ABB India looking to spend Rs 1,800 crore for acquisitions to drive growth: CFO Sridhar T K

ABB India, which executes engineering and construction projects and manufactures industrial equipment, is looking at using 50 percent of its cash balance, around Rs 1,800 crore, to acquire other companies, Chief Financial Officer Sridhar T K told Moneycontrol.

ABB India is looking at suitable options for acquisition to optimize its processes, its vendors and entities in the market space, Sridhar said.

Sridhar added that while ABB India is in the market for inorganic growth through acquisitions, the company will look at multiple smaller acquisitions instead of one large transaction.

He also said ABB India plans to invest around Rs 1,000 crore in India over the next five years in setting up new manufacturing facilities and expanding the capacity of existing factories.

"When it comes to investments we don't look at them on a year-on-year basis. We have planned to invest around Rs 800 to Rs 1,000 crore in the five-year period. We have a land bank at Nelamangala (Karnataka) where we will build a new factory,” Sridhar said.

ABB India on February 11 said it aims to maintain its order book above Rs 10,000 crore in 2023, as it capitalizes on robust demand from different segments of the market.

ABB India  reported order inflows of Rs.10,028 crore in 2022, the highest order in the past five years.

Edited Excerpts:

Q. ABB India has around Rs 3,600 crore as cash on its books. What portion of it will you be looking to spend for inorganic expansion in the next few years and which sectors are you eyeing?

A. We have a robust cash balance of Rs 3,616 crore, which can support to take part in the bolt-on acquisition strategies to the extent of 50 percent of cash available, apart from organic expansion plans.

We are frankly looking at all sectors, we are not looking to just expand our current businesses, but are also looking at synergies.

We are looking at suitable options for acquisition to optimize our processes, we are looking at vendor bases as well as market spaces.

We are not really looking to spend all our cash on a large acquisition, but will instead look at multiple smaller acquisitions which improve our operations.

Q. What are your capital expenditure plans for the next couple of years?

A. We at ABB India don't plan capex over the span of a few years, rather we look at capex over a five-year period. We have planned to invest around Rs 800 to Rs 1,000 crore in the (next) five-year period

ABB India has acquired land near its existing manufacturing units at Faridabad in Haryana and Vadodara in Gujarat and we will use the land bank for setting up new manufacturing units.

We have a land bank at Nelamangala where we will build a new factory. We also have outlined investment plans to make the Nelamangala unit more efficient and add capacity.

Q. At the India Energy Week that concluded last week, the prominent theme was that it will take a while for renewable energy to become the main source of energy supply across the world.

In your view which sub-sectors of the energy space do you expect most of the investment to come into in the next few years?

A. So we at ABB India are well placed to serve both the renewable energy sector and the traditional energy sectors as well, going forward.

I think going forward we expect a lot more investment to come in for the renewable energy market, but there will also be demand to expand power production from traditional sources fueled by industrial demand.

We expect higher than 15 percent higher capital investment in the renewables sector in 2023 when compared to 2022, and capital investment in segments like power distribution and oil and gas to be only slightly higher.

Large capital investment in traditional energy-producing sectors is still a few years away.

Q. You expect your Metro business to grow very fast in the next few years, what percentage of your topline do you expect will come from this segment in the next two years?

A. At the moment 6-7 percent of our revenues come from the metro segment. We think this segment has the potential to grow exponentially in the next few years, but simultaneously we expect our other sectors to display strong growth as well. So I think in the next few years 8-10 percent of our revenues will come from the metro segment.

Q. You have mentioned that you don't expect a slowdown in your order inflows in 2023 and that your order book is likely to stay above Rs 10,000 crore in 2023, but by when do you see investment from core infra segments returning?

I think most core industries are not looking at expansion at the moment and are instead looking at ways to optimize their existing capacity, which is a slower, but more economical way to improve output.

Going forward. companies are also looking to be ESG (Environmental, Social and Governance)-compliant while expanding which will require intricate planning and time.

So we expect stable capital expenditure from the core infra segments for the next few years, but capex from sectors like electronics, railways and metro, data centres, warehouses and logistics, and renewables will be high.

Q. ABB India has also expanded its footprint to work with Electric vehicle makers, are you also in talks with the manufacturers of EV buses in India?

A. We have basically pitched in some areas where we provide solutions, but we still are yet to see traction on it.

Q. Are you also working with the State governments or Central government to set up electric charging stations anywhere in India?

A. We don't directly get in touch with the government, we work with original equipment makers to install EV charging stations. We present solutions to OEMs (original equipment manufacturers).