ABB India Ltd Q3 FY24 Earnings Conference Call Insights

Key highlights from ABB India Ltd (ABB) Q3 FY24 Earnings Concall

• Renewable Energy
  • India aims for 500 GW of renewable energy by 2030.
  • Impressive expansion of solar (30x) and wind (2x) power since 2014.
  • Government policies aligned to support renewables through initiatives like National Green Hydrogen Mission, PLI schemes, and offshore wind projects.
• Geographic Expansion
  • ABB has a strategy to engage customers across India, from major cities to remote areas like Leh.
  • The company sees a long runway for further expansion in the country.
  • ABB operates 25 manufacturing plants across 5 locations in India.
• Financial Performance
  • Strong Q4 performance with 35% increase in orders, 14% revenue growth, 13% PAT growth.
  • Full year saw 23% order growth, 22% PAT growth despite exceptional income in previous year.
  • Profitability driven by order quality, operational efficiencies, capacity utilization, and positive price movements.
  • Robust cash position of ₹4,700 crores, reflecting improved cash conversion ratios.
  • ROCE improved from 10% in 2019 to 21%, highlighting capital efficiency.
• Order Backlog
  • Record order backlog of ₹8,404 crores, up 30% year-over-year.
  • Significant orders from automotive, process industries, railways, and high-growth sectors like data centers and renewables.
  • Strong backlog provides solid revenue visibility for the future.
  • Healthy mix of large orders and base orders, ensuring consistent revenue conversion.
• Operational Metrics
  • Material cost at 62.6%, reflecting localization efforts and efficient execution.
  • Personnel expenses at 6.5%, down from 7.4% last year, driven by productivity improvements.
  • Exchange and commodity variations had a negative impact of ₹10.5 crores in Q4.
  • Consistent investments in factory modernization and expansion, reflected in higher depreciation.
• Sustainability Initiatives
  • 50% of manufacturing campuses certified as water positive, contributing to groundwater recharge.
  • 88% reduction in Scope 1 and 2 greenhouse gas emissions compared to 2019 baselines.
  • Energy productivity improved by 65%, and water recyclability at 45%.
  • One unit achieved zero waste to landfill, with plans to convert other units.
• Business Segment Performance
  • Electrification saw strong order and revenue growth, benefiting from sectors like data centers and metals.
  • Motion booked large orders, especially in traction, driving backlog but faced forex headwinds.
  • Robotics missed orders in Q4 but has a stronger pipeline going forward.
  • Consistent order booking from installed base supported service revenues across segments.
• Revenue/Geography Mix
  • 76% of revenues came from products.
  • Services contributed 12% to revenues.
  • Projects constituted the remaining 12%, driven by large orders in segments like traction.
  • 90% of revenues originated from the domestic Indian market.
  • Exports contributed 10% but grew at a faster rate of 100-115%.
  • Domestic market expansion outpaced global markets.
• Profitability Outlook
  • Maintaining double-digit net margins remains an ambition.
  • Profitability influenced by order mix, with higher services contributing favorably.
  • Upcoming elections in Q2 warrant a cautious stance on profitability estimations.
• Electronics Segment Growth
  • Electronics is a key growth driver for ABB, with increasing factory automation opportunities.
  • Modern electronics plants drive demand for robotics, automation, and ABB’s diverse portfolio.
  • Positive uptake seen in order books, with meaningful projects executed in the electronics sector.
• Order Composition
  • Q4 included a large order from the traction business in the Motion segment.
  • Current order backlog has 15% contribution from large orders, compared to 7-8% previously.
  • Large orders get executed over 18-24 months, while the rest convert into predictable revenues.
• Order Growth Expectations
  • Base effect from previous high order growth to impact future growth rates.
  • Focus on maintaining strong base order momentum going forward.
  • Large order inflow to influence overall order growth trajectory alongside base orders.
  • Growth expectations to moderate from the high 30% levels seen in recent quarters.