ABB India Limited (500002) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to ABB India Limited Q3 CY 2023 July to September Quarter Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded and any unauthorized recording of this call is strictly prohibited. The recording will be made available on the company's and SEBI's websites 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. Thank you very much. A very good afternoon to all of you, ladies and gentlemen. Thank you for attending this particular call [ which is in ] a very short time. I mean the reason for that is -- I know we're all entering into Diwali vacation. So we said that Friday could be a good day for all of you to start enjoying your vacations. That's why we said, even it's in short time, we complete it today. So we just completed our third quarter Board meeting, so we have released the results, plus the presentation, on the web. I hope you had a chance to look at it. So now in the call, I have Mr. Sanjeev Sharma, Managing Director of ABB India Limited. I have Mr. Sanjeev Arora, who represents motion; and Kiran Dutt, who [indiscernible] leads electrification; Balaji, who represents process automation. And Subrata Karmakar is not available. He is on a customer visit. Therefore, we have [indiscernible]. So without wasting any time, over to you, Sanjeev.

Thank you very much, Sridhar. And good afternoon to all of you. Thanks for joining in. We'll give you a very quick overview about how we saw the performance for the last quarter. And we will take the questions later on after the financials are presented by Sridhar. So ABB as a company. As you know, in India, like -- our global structure, we have 4 verticals. And within these 4 verticals, we have 18 divisions organized which are active in the country. We operate with 5 manufacturing locations. All of them are IGBC green certified, either platinum [ and gold ]. And we also have significant ESG programs running, and over the last 2 years, we have made significant milestones there. And we operate 28 sales offices with 75 -- 750-plus partners and growing. And our penetration in Tier 1, Tier 2 cities is direct as well as largely through our partners who are taking us to the much larger customer base. You are familiar with this slide. This is something how we look at the market and the different maturity of these segments. So what we have on the top of the S curve, the sustain segment, wherein you have these classic market segments we are present for a very long period of time. And this is where bulk of our volumes come, but at the same time, in the current markets, not all of these market segments are growing at a very high rate, but they are, let's say, between 8% to 10%. The enhance is the one -- these are the market segments we discovered a few years back. And this is where we made significant efforts in last few years to gain traction, and these are the -- typical segments grow between 10% to 15% for us. And growth rate -- the segment itself grows at that rate. And also our -- the business also reflects into 18 divisions who are relevant for this segment. And the focus segments are the new segments which we may have started recently [ or ] last couple of years. And we have made a significant traction, so the rate of growth of our business in this segment is very high. But these are the segments information. So combination of focus, enhance, sustain makes our growth story and also our ability to operate 18 market segments in -- 18 businesses in 23 market segment. And that gives us the underlying resilience to our business model when we present results to you. And the cyclicity of one segment or the other gets compensated by the segments which are on the upcurve, and vice versa. So that's how we see all the business have been coming to us and how it's sustaining for us. Next slide, theme of this quarter. Every quarter, we take a theme and we take a deeper dive. And we have taken railways and metro, a deep dive from our perspective and also what's happening in the country. As you know, we operate fourth largest railway system in the world in India. And investments in railways is expected to grow at a CAGR 15% for the next 2 years and more. Railway infrastructure itself is attracting $715 billion by 2030. And largely, it is based on the electrification of the railway network, adding the freight corridors and also bringing in new trains which requires higher speed, so everything [ is in through the ] upgrade mode when it comes to the rail infrastructure, both on the freight movement as well as passenger movement, with more modern, more comfortable and much more high-tech technologies that's going into that system. So we are also equally exposed in the metro network, [ okay ], which is existing, at the moment, in 15 cities. And already, 7 cities have 640 kilometers of it under implementation, so we do see that this particular segment will continue to grow in a country like us. And I think we have a long runway and long highway to enjoy in this particular market segment. And our technology, both for the passenger trains as well as metro, they're well proven globally. And being a Swiss company -- I think these technologies have been fine-tuned and optimized over a period of time. They work for the best of the systems. And Indian systems are also enjoying it and also preferring ABB systems, yes, going into these trains and metro systems. Now key drivers are, of course, passenger and freight traffic. And we do see that quadrilateral network of high-speed train is going to augment it. Modernizing of 1,275 stations, dedicated freight corridors, Gati Shakti cargo terminals, Vande Bharat trains, all are playing into our portfolio. And one has to also mind it, that these trains run for a long time. And the expectation of the owners of the metro and the train system is to also service them for a long period of time, and that [ also passes to our ] service business volume for the future. And that is very consistent, and that's going to be quite stable for us as we go into [ next 3 years ]. Next, please. So our orders grew 14% from both emerging and traditional segments compared to last year. Our revenues are up 31%, achieved through all the businesses, all our business, 18 businesses, really executing it well. And you can see the rhythm in the company and the businesses both in the -- through the entire value chain, be it bringing the orders, converting them into revenue and converting that into cash. I think that machine is working reasonably well for us. And also, given how we are executing and how our books have been and the efficiency of conversion, that is showing in our profitability after tax and -- which grew by 79%. We continue to focus every month and every day on next level of ESG achievement. And we do it not to show a PowerPoint slide. We do it because this is the right thing to do, and that's how our management team sees it. We have already achieved "zero waste to landfill" certification for Nelamangala factory. You may have noted the other certification we got in last many quarters for over last 2 years. And we also achieved a waste recyclability of 95% and water recyclability of 50%. And we have a ambition to continue to improve these parameters, and we have very specific plans for each of our location and each of our factory. And of course, we are engaged with 1,700 customers across 12 Tier 2 and Tier 3 markets. And that is something which is discovering new markets for us, new customers for us. And that's where some of the growth components which flow through our orders is coming because we are reaching out much, much deeper into the country. And we are quite surprised to see the resilience of -- acceptance of ABB technology at the quality and the price that we are offering is quite good in most of the market segments as well as the geographical markets that we are opening up. We continue to maintain reasonable cash position at INR 4,356 crore at this point of time. So orders. Yes, we have a significant jump. And it's also at a mix of large orders that underscores some CapEx revival. I think that has been a question everybody have been asking us. So we had a good story with our base orders in last many quarters, led by MO and EL divisions. And now we find that the -- especially the large-CapEx orders also have started flowing into our books. Services orders grew by 25%. And continued momentum in automotive, electronics and -- sectors, they continue to give us a good [ uptake ] into robotics and other automation or similar, the automation projects that go into it. And then of course, there is a high demand for integrated solutions in metals, mining, oil, paint companies. There's an uptick there. And we see quite a good conversion rate and the preference for ABB solutions by these market segments. And in the transport, demand for propulsion technology solution, ABB has a very strong portfolio both globally and now locally. And [ with the results ], we have a order backlog which has grown by 23% to INR 8,008 crores, which shows a very sound visibility of the revenue that we will execute in the coming quarters, so that gives us a lot of confidence and a lot of comfort as we go into this quarter, which is the last quarter of our calendar year, financial year; and the next year, 2024. So this is the overall picture and this is how we see it. Next, please. So some of very quick examples. I think you can read it yourselves [ as it is, the ] compact substations of a leading private power company. And also one of -- somebody who was visiting Vaishno Devi last week, one of our external partners, our auditors -- and they said that, all along the climb that they did in Vaishno Devi, they could see there is a lot of ABB logo equipment and we were the most prominent one. Of course, those are the compact substations. And also, the ring main units, which are supplied by our Nashik unit, is an integrated solution to provide robust and integrated power supply for such locations or any [ kind of ] infrastructure location. Then the propulsion technology solution for a railway transportation multinational company. I think this is something secured, and we are going to go into execution mode. Rectifiers for a very large natural resource company, robotics automation for painting and cleaning of EVs from a Indian auto major. And then of course, we have electrical products, our energy efficiency solution, gas-insulated switchgears and robotics. I think they are finding their ways into these 23 market segments that we talk about. Next, please. We continue to have a very strong customer engagement. This is our backbone. And this is one of our secret recipe of expanding into market segments, letting them know about ABB portfolio; also establishing our point of contact through -- which really serves them; and also the geographical penetration into very, very deep markets which we were never present. And we believe we have done a reasonable job in last few years. And that's where our confidence comes, that we have a lot to explore and lot to penetrate as we go forward. And that gives us the confidence [indiscernible] India not only has been living a good customer base for us in the Tier 1 and Tier 2 city, but the markets have become much, much deeper and more -- stronger for us. And that's -- encourages us to go to the different geographical and market segments, yes. So our approach to ESG strategy is clear, and we talked about it. We have 5R approach; waste intensity reduction; waste-to-energy recovery; value champion training, awareness not only for our teams, our suppliers, even our customers. I think that's always a dialogue. Whenever our leaders visit the customers, this is the prime starting dialogue, what they are doing and what we are doing in this particular area. And I can say that our connectivity with our customers is very high on this common value system with -- especially with the large and the medium-sized customers. So some of the examples. Like, say, in the middle picture, you see we have refuse. We have totally banned the use of the single-use plastic. That's with -- last quarter, we have done. We have also reduced usage of packaging labels, which has changed. Use of reusable kanban bins in the production area. We recycle the waste through approved recyclers. And you can see in the last chart how this kind of a focus was -- how it reduces the waste intensity. And what we are sending to landfill drops very heavily. And that's the reason our -- first of our plant, Nelamangala, got "zero waste to landfill" sustenance and -- plan under program (sic) [ progress ]. And they have been certified for that, yes. Same thing we do, the care part of our value system. We have good CSR program. And here we are very happy that, as our profitability is expanding, it's very fulfilling because our commitment to contribute on the CSR also expands the same way. So as a management team, we feel very happy when our, say, profits have doubled up in last few years. So that way, our [indiscernible] to also do the CSR program also has doubled up; and they go in different areas. They go into health. They go into the government schools. They go into education. We take them into children who have the heart diseases. We've helped them out with the treatment so that the children can grow healthy. Schools are adopted by us so there's a proper education. And the food as well as nutrition is given to the children. And our programs are addressing 11 out of 17 United Nations SDGs directly, and 6 address -- are addressed indirectly by us. Next, please. So with this, I will hand it over to Sridhar to take you through financials of last quarter.

So thank you, Sanjeev. I think, yes, we go to the financials, next slide. So total orders received. So we are at INR 3,000 crores for the quarter. And as you have seen the trend chart: We have been maintaining INR 3,000 crores for the last 3 quarters sequentially, all right? And we -- I think I hope -- with the markets which are there and the opportunities which are there, I think the trend should continue as per what we see, all right? So -- and 14 percentage growth, this also has some large orders which has been received from the railway sector. And that's -- actually has improved that way. So I think, while I say this, are we finding a slack in the base orders? I would say a number of opportunities are still there. That is only basically the conversion which has to happen, which is -- which will happen definitely going forward as well. And the order backlog, INR 8,000 crores on the order. So I think, as you know, because PA has also -- process automation has also increased order intake. So this has got a good mix of projects, products and services as well, so -- and as Sanjeev was mentioning, this provides us a good visibility of revenues for the next few quarters to come, all right, upon the basis the execution schedules what will happen. So no one -- none of these order backlogs are either slow moving or nonmoving. They're all executable, so the reviews show that there is no risk per se on this particular order backlog, what we are carrying. So revenues. I think a good part of revenues. We are growing 31 percentage, so this is then good information, what I thought I should share with you. This revenue comprises of different models. So always, MO and the product business as such is performing, how these projects performing. And if I look at it for the quarter. MO and EL, which are product dominated, forms part of almost 72 percentage, 73 percentage of our revenues, which was 81 percentage in the last quarter, all right? So does it mean something else? The answer to that is no because they are doing more revenues on the absolute values, but the good part is PA project revenues have started to gain more traction. So which was, is a 16 percentage last quarter and they are now 25 percentage for the quarter. So I think [ this is -- I think that ] the basket is shifted between the process automation and the other divisions as such. And robotics has increased to 4%. So overall, it's a healthy trend as what we see even though percentage could vary between the divisions. So products continue to dominate the product offerings today at this point of time, so -- and then another interesting piece which we would like to rather emphasize and we have been emphasizing on to grow is how do we focus on services. So services for the quarter, in terms of revenue, was 16 percentage compared to 12 percentage, 13 percentage, what it used to be. So that's then a very encouraging trend, with the -- all the service teams which are there on the ground and the -- and OpEx spend which is already happening. So this has -- like this has pushed the revenues of -- from services to 16 percentage. And that's also probably a factor which will drive the profitability, [ as what -- as you know ]. So projects still are at 11 percentage. The balance 73 percentage is products, so we have a good mix. Or a healthy mix is what I would say. So another good part is to see as to how the channels have -- I mean, have played out in this particular quarter. We see the end users which are the ultimate customers. Their businesses have increased. I think we were -- we have 40 percentage -- 33% earlier. This quarter, it's 40 percentage, so that's then good [ direct comment ]. And this is able to -- we are connecting it to the same topic of the results of the customer connect program. What we have been doing consistently is also helping us to garner these particular end user customer segments. And partners definitely are continuing to remain at 40 percentage [ of the same ]. So now coming to the geographical dimension. How did we do on exports and the domestic market? So all of us know that domestic is actually outgrowing the speed of the growth in export market. So therefore, our domestic market remained at 90 percentage for the quarter. And 10 percentage was exports, compared to exports which was 12 percentage the previous year, same time. So overall, I think we have a good mix of revenues from -- by the various businesses. We have -- in terms of offerings, it's a good mix of -- balancing mix of projects also playing in now, and also in terms of channels and geographies. So as we close this particular quarter, this trend seems to be in the right direction. The next slide. And we have a cash of INR 4,300 crores, so it is the -- and overall, we have earned the profit that has been accrued to cash, so we don't -- we did, of course, use it for a dividend which we declared in the Q2. So then that has been paid to the extent of 233 crores. So now coming to an more granular picture of how does the P&L of the company looks like. So as you all know, that INR 2,769 crores revenue. So this is equally distributed between the different segments, as what I told. So now other income is INR 77 crores. And majority of it is based for the interest income what we -- and on the deposits what we carry. So that's around about 65 crores which we earn every quarter. And the balance is of the other items. Material cost [ is hanging ] with 63 percentage. It's a good percentage, I think. And we have consistently been around this percentage, so if someone is asking, "So what's the recipe?" it is very simple. It's actually a good mix what we have on the revenues or revenue mix which is contributing to a better percentage. As I said, service has improved and that's one of the reasons. Another thing is the orders which are getting executed today are those orders which were booked at better margins when the material prices were higher, but going forward, we could see that basically there will be an equilibrium which will start to fall in place. So that being the case, that's, I mean, that the backlog and margins are also strong and consistent. So that's about it. And when it comes to then personnel expenses, INR 178 crores versus INR 156 crores or INR 168 crores. So INR 156 crores to INR 178 crores is more because of people increase. We are growing, so we are recruiting people, so that number of people have increased definitely from what we were. And also the impact of retention of people by giving them increments is also definitely an important ingredient to keep, as well as an actual [ valuation ] impact. So this is basically the reason. And it's a normal stuff, as far as expense is concerned. Other expenses, which are -- which is INR 404 crores versus INR 340 crores to INR 370 crores. And I think it's more driven by the revenues. No -- I mean no one-off items which are there, so that's something which is good to say about it. And we had certain increase in ban or -- bad and doubtful debt provisions, not because these have become bad. It's more because we follow very consistent terms and policy of how we treat the accounting of the receivables, which are -- basis on the age of those receivables, so -- but we are confident that there is no risk on the balance sheet at this point of time. So exchange, commodity variation. I mean INR 3 crores positive to INR 29 crores and INR 30 crores. This, of course, anyone can say, is out of our control because it's more led by the derivative accounting and a mark-to-market impact with the prices which are softening out on the metal side. So we have a more -- lesser impact, I will say. Otherwise, the depreciation, the interest remain quite nominal, in line with the other quarters what we have seen. Yes, [ we can go and read ] next slide. So now let's deep dive a bit on the -- I mean, by -- and business segments. And electrification. So we had a very good run in the first quarter. So we have Kiran, so Kiran will also give some light as to what it is. The good part is we are not -- we are still maintaining the INR 1,000 crore trend every quarter, so -- and fourth quarter is -- always happens to be a strong quarter, so we'll wait to see what happens over there. So revenues following the trajectory of the order intake. So we are at INR 1,042 revenues. So INR 1,000 crores on orders, INR 1,000 crores on revenue. So this has become an run rate, I would say, going forward for EL. Backlog, INR 2,086 crores, strong order backlog, executable, no issues. And PBIT is strong, 19 percentage PBIT, [ as what we see ]. And that's more because of -- from good mix, price realization. As well as capacity utilization impact is what it is. So I think we often say that volumes [ play a magic ]. And so this is what you could see both in the product division as well as the electrification [ and MO ]. The next slide, motion, yes. Orders: I mean it's a bumper quarter for motion this quarter in terms of orders, in terms of large order what they receive from the railway segment. So that's actually profiled up the orders, but the base orders remained consistent with the run rates what it used to be. And revenues is, I mean, growing consistently at 11 percentage, but when the large orders start to execute themselves, I think we could see better revenue traction also happening. And order backlog, 32 percentage, strong [ one, I mean ]. And PBIT, again, at 19 percentage. So I mean the thing to watch, 75 percentage. I mean the revenue is contributed, 2 divisions, which are 75 percentage. And both of them have healthy have -- backlog and healthy margins at this point of time, yes. Process automation. I think this is then -- I mean this is a turnaround sort of a story what we have. Process automation has also gained traction in orders. So we missed a couple of orders in this particular quarter. Not because of loss of orders, it's more about delaying decisions. So that should, I mean, play out in the coming period, so that's something which we say that should be available in subsequent quarters as well. Revenues. Because we had a backlog, so then -- revenues were driven by the backlog. The backlog, what we have, of INR 2,800 crores, which is 10 percentage higher should -- technically they could have been higher because -- if we had -- got, I mean, the orders which we missed, but I think -- but still I think we'll just wait for 1 -- a couple of more quarters over there. And PBIT, I think, has increased to 14.5%, and this is majorly because, I mean, process automation depends quite a lot on service. So a huge stream of the revenue is service. So the service picks up. Naturally the margins also pick up accordingly, so there is a good story to take it forward. Robotics. So robotics, of course, we had some orders which we -- I mean, which we had, some good orders, in this quarter as well. So we -- and these were lesser in the last quarter. And that was more because [ there's some, I mean ], slippage of decision which happened in this quarter. So we are there. And revenues and profitability are fine, so that's we don't have much of an issue [ as we had with the smaller ] segments [indiscernible], yes. I think, this, we have discussed. So overall, I think we have an -- good channels to market, good offerings in terms of -- to the customer. And also, in terms of geography, we are pretty much well spread. So what we are more gung ho about it is the domestic market is outgrowing the export market growth, so being well entrenched in India and serving to the domestic market gives us better visibility and options to adjust to our volumes and [ widgets ]. So in a way, we are insulated from the global, I mean, [ vagaries with the colleagues that's there ]. Thank you very much. We could open up for the questions.

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

Congratulations, team, for a super performance this quarter. My first question is to understand if you look most of the short cycle or the base orders. As you mentioned, there have been some softness. Do you think it is primarily linked to inventory destocking or slowdown ahead of elections, in terms of base consumption? And at the same time, you also highlighted quite an interesting pickup in large order flow, some delays in decision making but orders are in place, so how should we look at the mix of movement of orders both on short cycle and long cycle, both with respect to investment and the CapEx momentum? That's the first question.

Okay. So Renu -- so let me start with that question. Let me put a context. And afterwards, we have the leaders who will throw more light on it, okay? So what we see today: I think, in the last 5 to 6 quarters, as we have seen, base orders have predominantly been the driver, all right? So that's what we have seen, all right? And now of late for the last 2, 3 quarters, we saw large orders also picking up. And that's also predominantly coming from process automation; and in this quarter, from motion, right? So when I say motion large order, it's not a system order per se. It's a large product order for an higher quantity which is actually qualifying to be called as a large order, but having said that, how is it playing out in the market? So our still -- our focus -- while we see large orders, our focus is to make sure that we grow with base orders as our priority. So that's where we see. And that's across all the divisions, as what we are at this point of time witnessing. Now coming to the different markets, what we see, of course, when we -- when you go back to those markets of enhance, some -- grow and focus -- but I think it's a very interesting, I mean, sort of story, right? And we have been repeatedly saying this, that data centers, electronics and everything have been new segments which are growing and giving orders to all of the businesses at this point of time. And food and beverages, which used to be very less, today as a part of our revenue, it is almost 7 percentage, right? And automotive as -- and as well as building sectors have grown. So I mean this is basically the big picture view, what we see with respect to different segments, while our core segments, which is steel, cement, oil and gas, they also now have started to pick up on their CapEx spend. And that's from where what we are coming, so what we are seeing at this point of time is, while the number of opportunities in the market would be increasing, all right, there could also be a price stabilization which will happen as it goes forward, all right? Because the metal prices are stabilizing, and also [ these things ]. So I think to compensate for that is where we look for new customers, new avenues so that we could maintain the bottom line as well. Sanjeev, would you like to add something to this? Any color, Kiran, you would like to give from EL? And MO, Sanjeev?

Yes, I can give some inputs. This is Kiran here. I think, Sridhar, you covered most of it. Only a few thoughts is that the base orders continues to grow. It's not that there was challenge in the base orders before. There could be some challenges in terms of the projects which gets concluded. Maybe some of them have pushed into Q4 as well. That is something what we see. What we also see additional is in -- specifically for the base orders from Tier 3 and Tier 4 cities. I think a lot of orders are coming in. So that is something which actually gives us a lot of energy to work upon. And as Sanjeev explained, we are getting into the customers in the Tier 3 and Tier 4 cities as well, so that is also giving us a boost in terms of orders for base orders. Thank you...

Yes. Secondly, if we look at the export numbers in absolute terms, the last couple of quarters have been flattish, while the global markets have turned pretty weak in terms of actual investment and sentiment, so is it attributable to increase in the product mix and more [ product in -- out ] on the export side? And what will be our growth outlook and strategy for exports not in percentage of revenues but in absolute base?

So okay, let me start. And then afterwards, all managers, [ please give some color to that ], okay? So exports, we said, is 10 percentage of our orders -- or 11%. I mean 10% of revenues and 11% of orders, right, but if you see, the growth in revenues, we are doing 31 percentage of the revenues which is coming up, right? But the growth per se in terms of export on absolute value, we see, I mean, definitely around 13% to 15% as an absolute growth, right, but that's -- but what is basically taking up -- that percentage down is more of an absolute value of domestic market which is outweighing [ the gross ] market. So having said that, I think the focus on exports from EL, from MO as well as slightly [ to the extent of ] PA remains unabated, but the good part is that, when there was a situation when we have to go scouting for exports -- today, I think exports come to us on their own with [ GIS ] facility and everything there. And also now that the local markets and the domestic market is so interesting -- so we would like to focus our efforts on local markets and be relevant over here, yes. So you would like to say something, Sanjeev?

So Sanjeev Arora this time. So I think, Sridhar, thank you for that. And see. Exports, yes, you're right that we see that the global markets are not that buoyant as we see the local, but then that's also an opportunity because then we do see that the countries are more relying on having a good-quality product with, I will say, a reasonably affordable price. And that gives India an advantage to put in our technology at the right price there, so I think that can also work as an opportunity for us going forward. That's my take. Thank you very much.

Thank you.

Next question is from the line of Amit Mahawar from UBS.

Congratulations on consistent new benchmarks on profitability. So my first question is on, this quarter, we've seen some slippage in energy orders in PA. On an adjusted basis, what would have been the growth had we seen that? And also you have provisions on receivables, so what is the adjusted profitability? That's the first question.

Okay. So let me take this question, while if Balaji wants to comment and put in some numbers, it's okay. That's fine. So I think the PA orders, what we mentioned, was process automation did 529 million of orders -- INR 529 crores of orders in this particular quarter. They used to do roughly INR 700 crores of orders for the last 2, 3 quarters. The gap is something what we missed out. And that's missing out because of delay in execution of orders, delay -- not execution, delay in decision of orders. And that should, I mean, sort of come out. So when large project orders -- normally, even when we forecast, [ we only assume ]. So it always has a bit of an [ 19, 20s ] model, right? So that's how it happens, but I think -- are the opportunities there on the -- in the market? Answer to that is yes, so we don't see that as an -- what we call as a factor to be concerned about. So Balaji would like to comment. Balaji, are you there?

Yes, yes. I hope I'm audible.

Yes, Balaji, you're audible.

Yes. Thanks, Sridhar. Just to add: I don't want to give a number, but then definitely, it's more on delay in approvals that certain orders could not be booked. And the teams are on it to get that in place. In comparison, I would say that, had we taken in those orders, on a comparable basis, we should have been slightly ahead of Q3 2022 on comparable basis, just to give an idea about the ones that could -- that slipped in terms of time line. In terms of visibility both on the base orders and in terms of large orders, there are quite good opportunities in the short term and the near midterm as well.

Thank you. So your second question was regarding the profitability, right? Amit, if you could repeat the question again, please.

Yes, [ Sridhar-ji ]. What is the recurring adjusted margins, if you would, just for the -- some provisions you've made in this quarter?

Okay. So I think we just not -- did not make provisions for the sake of making provisions. It's because we had a reversal last time which is not present. Because reversals or recovery from the customers don't occur every time. So I think, if you remember, we were dealing with certain electrical balance of plants orders or the business which was left by PG not picked up and which was -- I mean, which was with us. So we had actually provided for those particular receivables, basis the model of accounting and conservative model, but as we continuously say, even though we provide, we continue to work on it and make sure that, wherever there is a possibility and we have a fair chance, we get back those money. So the last quarter, we had an income or a reversal because of these particular efforts, [ what I certified ]. And this quarter is a normal quarter without need of reversal anything. It's a normal provision which happens only based on the receivable aging as per the accounting policy.

Fair point. Second and last question is more on mobility since, this quarter, you have railway as a focus. Let me focus on that. On the propulsion capabilities and capacity of ABB in Indian plants, where are we in terms of the capacity market share? We have Medha. We have Bombardier. We have like 2, 3 guys who have global scale, including ABB, in India. And you actually mentioned about a significant number in the next 7 years that India is going to spend in railways. And propulsion is one of the largest subsets, so can you just maybe, Sridhar or somebody -- Sanjeev or somebody else can throw some light on qualitative aspect of where ABB stands on -- because the step-up in demand every year is going to be significant vis-à-vis what we've seen in railways and propulsion and new type of technologies, so any color there is useful.

Thank you, Amit. Sanjeev, would you like to go...

So thank you. Thank you for the question. And I think we are all excited about this journey. So this is Sanjeev Arora. So I think you're right. And let's understand how we operate. We operate -- so the names what you have taken are the OEMs whom we serve. And definitely, the expansions, the orders what we are taking have a definite expansion plan in place. And you will soon hear from us in coming quarters that -- how and when we are actually opening up new facilities, opening up...

[indiscernible].

And also enhancing our current facilities to cater to this. So you're right. And the investments are lined up and planned well. I hope I was able to answer you at this point of time.

Yes. Sanjeev, my only point is, assuming the last 2 years of activity, we've seen a very heavy awarding. One of the largest global numbers that India has seen maybe is in India, on propulsion, in terms of large contracts. And supplies will soon start, so how is ABB placed capacity-wise? And is there a risk to the industry where capacity might not be ready to meet the next 3-year demand to start with? That was my more contention, actually.

See. That's what I was trying to explain, that if ABB is taking that order. First of all, the bottom line is we only bid if we are confident that whether we'll be able to meet the customer's delivery. So that's clear. And these are long-term projects, and it is not that it's going to be a very short cycle. It's long projects and we have definite plans. As far as ABB capacity goes, whatever project we bid, we will make sure that it will be delivered in time, but regarding the general industry and orders taken by other people, I wouldn't be the right person to comment. But as far as ABB goes, be rest assured that whatever we take, we commit to the customer, we deliver. And we are expanding. That, I told in my previous comment.

[Operator Instructions] Next question is from the line of Mohit Kumar from ICICI Securities.

Sir, congratulations on a very, very good set of numbers. So my first question is on the mobility margins which has improved materially in this quarter. Is -- any large order which got delivered? And should one expect it to revert to the mean in the next couple of quarters?

You're talking of motion, right?

Yes, yes, motion.

For motion, PBIT percentage was -- last quarter was 14 -- I mean, 10.6%. And this year -- this quarter was 19.4%. So that's basically the question, okay. So Q3 '22, I think one was the mix, definitely the mix; and the price realization advantage which has played out; and also the positive impact of ForEx, which was -- which is -- actually now also has factored into the PBIT [ percent ]. So -- and if I neutralize the -- and from a ForEx impact on those particular results, it's more driven by the capacity, the volumes, as what we said; and the margin on the orders; and the mix. So this is broadly the thing. So I mean they have a very clear focus on service, so service as a business division is rendering better revenue scale.

And anything on the expectation that these revert to a mean kind of number?

I didn't get you. If you can...

Is it fair to assume that this is stabilized at 15%, 16% rather than 19% which is simply very high?

We don't know. We do not predict those particular numbers at this point of time because -- I mean, because you have a lot of backlog. And we need to see what sequence of that particular backlog is executed, right?

Understood. Sir, my second question...

[ And moreover ], we say that margin [ is healthy ].

On the motion division, my second question is I think, this quarter, we have won a large order. This seems to be totally -- particularly from Vande Bharat, yes. Is it fair to assume this order is executable over next 4 to 5 years and not over 2 to -- 1 to 2 years? Is that a fair assumption?

I cannot -- I leave the judgment to you because it's an information which is more internal to the organization. We don't share those details and nitty-gritty. I'm sorry for that.

[Operator Instructions] Next question is from the line of Ankur from HDFC Life.

Just on this rail order again. It's for the Vande Bharat, so I assume the value would be around [ like 300 crores ], 400 crores, but more importantly, is it for the Russian customer? Is that right? Is it for them, or is it [indiscernible]? If you could just help us.

So Ankur -- so I did mention the sector from which we do, but our rules don't allow us to give more information because it is confidential, I mean, information of the customer, all right? So we don't do that, but I gave you an information about from which sector it came.

Okay. Fair. And just secondly, on the motion division or on the LV motor specifically. Some of your peers, including CG, they've been talking about softness there from the channels. There's been destocking, et cetera -- yes?

Ankur, your line is not clear. It's very garbled.

Sorry. I didn't know. Is this better? I'm on my earphones.

No, not really.

I don't know. Can the operator check this...

Sir, can you please speak...

Now it's slightly better because -- other people asking questions, we were absolutely answer -- able to answer [ clearly ].

Okay. I'll just -- I'll try my best. So on the motor division, especially on the LV motors, some of your peers, including CG, talking of a slowdown there, some channel destocking, et cetera and not maybe continuing over the next few quarters. I'm not sure if you've spoke about this, but how are you seeing demand, especially on the LV motor side?

So we have Dr. Sanjeev Arora here, so he will be able to give...

So thanks for the question. And, I think, good that you raised up. See. Let's understand that the pent-up demand is over. And the other part is that a lot of orders are also re-export from our OEMs. And if the global scenario is a bit softening up, even though our local demands will remain, but -- the overall picture will reduce. And a lot -- there is a lot of exports from India when you come to general machinery market, pump, compressors. You can name [ another of 7 ] applications more, so overall impact of global economy will be there. And India is a global player, so we will not be -- or we will have to have that [ brand ], but domestic part, I will still say that it would not be that [ pensive mode ]. But global demand will -- can drive the overall demand a bit down.

Okay. I understand. Just one last one quickly, on the process automations, where we saw this big jump in top line. I think 90% plus, but clearly, the order backlog growth is just about 10% on a Y-o-Y basis, so is it just a base impact? And therefore going forward, it kind of gets normalized. Is that how we should look at it? I'm just trying to understand this big jump in revenues when backlogs are up just about 10% on the auto -- process -- yes.

I think -- just to give you a logic on that, Ankur. I think process automation started with a low order backlog base a couple of years before, right? And they tried to build on these particular orders but whereas the revenue execution was faster than the order intake. So the consumption of the revenues from the order received and the backlog is faster. And therefore, you see only a 10 percentage growth, okay, in the order backlog, whereas when you look at MO and EL, why you see a larger percentage growth is primarily for the fact because they have a consistent order backlog based on which they are adding orders and executing revenues.

Next question is from the line of Aditya Mongia from Kotak Securities.

I just had a single question, and this was more on the operational EBITDA (sic) [ EBITA ] margin that you talk about. If I see the Q-on-Q or the Y-o-Y trends in that number, they are very different from your reported numbers. For instance, from 2Q to 3Q, there is a decline in operational EBITDA margin versus what the reported numbers are. Could you give us a sense of what adjustments you are making in that number?

I didn't get your question. So if I look at the operational EBITA margins, right? So for Q3 '23, as per the press release, we did 13 percentage; Q3 '22 as well. And Q2 '23 was 13.6 percentage, right?

That's true.

Right, so -- and you are comparing it with what? I didn't understand.

So if I'm -- basically the -- do -- so let's say if I look at PBIT margins, for instance. 10.8% last year, same quarter, become 17.5% even though the operational EBITDA margin is only up from 12.1% to 13%. And the sense that I wanted to get was what adjustments do you make which makes the difference at an EBITDA level, operational EBITDA level, from a margin perspective very different from your PBIT movement.

[ Very good ]. So if you have the press release in front you: We have defined what is operational EBITA at the end of the press release, which talks of you remove out what is before interest, taxes and acquisition. Operational EBITA, income from operations excluding acquisition-related amortization; restructuring, related and implementation costs; changes in amounts recorded for the -- I mean, for obligations related to divested businesses; the estimates; and mark to market. So there's a whole set of definitions what we have to do to normalize to come to operational EBITA, which reflects the operating margins of the business on a like-to-like basis without having an impact of ForEx fluctuations, restructuring fluctuations; and only onetime impact, what happens.

Understood. So essentially, this is a better number to focus on. That's as much as I -- what I want to clarify.

Next question is from the line of Jonas Bhutta from Aditya Birla Mutual Funds.

Congratulations, Sridhar and -- Sanjeev and Sridhar, on a great set of numbers. Just one question on this mobility order: Is this one of the many portions of the same order? In a sense, is this going to be a recurring order as the client starts manufacturing the trains? Or this is the entire scope of the order through the life cycle of that project.

So as far as the current detail goes, it's the complete order for the complete life cycle, so -- at this point of time. And we supply the product portion of it.

Yes.

Next question is from the line of Amit from Prabhudas Lilladher.

My question pertains to you talked about -- in your initial remarks about deeper penetration in Tier 2, Tier 3 cities; and you're getting very robust response from that. I just wanted to understand Tier 2, Tier 3 cities, if you could share us. What is the contribution in EL and MO from Tier 2, 3 cities this quarter or 9 months?

So no -- we do have a number, to be honest, right, but you know that's a very sensitive number to share, right? So I hope you would like to have the same margins [ and supplements ] for the coming quarters also, all right. So maybe -- so therefore, we would prefer that it's more internal.

Sure, sir. My second question, on the superior realizations which you have mentioned in electrification business. Just wanted to understand, if you can throw more color, where we got this from. And is there any trend which we are witnessing which is leading to the superior realization here? Is it a product mix or something? Yes.

Kiran?

Okay, I can answer that. Kiran here. Price realization happens in 2 parts: 1 in terms of technology and 1 in terms of let's also give some credit to our sales colleagues who are doing a great job. The technology what we supply is current technology which is quite, quite superior than many of our competitors. And that's giving us something edge in terms of what we supply to the market compared to any other competitor, so that's one of the reasons. And for sure, our sales colleagues are doing a great job to get this job done.

Sure, sir. Last, if I can squeeze in, on the gross margin. Would this level be sustainable? Anything, any color you would like to share on the gross margin going forward in coming quarters?

So let me take this question, Kiran. So because it is gross margin and it's a bit of sensitive topic. So I think the gross margins which we have today [indiscernible] products of quite a few actions what happened in the ground, right? It's a capacity utilization. It's a price realization, as what Kiran was alluding to. And also it's an, as you know, [ margin of ] the mix, all right? So these are the 3 topics. And as I was mentioning earlier, today, we have an advantageous situation of execution of those orders which were secured at the time when the prices were high, but we were able to negotiate with the vendors better and create then better NPV for the organization, so -- but now going forward, this will all sort of -- I mean the gap will start to close and we will have a more -- because we are all becoming now stable, all right? So that being the case, I think we cannot give you an -- sort of a directional view that -- where we would like to go to on the margins per se, but I think we want to definitely believe, at the company level, we want to be -- in the PAT percentage of more than 10 percentage, as what we said, is what we would like to be.

Next question is from the line of Harshit Patel from Equirus Securities.

Sir, if I look at our margin profile of last few quarters, I think much of the expansion has come from the operating leverage rather than the gross margins. I mean gross margins have definitely helped, no doubt about that. So is it the case that we are now getting decent level of economies of scale in many product lines, which was not the case earlier, now with the increasing revenues? And therefore, a very good cost absorption is happening, which was not the case, let's say, 2, 2.5 years ago, so would you agree that this factor would have helped margins more vis-à-vis localization that we are doing at the moment?

Okay. So far, Sanjeev Sharma has not, I mean, gone on air, so this will be the concluding remark from Sanjeev Sharma.

Yes, I think you're right. It's a mix of factors which contribute to the profitability, so you have to optimize the whole value chain to squeeze the superior profits. If it is based on only one factor, then it is not sustainable. And I think our journey in last 2, 2.5 years has been to look across the value chain. That is what kind of a gross margin we are booking the orders; then what kind of execution cycle that we do in terms of no slippages in execution, only positive slippages; then productivity measures that we take in our factories in terms of ability to execute the orders, without distorting the market price, with more efficiency at a lower cost; and then introducing a lot of automation in our factories so that we are able to do far more from the same assets. We are able to produce more from the same assets by means of automation in the -- inside the plant, also developing our suppliers for localization and also outsourcing so that we are able to produce more from the same plant. So all these taken into the what you call our profitability equation. And also, our ability to deliver services very effectively post delivery, during the commissioning, installation and also after work, that engine is also working for us; and plus attracting some better-margin orders from the overseas market. So there are a number of elements. When you put them together, they start playing. And of course, capacity utilization is one [ effect ], but then I mentioned you about other [ effect ]. And last but not the least, the supply chain, how tightly they manage the increasing volumes. And they take the effects from the suppliers with the increased volumes that we are giving to the -- our suppliers. We have -- sometimes we have pre-agreements with them. High volume means lower cost. And sometimes, we have a capacity to negotiate then around it. So if you put that across the value chain and sum them together, that starts showing up in the margin that we are declaring to you and to the market.

Understood. Sir, just a small follow-up to that. So I mean the kind of factors that you have elaborated. So everything seems to be going right for us, so will you agree that whatever can go right is going right for us and that is why the kind of margins that -- what we are seeing at the moment?

So I can say the same words I used for the Board presentation today, this morning, that ABB as an organization, all our 18 businesses are in a very good rhythm. We have very good and very high-quality leadership on each one of the divisions that we have and also the management structure on it. They're empowered to run their businesses in the relevant market segments. And also, they have excellent support coming from the global teams for expansion of the portfolio, localizations. You are absolutely right. So we are in a good rhythm at this point of time and we are also operating in very supportive markets, so if you combine all of those things, that's -- these effects are quite normal in my experience.

Thank you very much. As there are no further questions, I will now hand the conference over to Mr. T.K. Sridhar, Chief Financial Officer, for closing comments.

Thank you. Thank you very much. Probably this is the first time, since I've started as -- this particular journey, where we've answered all questions, all right, and completed on time, all right, so -- and thank you for a very patient listening and interesting questions. And wish you all a very, very happy Diwali to you and your families; and stay safe and stay healthy. Thank you very much. Looking forward to talk to you in the next quarter.

Thank you.

Happy Deepavali, everyone.

Happy Deepavali. And thanks to all the management team which was here, which have put in a lot of efforts to come here. Thank you.

Thank you.

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.