Schneider Electric S.E. (SU) Earnings Call Transcript & Summary

Hello, everyone. A warm welcome to our investors to this special webcast where we focus on India. India is a growing economy, one that's going to be increasingly important in the coming years. It's an economy that is set to grow at levels not seen in other parts of the world. It's also an important -- an integral part of Schneider's equity story. We come to you on the sidelines of ELECRAMA, which is the largest showcase of electrical and automation ecosystem in India. I'm joined by an eminent panel, and I'm going to introduce them to you now. On my left, Chairman and CEO, Jean-Pascal Tricoire. Welcome to India.

Hi, Amit. thank you.

Manish Pant, who is our Executive Vice President for International Operations, which includes India as well, a long tenure at Schneider. We'll talk about that as well as about 30 years in the industry as well. And then we have Anil Chaudhry, who is the Head of our India business for the last 10 years, also a long and illustrious career, Anil. And thanks all of you for being here. So we're going to have a conversation just with the idea of getting the investors to better understand our business, our thinking and our future. Jean-Pascal, I'll start with you. We've had many discussions around India. We're sitting here today, and I know you've told me about your thoughts on India, your experiences in India. Why don't we start with that? What does India mean to you?

Well, India is quite special to me actually. And this year is very special because we've been in India for the past 60 years. But when I look at the past 20 years, I would say, in Asia, my focus -- our focus has been to build India to a new level. I set my first foot in India 30 years ago. So 60 for Schneider, 30 for me and I have come every year and many years, multiple times. What we see here is the most populous country in the -- on the planet, very young, eager to succeed, eager to develop, with huge needs in electrification because energy has been a big problem here, and it's getting resolved, but the needs in energy to support the growth are huge and probably with no equivalent in the world and a huge capability in digital. So if you put electrification on digitization, this is a place where we have a lot of potential, we started really to invest to the next level in India at the turn of the century and today, I'm very proud that India has become our third largest business in the world and one of the first 4 hubs where we do R&D, everything, manufacturing and development for India, but also for the world.

Yes. Anil, maybe I'll come to you now. I've seen your tenure in India, which has been about 10 years now I think. It's about 10 years now? And I want to thank you as well because you've contributed to the growth at the group level as well. And even though we don't disclose externally, at a country level, I have to also share that you've also made the contribution at the profitability level. Tell us and tell our viewers a little bit about what is our footprint in India. I think it's important for people to understand the size and scale at which we operate here.

Thank you, Amit. Yes, India, as Jean-Pascal has rightly said, is the third largest market and one of the 4 hubs. And if you put that in perspective, we have about 34,500 associates and employees in India. We have approximately 30 manufacturing sites, which are already in production and 5 more in different stages of construction stage, which will go in production in '24, '25. We have, within our 34,500 employees, 6,000 R&D innovation and software engineers population in India. And we talk about our customer connect, we are talking of a partner network about 4,400 partners across India. We are present in about 500 cities in India, very close to -- with our approach of serving our customer close to that, where they are and with customer centricity. And we -- today, when we are developing in India, innovating in India, what we sell in India, almost 80% is that made in India, developed in India and innovated in India. That's the footprint which we have. And this is exactly is aligned with what we want to be partnering with the growth story of India. We have been, we are, and we will continue to be contributing to the growth story of India in future.

Thanks for sharing, Anil. So clearly, on the one side, there's the growth dynamic. And on the second side, we're ready in terms of our sizable footprint, continued investment and elements that make India one of our 4 global hubs. Thanks for sharing. Manish, maybe I'll bring you in as well, right? So you're not based in India at the moment, but you have been in the past. I think you understand the Indian customer, the Indian ecosystem well. Why don't you share a little bit about your experiences, about what is unique about the Indian market, what's unique about the Indian customer?

Well, thank you, Amit. It's -- for me, it's been a privilege first, to be serving in India, the 3 brands that we have that we will be talking about a bit later. And it has taught me a lot. The customers in India are very demanding. It's not one India, but India is a microcosm of different, I would say, segments and different geographies with each one of them having their own typicalities and needs. Think what we have been doing at Schneider very well is to be able to adapt to those needs. The customers are very value conscious. There is a high, I would say, the inclination of customers to really look for value and that puts a lot of pressure on us to demonstrate that value to them. And I think we have been doing well here. There -- it's also a customer that is moving very fast in terms of adoption of technology. And this is something that we see here and we -- with everything that we are doing, we are here to always ensure that we are exceeding the expectation of our customers.

Thanks, Manish. So we understand what the customers need and that's our challenge, and that's also what we like to do to be able to serve them. Talking about investments, right? So I want to remind our investors about the strategic, and I would say, timely investment that we've made in recent years, which was the acquisition of the electrical business of Larsen & Toubro. Jean-Pascal, I know you were, in some ways, the architect of this vision as well. So maybe just a word from you in terms of how the deal came about and maybe then Anil, to follow up with you as to how it's progressing at the moment.

Well, Amit, it's been a very specific or special acquisition for me because L&T is a company, I entered in contact, I said it 20 years ago. So it took 18 years between the first contacts until the time we signed and close the deal. And now we've been close to 2 years in the deal, and it's a great success. I'm very proud of it. I always saw Schneider and L&T as sort of having different positioning in the market, but having the same culture, same specialization on our business of energy management being very passionate about it and industrial automation. So there was a natural combination to organize and to architect. As you said, I was sure that Schneider could open to Larsen to more the international reach and the scale that was needed and at the same time, I saw Larsen & Toubro as a company that could give us a local reach, and the local roots in the Indian market, which are so necessary. So two companies very passionate and specialized by the 2 business of energy management and automation but at the same time, very complementary in terms of schemes, in terms of positioning. And I would say we spend most of the 18 years of discussion to speak about the culture and the people to make sure that everybody would have a space. And -- well, it's been a little bit long, dating for 18 years is something which is a bit unusual. But I would say the marriage has been, in this case, very fruitful on leaving a full space to both of the teams.

So Anil would you like to add on that in terms of the last point Jean-Pascal made about the 2 teams and the space for the 2 teams as well.

Yes, sure, Amit, because Jean-Pascal talked about the people and culture. This was very, very important. Once we closed the deal, it was peak of wave 1 of pandemic, and we wanted to make sure that 30,000 of our colleagues which we were welcoming in Schneider Electric from first of September 2020, they're all part of the family. And we have been with them in traveling in PPE and making sure they understand our vision, they understand our mission and how we want to collectively grow together, and most importantly, the customers. The priorities we put in front of us when we were talking of the integration of this project was people, the customer, the business continuity and then talk about all those synergies. Very happy to share that we have been able to get all of our colleagues from L&T Electrical & Automation, part of our journey, continuing serving our customers and continue the development and innovation of products as Jean-Pascal said, which we manufacture in L&T Electrical & Automation, meeting specific needs of Indian customers analytic. And we have -- in ELECRAMA, we have shown very clearly our -- there's 2 brands separately and that's very well accepted by our customers and partners and all ecosystem of our stakeholders.

So it's been a good start but it's a start of a journey and the journey continues. Maybe Anil, I'll stay with you. In terms of the -- and I think we'll talk a little bit about the government policies, et cetera. One aspect, which is obviously central to the development of the country and in light with the geopolitics is the Make in India initiative of the government. What is Schneider's stance on the Make in India. You talked about the 30 factories and 5 more coming along. What is the thinking as -- and can you share a little bit about that as well?

Government policies today are very much also the policies which we have been adopting ring in India for many years. Jean-Pascal mentioned about that, that how we started our manufacturing footprint, how we have been growing on that and how we are contributing with more made in India with local innovation, local development for India and for globe. We have, in the last years, with the focus which government has brought in the overall infrastructure growth where we play a very important role in this. The policies which government has come, we are directly partnering with that, whether it's Make in India, skill in India, Digital India. We play a very important role in partnership with our customer and with the government. Especially the government's policies which help us continuing growing our footprint in India, be it goods and service tax, which was one of that regime, where they brought in tax efficiency in India, corporate tax reductions, production-linked incentive schemes, talking of those [ FZEs ], where we can produce products by importing the raw material at 0 duty and then export it to various destinations we have. So very, very important part of our strategy has been working very closely with our partners and making sure that we partner with government policies and continue contributing with the overall mission of the government for Make in India, for India and for globe.

Yes. I'm going to just follow up on that, maybe Manish, bring you in. So what I heard was earlier, you said that a large proportion of the India sales are emanating from India as well. But at the same time, is also -- that manufacturing is also specific to the Indian market, right? Manish, you lead parts of the business, which are covering a lot of the other emerging markets as well, the international or rest of the world as we report externally. Are there any specific angles, which is when you're looking at India from an export standpoint that you can replicate and see benefit for other countries and as a consequence, benefit for the overall group as well.

Sure. So we are in the international operations, a privilege to get the best of China and India because -- and we are getting what we have started to do now with the fourth -- one of the hubs which has been created in India is to start to leverage the learnings of Larsen & Toubro. And here, we have -- I'm pleased to share with you our first launch that we've made in -- both in Southeast Asia as well as in Middle East with a series of MCCB called GoPact, which is leveraging that platform and it has got some good success. It's early days, and we intend to build on it and get more platforms and more products into the rest of the emerging markets. I would also add that India is a place where we are doing a lot of work in terms of access to energy. It's a place where this program has started. And we are leveraging this program and deploying it in Africa in a very big way as well as in South America and the East Asian economies.

Right. And Manish, at the same time, we've spoken about L&T Electrical business, spoken about Schneider. Let's not forget, Luminous, which is also an important brand in a specific area, and you were leading that for a period of time for us as well. So maybe just a quick word around what we do at Luminous so that everyone has an awareness. And specifically because how that fits into the larger thinking around the new energy landscape that we have.

Sure. So Luminous is our third brand in India, which is very specialized because it's focused on the consumer and on the residential market. It's a brand that is very well known for storage. And I always say that the world is moving to storage now, whereas India started to have storage several years ago. And today, we have with Luminous almost 70 million homes that are powered. Now what we have to do as India -- as India is building a green India, which is more dependent on green electricity. We are pivoting Luminous from being pure storage to moving towards solar plus storage. And this is at the center of this new energy landscape where consumers become prosumers because they are able to generate for themselves as well as feed some excess power into the grid. So we see a lot of exciting time with Luminous and we have started to specialize because we have divested a part of the business so that we could actually continue concentrate and put all our resources here.

Fair enough. And if you think sort of on a futuristic basis, saying India has a role to play in the larger ecosystem as well. Jean-Pascal maybe bring you in over here. I know the last 2 days have been busy, and I know that you've been meeting with representatives of the government at the highest level as well. In terms of your understanding of the policies that the government is putting through, is there a level of resonance with what Schneider is doing and how Schneider can really contribute. What I'm trying to really ask is that what kind of specific numbers do you look at from what we're hearing from the economists and from the government here that give us great opportunity for our business.

Look Amit, there are 2 aspects to it. First, there is a market. And when you look at the perspective of development of India, it's probably 1 of the countries in the world, if not 1 of the 2 countries in the world where there's going to be the most investment in energy in the next coming 25 years. And the numbers are staggering. And it's all the most interesting for Schneider, important for Schneider, that this investment will be done in renewables on the supply side as well as in energy efficiency, it's been publicly declared, in the wind to reduce the energy intensity on the demand side. So we feel very much in sync and very much ready for that inflection point on the Indian market. But I feel have been coming here for the past 30 years every year. And I feel we are in those moments of real inflection point on the market. On the other side, which is a structuration of the market and the structural transformation of society, we feel completely in sync with Made in India, which we started before the policies, 15 years ago because we thought that India would be the perfect place to do manufacturing, coupled with R&D and innovation. This is even reinforced as a role in a bifurcated world where India has a neutral position in the world, which is not the case of other geographies. We feel absolutely in sync with digital India, and we have been participating into 10 first smart cities in India, providing a digital platform for the integration of all facilities, there are not many countries where we are that present even in infrastructure. And we feel really committed to skill in India. Here, we've created over time, 400-plus training centers for the use, to go into trade that we lead in electricity, in automation, and we intend to be really focused on that. We've trained more than 180,000 people, young people in the country over the past years, very proud of that, and that sinks very well with the fast development of India and our duty to community to provide green electricity to people who didn't have access to electricity before. So it's an all-faceted alignment with the government priorities, which makes me very optimistic about our contribution, the contribution of Schneider to the future of India.

Thanks for sharing that, Jean-Pascal. I think on the last point that you mentioned, another aspect of our equity story, which is unique is really our focus on ESG. I just want to remind all of you that Schneider is rated #1 in terms of the number of ESG funds that are invested into it in the industrial sector and number 3 across all sectors as well. You're well aware that we have a robust program. I'm not going to get into the detail of that. But one aspect, which is important in our targets that we have through 2025, which is that apart from all the global targets that we have set, and you know them well, we also have an angle which is local. So the genesis of that is to say that we also give empowerment to each of our countries to come up with programs which are specific to the needs of that country. So maybe, Anil, over to you. Can you explain what exactly is it that you are doing, which is specific to India from this standpoint?

Thank you, Amit. I think Jean-Pascal already mentioned about that, and we are all very proud of what we do at local level, especially for the environment, social and governess point of view. We have made a 5-year commitment where we follow the global footprint as well as the local, especially in local because when we talk about 438 plus training centers, which we have today in the country to train electricians, and young generation, young people who are coming from school in the electrician trade. And more importantly, in the last years, out of 178,000 plus people. We have girl students, which have been trained, which is in the -- close to 6,000 plus. And it's very important to understand how social economically impact it has. You are talking of green energy. We are talking of renewables, which are happening in the hinterland, right? And there, you need technicians to be present, and this training provides them to get -- living very close to their communities, where all these projects are happening. And I'm very proud to say that out of these about 1,200 are entrepreneurs. Recently in one of the interactions with our -- these young trainees. I was very proud to see one of the entrepreneur today is making INR 30 million of revenue every year, and he has now a company which employs 15 of electricians who have been trained from our electricians. That's the kind of impact we have. And in addition to that, we have launched a program for digital training of students in the schools. We have taken a target that 35,000 students we will train in digital skills. And of that 50% will the -- girl students, which we are doing. And this is the program which we have initiated. We have a very important program in India, which we call it Green Ambassador. Jean-Pascal talked about energy efficiency and we want to train young students at a very early age of their learnings to be sensitive about energy efficiency. And this program is all about that. So that's what we are doing at a local scale level. And when we look at the point of view that -- at Schneider Electric in India level, we have taken a very strong commitment for pay equity, which is also aligned with the group initiatives. And we also continue to make sure that the sustainability agenda does not remain within the organization. So you are aware that we lost year launch Green Yodha initiative to make communities, individuals, institutions and government bodies to come and be part of our program to spread this mission of sustainability across the country. That's what we are doing.

Thanks, Anil. And I can watch for that. In the last 2 days and speaking to several of the colleagues here as well, I think it has a larger role in terms of the pride that you see in our colleagues as well. And I think just to share that this is one example of what's happening in India, but I can tell you that the similar sort of initiatives are being replicated across the world but with the specificities of those countries. I might also want to remind everybody that we have so many commitments, but one of the ones that we are proud of is the fact that on a yearly basis, we are helping our customers save around 100 million tonnes of carbon, save and avoid 100 million tonnes of carbon. And that's something that we are proud of through our technologies. Maybe Jean-Pascal, back to you. We spoke about India as one of the 4 global hubs. One important element of a global hub is, of course, around talent as well. I think we can vouch with Manish and with Anil, we have Indians who are sitting in important positions in the group as well. But I think it goes beyond one country. I think you've instituted the entire multi-hub concept here. What does that mean for the Indian organization, for instance, as well as for other emerging countries within Schneider?

Well, I can add Amit Bhalla, if I may. Look, it's a very important part of the equation. What I've seen with pleasure, and I can really put personal stories between or behind the 3 of you in the way I think I met you the day, you were stepping in Schneider. I personally recruited Anil from Areva at that time, and we made a personal contract that it would develop India for Schneider after fulfilling its mission and my relationship with Manish dates back to very a early time in Schneider. And I saw him, I recruited him from Larsen & Toubro and he jumped into Schneider, then went into Luminous and now has a pleasure to or has a privilege to be leading these 3 brands at the same time. We've seen a flurry of talents coming from India and taking global positions in the group, which means that there is a natural knack of Indian talents to embrace global carriers and benefiting from that -- from their deep knowledge of the Indian market, which is extremely complex. You have, as Manish was saying before, Indian customers are very demanding on value on [ this ] mix of India, one of the most competitive environments in the world. I think we benefited also from a very early investment in technology, in R&D, which makes that we have created a pool of -- developed a pool of people who are proficient both in marketing and sales and in R&D. Well, Manish, you've been leading our Oman distribution, a global business for several years, Anil came from a deep expertise in power automation and we benefit from that combination of sales and technology proficiency. And then, Indian talents are naturally at ease in the world, and that has been great for us. And I think our development in India has benefited from the diaspora of Indian talents everywhere in the organization. But I could say that of others, right, we've benefited from that capacity of giving the top positions in our company, wherever people live and to expand inside the company without necessarily leaving the geography of origin. And I really intend to keep doing that together with the new management at Schneider because that creates an incredible capacity to blend the culture, to conform the cultures and create more creativity and capabilities for Schneider in the future.

All right. Maybe we'll spend a minute or 2 also to talk around ELECRAMA. One of the reasons that we are here this week, we've been at the booth. It's super energizing to see the opportunities, the technologies and really the pulse of the customers and the excitement in their eyes as well. Anil, maybe you want to share with us a little bit about what specifically excites you around what we are showcasing in ELECRAMA this year.

Yes, sure. So ELECRAMA '23, we are present with our 2 booths for L&T Electrical Automation and Schneider Electric. And as Jean-Pascal mentioned earlier, this is the largest exhibition for electrical energy management and automation domain. And we're showcasing complete suite of our offers from plant to plug with all the digital and connected platforms and also with a very strong software suite of application which we bring in. We take this opportunity to share with the larger customer base, all our offers, but at the same time, launch some of the new offers, which we are coming in this. Using this ELECRAMA platform, we are launching, which is the futuristic technology, which is coming is replacing SF6 with air as a gas in our Ring man units, which is [ a set ] and that's what we are launching. We're launching our suite of application for building management. Jean-Pascal mentioned about there's a lot of energy, which goes into building and India is still building a lot of infrastructure of that. We have launched our Building Operation 2023 application, which are there. And we have also launched with a connected offer approach, our switchgear of the future, where you can have, our customers, from the basement of the building until where the decision making on cloud, all the parameters, which are required for energy management and energy consumption, energy utilization. These are a few of the examples. And this is a very, very important platform to keep our customers informed about our innovation, our technological superiority with respect to what is required and also sharing with them what can help them make most of their energy and automation in the coming...

Well, thanks for sharing. It's fascinating, and there's so much detail we can go into. I think we are probably going to pull our investors at some point as well and possibly see if we can have a field trip here at some point where they can get closer to the technologies and to the facilities that we've spoken about today as well. I think we can go on for a long time, but I think we reached our allotted time. So I thank each of you for your sharing. I think our investor audience will agree that we live through -- we are living through uncertain geopolitical and economic environments. However, the one point that economists today agree upon is the fact that India is uniquely and well positioned to drive growth in the coming years. I think India is set to be the third largest economy in the world and it's well on its way. So I think it's really incumbent upon our India team and we continue to look at you to drive profitable growth for us and for our shareholders, for collectively and for the responsibility we have towards the government and the society as well. So I thank you all for your time and effort today. And thanks to all of you as well for listening in and look forward to seeing you very soon.