier 2 and Tier 3 cities across the country, which are otherwise was a physical connect, but now we find there's a much more momentum with the eMart in terms of pushing and pulling orders from growth markets. We see that new trends, which is the medium size enterprises are warming up to adoption of digital products. So that means all the core products that we do, they are digitally enabled, and we find that the demand by our medium-sized companies, it's not only a large company or large customer phenomena anymore, we are seeing more and more medium-sized companies adopting to the digital wave. For example, there are marked savings available with our new products like Emax2 and that gives a lot of benefit to our customers as well as system integrators and they are using these new technologies which are manufactured and available in the country. We also have offered to our customer base with local manufacturing, a world's first switch gear that allows customers across sectors, including utilities, industry and infrastructure to change the insulation gas that goes into the switch gears to an eco-efficient alternative at any point of the switch gear's lifetime. And this is a very good move and most of the customers who are very conscious of this fact are adapting to this new technology from ABB, which is again manufactured in the country in our Nashik plants. Next slide, please. If you really see the growth sectors and ABB offering and many of you who have been joining our quarterly calls, would have noticed that we were focused in certain market segments many years ago, and we changed the pace and we started identifying new market segments, and we have nurtured and developed them, and we penetrated in them. So you can see that we have grown from single digits about 4 years ago to almost half of ABB India's business in new market segment or new growth segments as such, between high and moderate growth sectors, 3 segments stand out power distribution, data centers and F&B, food and beverage, which has a USD 1 billion in market size for us. Most of these sectors are growing between 11% to 16% and our product portfolio, acceptance and also reference base with the customer is pretty strong. Data centers for an example will grow from 447 megawatts to 1 gigawatt by 2023, which is overall because of overall 36% increase in data usage by 2020. Smart buildings, which basically buildings consume 30% of energy that is produced in the market. More and more buildings are adopting to new technologies, which will save them energy like our building management system, which we ourselves use in our buildings, they help customers reduce their energy usage as well as the occupant experiences. And we are training a lot of electricians, architects and engineers to be able to help the market because we should keep in mind that 2030, 70% of the buildings which will be there, they are yet to be built. So there is a huge possibility for us to make an impact with ABB technologies in this particular market segment. Power distribution, basically, if you look into the city as well as in the industry side. By 2040, the IEA, International Energy Agency [ MD ] states, that India's power system will grow to almost 1,500 gigawatt, which will be surprising the European Union. So as you can imagine, European Union being a very matured market, India would grow that much. And that power, which is generated and transmitted it will have to be distributed into the consumer, be it in the cities or in the industry or in the transportation sector, and the new segments which are coming up. So we see quite a good uptake for us and our solutions going forward. And of course, for food and beverage, new schemes like Pradhan Mantri Kisan SAMPADA Yojana, food parks, export zone, cold storage, processing clusters, post COVID focus on nontariff measures, phytosanitary measures and many others, they form a kind of a new market base for our products to find their place. Next slide. So we also see some emerging segments in front of us, and these emerging segments if you really look at the battery storage, India has taken a focused view, policymakers have taken a focused view that they would like to have local battery manufacturing. And we have quite a good portfolio to support the battery manufacturers, and we look forward for this segment to grow. And apart from this, the hydrogen which is also -- is a new area. We will participate in this area as well as this market matures, globally as well as in the country, be it green hydrogen, blue hydrogen and the different types of hydrogen that we talk about. But in terms of business outlook, if you see -- you can see on the chart, which other segments we see are growing at a higher rate and a moderate rate and low rate, but we do feel that the low-rate segments are getting a lot of support from the government policy, and they will also move into the moderate and the high-growth area as we go forward in coming quarters and coming years. So the schemes like Jal Jeevan Mission, AMRUT 2, exponential investment is expected and after a subdued investment in 2020 and 2021. Gati Shakti investments include 4 ABB identify high-growth areas of water, transport, energy and logistics, and we are engaging with the channels wherein we can take benefit of it. Next slide, please. So when it comes to implementing ABB India ESG strategy that is environmental, social conscious and governance. We are into Phase 1, wherein we are converting all our locations, large locations into green factory buildings. And we do expect that 3 out of our 5 locations would be green building certified by end of this year. And we hope that the remaining 2 will be certified by end of quarter 1 or 2 next year. So that's the kind of a commitment we have. A lot of work is being done, investments are being done. And when we do the ROI calculation, it is a good thing to do. It pays back as well as contributes to the environment as well as to the social commitment that we have. We do look forward to be the -- achieve the RE100 goal by December '22. That is all our locations will be using renewable energy. We have a very well-structured program, and we are implementing it by proper data gathering, proper consultants who are helping us, and we will have the RE100 project realized by end of next year. Same thing goes for the water initiatives. There are a lot of work in progress so that we achieve our milestones wherein we will have the most optimum use of water. And also, we are aiming to go for waste net 0, and some of our big manufacturing locations have made good progress, like in Bangalore, Peenya we are 98% of recycling of waste. Nashik and Farida already have achieved 95%, but our aim is net 0. So with these highlights, I'll hand it over to T.K. Sridhar, our CFO, to take you through financial highlights.

Thank you. Thank you, Sanjeev. So, [ Ram ], can we go into the financial highlights, please. Yes, the next slide. So good, I think just to start with a positive note, I think this quarter has been a big -- strong comeback for ABB as such. I think the third quarter normally in ABB standards used to be and always a weak quarter, if I trade back into the history of how we perform in third quarter, right? And the other reason is probably because there was a pent-up demand, which was there in the Q2, which was affected because of the COVID. So it started to realize, and that's something which you also see in the numbers. So orders, I think I would like to give -- I think the numbers are something which is already clearly seen. So the commentaries are as below. So when I look at the highlights of Q3 '21, I think it resembles or it sort of reflects the recovery from the COVID-disrupted market dynamics. That is pretty much very clear for us. And when I look at the businesses, how they have performed, it has been growth across all the businesses be then 18 divisions and all the 18 divisions, majority of all the divisions of 18 divisions have posted growth in all the parameters. And needless to say, I think the cash flows have continued to remain strong. So that has been our USP for now so many years to come to make sure that we have cash over revenue as a mantra that has been followed religiously, and it also reflects the quality of the revenues and the orders, what we have in terms of execution. So this is some highlights from Q3. But when I compare to, say, Q2 '21 sequentially, I think the growth is also reflecting some of the favorable mix, which we had in this particular quarter compared to Q2 '21 as a sequential reference. But we also got to recognize in this quarter, we definitely had I mean commodity prices hardening. And that's reflected in some of the government BUs, which definitely depend on the metals that are being put for them. And we also saw a certain uptick in expenses because the market is opening up, people have to travel to meet the customers and also there has been increase in fuel and that reflects in the consumption of the freight and other stuff, which is there. So the story is we did have an advantage of a low base of expenses because of COVID, right? But now the market is opening up and coming down to normalcy, we should also assume that there could be definitely an uptick on the expenses, while we exercise our options to be cautious, for the reason what we spend. And that means we spend for everything which is required for customer-related activities. And when it comes to the others, we definitely look at options as to how we could do it differently. So -- but at the same time, I also would like to emphasize there will definitely remain certain focus areas, which we will continue to remain focused on. It's important that we keep momentum in the order inflows and with the appropriate mix going forward. And as we see end market giving some positive revival signs, we also would like them definitely have to work on the capacity planning, both in terms of the physical infrastructure and also as well as the human resources, what we say. And today, we have definitely have certain inventories, which we have planned in order to deliver for the committed backlog. That also would require and precise planning with the global sensitivities around supply chain disruptions, what is happening at this point of time. And the last but not the least, as we had told earlier in Q4 2020, we had taken an impact on account of the legacy projects of Process Automation. That's on the sharp focus to make sure that we close out and come out with at least a decent closure on those particular projects. So the cash balance at the end of the year is -- end of the quarter is INR 2,481 crores. In the last quarter, when we closed was INR 2,364 crores, end of '21 so we make sure that whatever profit which we have earned is reflected in the cash and that's what you could see that we make sure that our net working capital initiatives are pretty strong. Next slide, please. Yes, this is something about how our summary looks like in terms of performance. Material cost. I think you could see that it has been favorable. It is lesser than the previous quarter, more because of favorable mix, and also we did have a better price realization, and that's something which has showed up the contribution as what we could see. And we also have definitely personal expenses because it's a normal increase over the pay scales of last year, which has been burned out. And the key takeaway, I think improved profitability year-on-year. That's no doubt. And margins are supported by demand and better capacity utilization, what we see, right? So -- but we will also go to a waterfall, which gives a bit more -- some more finer detail. Next slide, please. Next slide [ Ram ]. Yes. This is a PBT bridge. I think this is how we traveled from INR 114 crores to INR 165 crores for the quarter. So we were benefited because of the base volume increase, the mix and, of course, the material cost reductions, which we are continuously working on. And also we were definitely dented because of the personnel expenses and fees and other expenses slightly increase, which was more related to the [indiscernible]. But the notable thing is that we had an unfavorable ForEx swing compared to the previous quarter same time to the extent of INR 28 crores. So that's something -- so -- and this is all -- as we know, this is -- we follow the IndAS and that mandates us to do a derivative accounting as well, and this is momentary at this point of time. This gets actualized as and when we use the forward hedges in the cover. Next slide, please. Next slide, yes. So this is something which is pretty much interesting this slide. If we have -- we have been tracking you could see a perceptible change that perceptible change is about while the revenues and the order mix remains to be the same. If you look at the profitability mix, it has definitely changed. And you could see that PA, process automation, has come back with a strong set of numbers. So you could see the profitability percentage of PA increased from 7, 8 percentage level back to 17% level, and that's more because of the mix, the profitability and the operational efficiencies, and there have been no write-offs of the provisions what we have been created. So that's something which you would like to say. Yes. Next slide. [ Ram ] if you go to the next slide, please. Yes. So now we go to look at the trends of each and every business. Electrification, I think all the businesses have definitely shown a decent growth during this quarter, right, so order booking at INR 707 crores, and they have an order backlog of INR 1,386 crores, which is strong, and they have clear visibility of how this will be executed. And revenues, I think still improved from what it was in the previous quarter and export performance has actually helped them gain better margins going forward. The next slide. Motion, which is basically a very steady ship. I mean, absolutely maintaining the momentum in all the parameters right? And so they are -- and that's more because of the fact that they are market leaders in quite a few business and business lines division. And so that quantum and complemented with volumes and capacity utilization has really helped MO to have -- to be a steady ship even in case of COVID effected situations, what we have. Next slide, please. Yes. So this is a slide which -- and answer to quite a few questions, what analysts have been asking us a few quarters. When will PA come back? So PA is definitely coming back on the right track. And I think this is something which we were also waiting to see as to when this will come. And I think we are in the right part at this point of time. I think more we need to stabilize this growth and the profitability journey, right? It would not be only just on 1 quarter, which we show these numbers. There's another team on the line on the ground pretty much aware of the facts that the key is project execution and excellence in that and also getting good service revenues and a better mix is the key. So I think we are confident that we should be able to maintain the trajectory going forward. The next slide. Robotics, I think this is again another story of success, what we have seen from the past to what we are today. So a strong order growth in the quarter. Order backlog is fully executable with clear time lines. The service revenues have been pretty steady in this particular quarter, and their revenues are also because of -- the profitability because of that is also boosted because of good revenues what we had. Yes, next slide. Yes. So a couple of data points, which normally are so well. I mean, the slides have definitely certain points of how much is the backlog by division. That is already there. In terms of exports, the revenues for the quarter, right, was 13 percentage of our total mix, in terms of revenues from services, we were 16 percentage of the mix is basically what was service and exports. So these were a couple of other data points, which is important to note. And also the other data point, which could be, as you've seen from the results is around the unallocated. So while there is a bit of a swing sequentially, I think on a cumulative basis, if you look at it, there has been not much of a swing. But on a -- for the quarter, you could see a swing, because last quarter, we had certain interest incomes from the tax refunds and also this year is our expenditure, which was allocated to the businesses, but which was earlier accounted in the common unallocated side of it. So there are no -- in other words, there have been no abnormal circumstances where it has been where they -- you could see this movement. It's more due to normal operational topics what it is. So overall, this was a quarter which was an example of a strong operational performance with operational parameters, which was bending in the right direction. So with this, I think my commentary ends and probably the last thing which I would like to show is about -- talk about is about what are the risks which we need to keep or watch out for in the coming quarters. right? So when it comes to typical is what we keep track is about inflation, what we have and then prices for the commodities of steel and copper and aluminum and also the availability of material, especially with semiconductors and plastics and electronic equipment is something which the business has really managing pretty well in alliance with the global supply chain groups. And of course, we have the firmed ForEx volatility, which at this point of time looks stable, but we need to -- we keep this on the radar. And last but not the least, is about the fear of the COVID 3 surge in case if it happens. So I think these are some of the top risks which we see would probably impact going forward, but we are hands on all the -- hands on deck. I think the teams are doing pretty strong to face that. So with this, I think -- we could open the call for questions.

[Operator Instructions] The first question is from the line of Puneet from HSBC.

Can you give some broad sense of -- in your total revenue growth, what would have been the price and the volume mix?

Puneet, this is Sridhar, so I did not get your question. So what's the?

Yes. So your revenue grew by roughly 10%. How should we think about volume growth in it versus price growth?

I think if you have seen our waterfall slide, it's talks about the impact because of that, which is basically capacity, volume and mix.

So there is no price increase which is factored in this, right? Is that the right interpretation?

The mix also inclusive of the price because a mix is a broader term. It's between services, exports and a profitable product, which will go in. So that's the thing. And the volume is definitely reflecting the capacity part of it.

So in other words, in many product lines and many market segments, it's possible for us to pass on the increase in cost into the price. Yes.

Okay. Understood. Second is on your other expenses, they have sustainably now stayed low within bench. Do you expect these other expensive tools remain low for the years ahead also? Is that the new norm?

See, that applies to certain things, which are not volume driven.

Sorry, I can't hear you.

Right. Yes. But we will be sort of cautious about what we spend for any expenses which are relating to order execution and customer-focused expenses is something what we would like to invest in. And what we would like to be mindful is that those expenses, which are more for internal reviews or internal purposes is what will be an element of discussion.

Okay. That's very useful. And any material impact in this quarter on account of semiconductors?

Material impact to us, nothing.

So we don't have -- there are a few products which use semiconductors, but no, nothing material that we can talk about.

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

Congratulations for a good set of numbers. So I have 3 questions. First, gross margin expansion in such a hyperinflationary environment is really a remarkable achievement. Would you believe these are sustainable and there are more legs of improvement. That's question number one. Question 2 is, if you could talk about competitive intensity, especially in the Motion segment, wherein CG Power is claiming they are back with a bang and gaining -- regaining the lost market share? So that's the question two. And third question is, is there any outcome about the electric charger business wherein parent has announced an IPO. So how will it be treated for the Indian listed entity? These are my 3 questions.

Okay. So Bhavin, so let me take the first question with respect to margin expansion. So how it is it basically. So as I was always telling right? So our focus is to our -- probably our ambition, right, is to go to a double-digit PAT number, and that has to come only from the operations. That's the first one. First opening statement, what I would like to make. But to go through that, it's definitely going to be a bit of a journey in the current market situation, what we have. We want to first stabilize at the PBT level and percentage, which is double digit. And then afterwards, aim for and profitability at the PAT level, right? So the margin expansion in the current quarter is what you see as we were saying, this time, I think it was due to 3 to 4 important factors as what I would say. The products of these revenues came from more profitable product lines, number one. And definitely, we had done certain market price corrections as well. So that's important for us because with the commodity prices increasing. So we had to implement that. And also, we did not have any unfavorable impact when it comes to project execution on the things which process automation was facing headwinds last year. And definitely, the service content of the revenues is also pretty much solid at this point of time, which was not earlier at this point of time. So net-net, I think this will stabilize this particular material cost, which you talk of 65.5% versus 66% levels, what was there earlier, will move between those particular ranges depending upon these factors. So my take on an overall basis, I think we should be in the range of 66 percentage. I mean, that's the range what we look at with the current order backlog and the mix what we have. Right? Over to you, Sanjeev, for the balance question, which is basically EV charging and...

CGL.

And CGL yes I think -- yes.

CGL. Sanjeev, I think he excused himself today right, Sanjeev Arora?

I think he was there. Is he there Sanjeev Arora? He's not connected. Okay.

Not connected, it's okay. So as far as CGL is concerned, I think they were always there. So we didn't really see them missing that they can claim that they're back. But maybe from the new constellation that they have with the new group, which has acquired them. I think maybe they are referring to that they are rolling well in the marketplace. So I think the market is always formed out of the market constituents and they have to play themselves out. So we don't really focus too much on the competition. We really focus on our own portfolio and our own strength and our customers and what exactly they're looking for. Our core focus is on energy efficiency delivery to our customers and the market segments that we are focused on. And that's where we find that our portfolio combination of very high energy efficiency motors complemented with the drives that combination gives a lot of benefit for our customers. And we have only seen in last few years, even if you track the numbers of our Motion division, we have really gained strength to spend. So it's not -- it hasn't been a factor of competition. It has been more factor of what our product portfolio does for our customers, our OEMs, our channel partners, our ability to deliver consistently and our ability to stay as a consistent player in the marketplace that plays in our favor. So that's our view as far as the first part was concerned. The second part, electric chargers. Well, this is a market in formation. There are more markets like in Europe and America, they are more matured, including the car platforms, which requires electric chargers. In India, the -- this particular market is at the nascent stage, given that the 85% of the market is constituted of the 2-wheelers. So there's much more focus in the 2-wheeler segment or 3-wheeler segment, et cetera. Not much of tracking in the car and the bus segment where our -- typically our chargers go, that's where our portfolio goes. So we don't play the 2-wheeler and the 3-wheeler market segment, which is a bulk of the segment at this point of time in the country. So -- but we are participating with Ola. As you know that we are automating their new facility, which is going to produce Ola electric scooters. So we are the ones who are providing the robotics into it and other aspects of automation and similar. So with respect to EV charging business being dealt with ABB, ABB Group is keeping that business. So we always look for the group details, how they will organize themselves and how the market will form in India and how the how this business will grow for in future. It's too early to talk about it.

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

First question on the process automation -- hell? Is this better. Hello?

Yes, request you to use the handset mode, that would be better.

Yes. I hope I'm audible. Okay. Great. So sir, just 3 questions. On the Process Automation side, yes good to hear that things are getting better and you're starting to see growth volumes and margins pick up. So if you could just talk about which are those core industries where you're starting to see ordering come back and where you see an improvement over the next couple of quarters?

Okay. Is Balaji on the call.

Balaji is there.

Balaji, are you on the call?

Yes, I was on the call. I hope I'm audible.

Okay. So Balaji, let me repeat the question in case you didn't get it. So the question is for the process automation doing well. What are the 4 sectors which have started tracking well. And what is your overall view on the sectors which are relevant for process automation. We did mention it in our commentary, but if you would like to go even more granular?

Yes. Thanks, Sanjeev. So with respect to process automation, I think we see an uptick in most of the segments, but the strongest ones are coming from the 4 sectors, mining, cements chemicals, specialty chemicals is picking up. We are also seeing some movements on the oil and gas. So this should -- we see that they should be holding fort for the next couple of quarters at least.

Okay, fair. That's helpful. Sir, second, on the motor side, are you also planning to get into the EV motor, the [indiscernible] they have planned to kind of tie up with more of the OEMs, if you could talk about your plans there?

Ankur, honestly speaking, we are not able to hear you clearly. So would you mind repeating the question, please? In short.

Sorry, I was saying that on the EV motors, what are the company's plans, if any, get into the BLDC motors for EVs over the next couple of years? Are you planning to tie up with any OEM on that side?

So we are into the traction motors, electric traction motors, but we are not in the EV motors that go into passenger vehicles as such at this point of time. So if that status changes, we will update you.

The next question is from the line of Renu Baid from IIFL.

Congratulations for the strong results. My first question is Sanjeev if we see your outlook and comments on the end market have been fairly bullish for last few quarters and numbers are also reflecting that. So from a cycle perspective and business momentum, do you think that we are now entering into the phase where ex the mix, et cetera, volume growth itself should now start trending in mid-teen levels. So what would be a broad take in terms of growth in the end market outlook and how can we leverage that?

Right. So we -- thank you, Renu. Thanks for your comments. So the reason why we have been bullish for last many quarters, and that's showing in our results is because of 2 reasons. Number one, there are underlying kind of market development. But at the same time, we have done quite a bit on our product portfolio expansion as well as a lot of work we have done in penetrating new market segments and new markets. So the combination of 3 gives us a very good base to expand our business. So that was the reason why we were -- we have been bullish and that's what it is showing up in my commentary as well how the new market segments have started contributing over quarters. So that's 1 part. Now going forward, we do see for -- okay, the other comment I can make is at this point of time, the markets are behaving higher than what we estimated. So we were able to cater to the market to the expected levels. And at this point of time, we are catering to the market because our demand is stronger than our estimates. So what we have is since we have the capacity available we are able to adjust it quite well. And net of supply chain disruption, so there are only very small elements or some small commitments get affected. Otherwise, we are able to meet customers' requirement. But we are challenged with the extra demand in the market at this point of time. But going forward, we do see the underlying macros of the market pretty strong for us. But we do see that the supply chain will stay disturbed for a period to come. So though the market will be strong, the demand will be strong. We will navigate it based on how we want to commit to the customers because we don't want to disappoint any of our customers. So that's how we see markets generating going forward. And I don't see any indicators at this quarter of time or any signs at this time, at this point of time that the market will be weaker in the coming quarters.

Sure. The second question is while we have seen offerings like Emax2 witnessing wider acceptance from MSMEs and SMEs. So broad, as a trend, how do we look at the penetration of these high energy efficiency or automation digital solutions are getting absorbed into the wider base of India's manufacturing sector and industry. And in your view, what kind of growth tailwinds can this add to the base portfolio and the headline numbers for ABB India?

So I will pass this question to Kiran, Kiran Dutt, who is our head of EL. But just before that, let me tell you that we recently moved just last week, we moved into a new ABB building here in Bangalore. We left our World Trade Center office. We have moved into our Peenya campus, wherein our corporate office, our Motion office and EL offices are together. And we are using about 5,000 of ABB products in this 3-floor building, and it is automated to T with the energy management system Emax2 breakers, which communicate and you can actually control this building sitting out of Mumbai, if you want Renu, if we allow you that access, right? So it's that kind of a projection we have. And this is a kind of a work in a kind of a demonstration, a walk-in demonstration for customers, how the future of the building should be built across the country. And as I mentioned, the buildings that will exist in 2030, 70% of them are still to be built. So Kiran over to you given our high-end product, Emax2, their kind of applicability in the market and how you see the progress.

Thank you, Renu for the good question, and thanks, Sanjeev for passing this one to me. Emax2 is not, I would say, a product which has been just launched now. It's been a part of product that's quite available from the past 1 year. And the technology is quite superior in terms of how it operates and what is the functionality required by the customers as well. Customers at this point of time, as Sanjeev also spoke about looks at connectivity, looks at efficiency, looks at main importantly what the breaker does in terms of protection features. So all this is packed into a breaker, which is having a very small footprint. So in a particular building where you have constraints in terms of space, this is a product which actually occupies very less amount of space and giving all the functionality required in that particular breaker as such. When you look at this particular -- at the question -- the answer to the question in terms of the acceptability by the customers, whether it is an SME customer or in terms of a data center or in terms of a customer who's into cement, steel, textile industry any kind of industries, the acceptability is very, very high. Why? The reason is that most of these customers would like to have control as Sanjeev said, in terms of controlling this particular building, right, sitting in from Mumbai. I think most of the customers would like to have controls sitting at the place where they are. The entire client says, the plant occupied is about 20, 30 acres or maybe 100s of acres and you should be able to control the particular breaker at a particular point of time from sitting in a building at the corner of the site. So that's the biggest advantage of this particular breaker. And overall, what we see is very high customer acceptance into this. Not only the software which is built into the breaker, but also what is the software, which is actually supporting the particular system of this particular breaker. So you need to have a software not only inside the breaker, but also outside the breaker, which can give you captivity. So this is what.

Thank you. Thank you, Kiran. And just like Emax2 is 1 component, but we have many components like our drives, motors, and all these components, when you say high-end, we basically, what it means is that they have very good electromechanical properties, but then they have a inbuilt digital layer in it. So whenever a system integrator or a customer or we deliver it, it gets seamlessly integrated into their digital network, and that's where the value gets created. And as we mentioned earlier, large customers, medium-sized customers, OEMs they are making now the products and their subsystems based on smart components. So that's where the smart components and products get fitted in and the ability to integrate them together to create a better customer experience. I think those are the solutions and those are the software also are delivered based on the kind of sophistication customer will go for. Like for a building or an industrial plant when all these components go together, our ABB ability solution is able to pick up the data out of it, and is able to do more useful things on top of these components. So that becomes the attractive point of it.

Just my last question is last year, during the pandemic, we had launched our entire bouquet of services for remote operations, which are offered complementary to most of our customers. So have we started charging customers for these services? And what is the acceptability from the customers for paying these services here?

So I think for us, the benefit for us has been for the productivity of our expert resources. So that's something which we continue to gain today that we don't need to send somebody to pick a small thing all across to east of the country, which takes 2 days travel in and 2 days travel back, we are able to fix that problem in half an hour sitting here in remote locations. So in fact, we gain much more. But of course, the value delivered to the customer is also there and then we say, whenever you deliver value, you should price that value and you should charge that value. So we will get into that space probably next year. We have -- we still haven't declared ourselves out of pandemic for our own workforce as well as for the customers. So we continue to behave that way, and we continue to offer those services, and we would like more time to be given to the customers so that they get used to it before we start adding value pricing on top of it.

Our next question is from the line of Sumit Kishore from Axis Capital.

Congratulations for a good set of numbers. My first question is, could you speak more about ABB Mart you mentioned 26x growth in organic users since 2020, basically, what category of customers and what products are getting supplied through ABB not what is basically the percentage of revenue that you are getting from your online platform? And what is the potential over the medium to long term?

Kiran would like to take the question on eMart.

So what's basically the nature of products which you do it, the nature of customers and what is the composition? Composition, I will take. Sanjeev.

Thanks for the question, Sumit. And let me answer that question. eMart has been quite successful. As we also said in the commentary that we are able to penetrate into the dietry, I would say, even Tier 2 cities as well in India. It's actually giving us a very big advantage in terms of reaching customers who are very remotely located, convenience to the customer on finger tips, they are able to serve the eMart, which has got about 7,000 different products on it. They are able to source and then take it at their door set. So that's a very big advantage in what we have in the eMart. And overall, as we also said in the commentary, it's about 26x, which is seeing the kind of users who are on eMart. If I just give you information in terms of the kind of visitors, which are on the platform is over 300,000 visitors on the particular platform. So that's the kind of feature we are actually looking at on eMart. So this is giving us more in terms of visibility as well as more in terms of trying to reach customers who are remotely located.

So in other words, the cost of acquisition of new customers had dropped dramatically for us, which is and also the -- our ability to serve these customers and also getting the feedback from them has improved. And as Kiran explained, though the numbers look good. Our experience is good, but it's just start of the journey, because given the vast potential of this country and the remoteness and the users looking for good products and services, sometimes physically, they are not available. Very reason they can get on to the platform on the digital bandwidth available across the country. It will have a multiplier effect as we go forward. We are learning a lot. We are analyzing a lot. And as I said, this is just the start of the journey for us in this particular case. We have a business case wherein we should see a multiplier effect going forward.

Yes. So the other question is that whether what's the sort of portion of the revenues of the business is, right, Sanjeev was saying, it is an agent stages at this point of time. So that's why we do not want to burden the system at the time with measurement rather than we would like to focus on motivating the business guys to go or reach out to the customers to get the best advantage of this. And eMart is just not to 1 particular division or a business. It's an overall ABB portal from were any product which could be sold through and a technology platform can be sold. So we will come up with this going forward as the system matures.

Sure. Sir, my second question is that we've been assuming the slide on business outlook now for the last few quarters and categorization into high, moderate, low. I mean, if you look at the top corporate, let's say, in metals, cement, specialty chemical, we've been hearing a strong commentary on CapEx update by them in a strong commodity price environment, especially in metals. So I just want to understand over what time frame because we also saw big orders for you in metal and cement, which were part of your press release. So over what timeframe are you really see these low becoming moderate and moderate becoming high, if you could give us some sense around that, especially for these segments which are category first. [Technical Difficulty]

Yes. Okay. Can you hear us still?

Yes.

Yes. Okay. All right. So as you can see and as we observed collectively, last 5 to 7 years, there were no CapEx spend or less CapEx spend in the core sector. And -- but we still benefited because of the OpEx spend by the customers because we have an installed base created over the last 40, 50 years with these customers. So we really had a good way to participate with them. But now if you see because of the NPA regime, the nonperforming assets, lot of consolidation took place by these large players in the core sector. They acquired a lot of assets which were available out of the NPA process. And we see that a lot of capital got spent there, but the capital didn't get spent on creating the fresh capacity on the ground. Now given that these price of these commodities or price of these products in the core sector have upticks and they have gone up, we see that the balance sheet of our customers is much lighter. They have been able to pay off their debt and that gives them the leverage to invest more going forward. So we see in the first cycle, such companies invest first in bringing the upgrading their acquired assets to the same standard as their other assets are. So that's 1 area of spending, and that's where we have been participating, be it in the mining industry, more in the steel industry, cement industry. So that's where it has always been happening, but not to the same scale as a greenfield project will bring in. But we do have visibility of CapEx plan of these companies. And given their balance sheet we do see that they have the possibility to invest more. And given that this cycle is going to last longer, and that's what we hear from the customers that they see a longer cycle that will be then complemented by the greenfield investment or expansions alongside their existing plants for different product mixes or maybe the base product line itself. So yes, the CapEx visibility is there. Some of that is getting converted and some of that will get converted in maybe in a few quarters down the line or maybe a few years down the line, but that's what is very be to us at this point of time. Relative to 2 or 3 years ago, nobody was talking about any CapEx. There is a CapEx formation at least in the planning and the engineering stage with the customers.

Moderator, can you actually limit the question to one. I think we could take a couple of more questions and then we could end the call, please.

[Operator Instructions] We have the next question from the line of Ravi Swaminathan from Spark Capital.

This question is in continuation with the previous participant question. So we have classified this business outlook into high, moderate and low. And if you see the sectors which have given the large orders in the press release, if you see a lot of the heavy lifting has been done once again by the sectors which are in the category of low, which is our steam cement, et cetera. So my question is, so basically, are the high-growth sectors, do they carry a lower ticket size? I mean I'm not seeing very large orders coming from water logistics, arousing data centers, et cetera. are they likely to come going forward? Or is it like in general, the decade side of the sector orders are relatively lower compared to steel, cement and oil and gas and other categories. If you can throw some more light on this will be grateful.

So you should see now if you have been observing ABB for a long period of time, we used to be very project-heavy before we divested our power grid business out to Hitachi. Now the portfolio ABB has is 70% products.

Ladies and gentlemen, it seems we have lost line for the management. [Operator Instructions]

Ravi, can you hear us still?

I'm able to hear you. Yes.

All right, Ravi. Okay. So if you see that now our product portfolio or the portfolio that we place in the market is not very project heavy. It's very product heavy. We have 70% products and we explained about 16% to 20% comes out of services and remaining in the projects business. So earlier, in our portfolio, the top line used to depend upon large projects. Now our top line depends upon how many market segments we are participating and how much intensity and the variability in those market segments are to pick up more and more orders out of the products. So in fact, the business outlook that you see in the high segment, whether renewable, waterways, water, warehousing, logistics, the activity here is much more broad-based, individual projects may not have a very high CapEx, but the activity is broad-based. That's where a lot of products flow into it directly, as well as through our OEMs and our integrated partners, right? So that's what is attractiveness of this. And we see that is expanding as we go forward, and it is good and attractive for us. So that's why you can see in the case of Motion, we get a lot of benefit also in the electrification, we get a lot of benefit there. Now when it comes to the moderate segment, again, food and beverage, pharma, data center, railway and metro power, this is a kind of a view we take every quarter, how the market formation is today. And this keeps shifting based on the policy measures as well as how the particular market segment sees itself in terms of their investment. So our strength is not a particular market segment, our strength is that we go out to the market with 18 distinct divisions, which have a distinct proposition for the market, and they play about 19 market segments. So a combination of these 2 with 18 product markets a product divisions playing 18, 19 market segment, which are in different cycles, during different times that mix gives us the robustness and a solid platform to continue to grow as we penetrate the market by different initiatives and also continue to increase our product portfolio. And if there's a particular market segment, which is very buoyant and at any point in time, we take benefit of it. And if 1 market segment goes down, it doesn't really bother us as much because then we wait for it to revive as we go forward. So that's how we see our market and that's how we play it.

Yes. And that's also actually reflected in the performance what we have been doing for the last several quarters.

Got it. And a continuation to the same question. So basically, among these 17, 18 kind of end markets that you have classified say, INR 100 is spent on any project on any of these, which are the segments which -- in which to basically these products are used. So basically, 20% intensity, 30% intensity or something like that. So like, for example, data centers or if you can give a broad thought process.

So we do have the data, but it's a comparative data. So that's something we are not going to give you a granular picture, while we track it by that exact number. So you got it right. Your question is absolutely right, but maybe you don't get a very good answer from us today.

When you look at this particular chart, what we are seeing to give you is that what's the growth rate in these particular markets, right? So when we say it is high, it means that in these particular markets, there is a high growth or a high activity as what Sanjeev was mentioning, right? So that doesn't mean that it is in terms of our orders, we are getting higher order.

So like -- just to satisfy you in terms of high-touch point segment, water and wastewater is a high touch point for us and especially our portfolio in MO is very significant there, followed by EL. And if you look into data center, there it is very EL dominant. It's a very, very strong segment for us. Quality of the high-end customers, they really rely on ABB in this area, food and beverage, pharma, it is for all the segments. And railways and metro is pretty strong for MO and EL and power distribution is a very EL play, and automotive is very robotic play, Buildings and Infrastructure is a dominant EL play followed with a mix of MO. Ports is done mostly by our PA, cement and mining is PA, but they also pull through a lot of. [Technical Difficulty] So that's how the mix goes some of their segments are very dominant by 1 particular market segment, dominant in the sense in our mix. And there are certain market segments where in all the divisions and the -- or majority of the divisions to play it out. So it's a quite a mix whenever you play these segments as we go forward, yes.

So Aman, I think we'll probably take the last question next. That's it.

Sure, sir. The next question is from the line of Aditya Mongia from Kotak Securities.

The question that I had for you all was more related to this development last time around that you were suggesting of the global business had giving a green signal to India to scout for organic inorganic opportunities? I think the last time you have said that expect was half done. I wanted to get a sense of things first they have if in terms of your CapEx plans? And if you could share some details on the progress on this?

Sure. So on the organic side, as we said, we will continue to invest as our capacities get utilized. We still have a headroom there and also possibilities to use a number of ships that we can increase our manufacturing and. So that leverage we have. Now in the inorganic side, yes, we can confirm to you. We did a very detailed exercise by each division because what we focus on is that each division must have complementarity in India or at a global level when we want to make an inorganic acquisition. So we have a fairly stable pipeline available, and it is also shared with our global team. So it is being evaluated. So as and when something matures because not only that we like a company, we should have a willing seller also on the other side, whenever such a maturity comes, we'll definitely share with you.

You got that. So the way I understand the exercise is done from all side, and now we'll move on from here. The second question that I had was related to the BMS market. Now in your opening comments suggested that there is an ROI to be made and that is why you are shifting your office. I want to get a sense of what more is required for this market to become bigger and bigger if ROI is already in 1 favor. Is there a need of reducing, let's say, the payback period still further? Or if there's an issue whether regulatory-wise, just a certain action would make quite visible for you?

So one, of course, it can come from regulatory. In fact, they can always regulate how much energy should be used by the per square quarter feet of a building. But we have not seen that very clear regulation. But I believe most of the organizations will be impacted by the ESG agenda. I think that will be a good driving point to have a green element and also ability to use renewables, the ability to use mix of energy and also using energy at the lowest level, and also reduce their costs. These will be the driver plans. I would say the awareness in the market is at the component level right now. That's why we have invested heavily in this building. And also, we are opening another for building our R&D center in about 20 days' time in Bangalore, where again, we have equipped -- with BMS and a very, very strong ABB MO and EL portfolio. So these will be the demonstration where we don't sort to customers on the component level, and that's what the market and the customers perceive, and then they struggle to bring them together. We want to give them an integrated experience, how to do it, how to engineer it. It will be with architects. It will be with the interior decorator that also will be the contractors themselves who build the building. It's an educational process, which we will carry it out. That's why we have made our own investments in it. So that we can turn the market in that direction, be it hotels, be it new AAA, great buildings coming in. So those will be our target, including the industrial plants, which are going to come in future. So yes, they can easily target 30% reduction in energy, I can tell you that sometimes, I think we have post COVID scale when we get together, we will really demonstrate to you. Like in our office, energy doesn't get used where people are not there. So the meeting rooms, which are not occupied, no air gets pumped in there because our drive controlled by BMS and our motors energy efficiency motors, they just ramp up the temperature. And if you see that you need to use this, and then they detect somebody who walks into the room, accordingly, the energy adjustment takes place. So just by how buildings are and how the locations are used in the country, I would say, knocking off 30% energy savings is quite an easy target to achieve, and that's what we will target as we go forward. And that not only gives us the good ESG credentials in our own locations, but it will also build become a supplier of choice in this area. That's how our ambition is, but I think there's a road to be traveled in this area.

And that's absolutely clear. This is a fairly large market if you kind of think through 30% and just the commercial buildings that are going to come up, maybe $1 billion or the kind of size? And how much is it over right now?

It is a large building and I'm sure you have more analytical strength than we have. If you do we analyze the existing building, which can be retrofitted, you start with a hotel or you start with any glass cladded building or you look and to airports, you look into industrial or the rooms where control is required, you look into so-called data centers for that matter. I think this controlled energy management is a big issue in the matured markets. And I think it is due now that it will also be coming in India. But I believe the education in the system is not high enough and that's what we try to do. If you really look into Dubai for that matter, a very high percentage of buildings equipped in Dubai are running on ABB system, very high. very high level of it. So we don't see as India's GDP spends and people are investing in high-grade buildings. Why not this will be 1 of the core criteria to be observed in the design phase.

Thank you very much. So Aman, I think.

Yes, ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. T.K. Sridhar for closing comments. Sir, over to you.

Thank you once again for all the support which you guys have given to us during this particular time, and with which we are able to come to a reasonable level of performance going with an aspiration to be more credible going forward. And in case if you still have any unanswered questions, please feel free to get in touch with me also any of the communication team. We will try our best to address it. And thank you very much, and have a good Diwali. So be safe. Thank you very much.

Thank you very much. Ladies and gentlemen, on behalf of ABB India, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.