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.