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.