ABB India Ltd Q4 FY24 Earnings Conference Call Insights

Key highlights from ABB India Ltd (ABB) Q4 FY24 Earnings Concall

• Business Overview
  • ABB operates in 4 verticals: electrification, motion, process automation, robotics and discrete automation.
  • Products cater to infrastructure, industrialization, digitization, and manufacturing expansion in India.
  • 19 divisions exposed to 23 market segments, providing fundamental resilience.
  • 5 manufacturing locations with 25 plants and 28 customer care offices.
  • 750+ channel partners, integrators, OEM supporters; 41% business through partners, 59% direct sales.
• Financial Performance
  • Q4 2024 orders grew 15%, revenue 28%, and profit after tax 87%.
  • Robust cash position of INR 5,036 crores.
  • Healthy mix of short and long-cycle opportunities from industrial, digital, railways, and metros sectors.
  • Exports grew 23%, though only 10% of total business.
  • Strong momentum in automotive, electronics, energy, metals, mining, and data centers.
  • Order backlog grew 25% to INR 8,900+ crores.
• Sustainability Initiatives
  • Reduced greenhouse gas emissions (Scope 1 and 2) by 88% compared to 2019 baseline.
  • Improving water recyclability from 37% to 45%, with 3 water-positive units.
  • Targeting zero waste to landfill for 2 campuses.
  • Developing rural road infrastructure for safe commute and women’s inclusion.
  • Supporting education, diversity & inclusion, and healthcare through CSR initiatives.
• Growth Drivers
  • Domestic demand and positive demographic changes.
  • Private capital expenditure in data centers, automation, metals & mining, and PLI-led investments.
  • Energy access and transition, global offshoring, and technology advancements.
  • Cautiously optimistic about impact of elections on growth.
  • In the last two years, INR 180-200 crores have been invested in expansion initiatives.
• Margin Sustainability
  • 40% of the current order backlog comprises long-term projects with locked-in pricing from high commodity price periods.
  • As new orders reflect current lower commodity prices, there could be some margin adjustment.
  • However, ABB aims to sustain profitability above 12% levels achieved in the previous year.
  • Efforts are ongoing to improve margins further through operational excellence initiatives.
• Drives and Motors Business
  • Customers prioritize sustainability and energy efficiency, driving demand for ABB’s drives portfolio.
  • ABB is growing faster than the market in low-voltage and medium-voltage drives.
  • Higher efficiency IE3 and IE4 motor standards are expected to boost drive adoption further.
  • Only 15-20% of industrial motors currently use drives, indicating significant growth potential.
• Data Center Opportunities
  • Data center segment is a fast-growing and vibrant market for ABB.
  • Contribution to revenues is increasing but has not reached 10-15% levels yet.
  • The opportunity is accelerating with larger data center projects and increased investments by players.
  • ABB expects the strong growth momentum in the data center segment to continue.
• Tier 2/3 Market Penetration
  • ABB aims to increase penetration in Tier 2, 3, 4, and even Tier 5 cities in India.
  • Currently, a significant opportunity exists to cater to customers in smaller cities.
  • Efforts ongoing to expand distributor network and reach across various market segments.
• Order Pipeline
  • Significant large orders are being secured from railways (traction) for the Motion business.
  • Data center projects driving large orders for electrification distribution solutions.
  • The energy and process industries segments are contributing large orders for Process Automation.
  • Robotics sees specialized orders from automotive, electronics expansions on an ETO basis.
• New Product Introductions
  • New products like ACH180 drive are initially introduced on a smaller scale.
  • Channel partners are engaged to drive customer awareness and adoption.
  • Over time, these new products gain traction and contribute to portfolio expansion.
  • While growth percentages are high initially, volumes remain small in the initial phases.
  • Products like ACH180 cater to HVAC systems across Tier 1, 2, and 3 cities.
• Capital Allocation Strategy
  • 30-35% of cash flow is allocated for working capital needs to support growth.
  • Remaining funds are earmarked for inorganic/organic expansion options and portfolio enhancement.
  • ABB follows a clear capital allocation policy, with dividend payouts to shareholders as well.
  • The cash position has doubled, providing flexibility for investments and shareholder returns.
  • The allocation strategy is consistent, with slight adjustments based on focus areas each year.