Dip in margins not a trend; rlys a growth driver: ABB India

ABB India reported low margins in the second quarter of current fiscal due to a change in its product portfolio. Some of the company's low margin orders also impacted margins. However, Sanjeev Sharma, Managing Director, ABB India reassures this contraction in margins is not a trend and may not affect future quarters.Sharma says margins are holding well in the system orders and short cycle orders. The company continues to gain orders from Power Grid and several State electricity boards. Although the company is very selective in participating in State orders. Railways, Sharma feels can also be another growth driver for the company.Renewables form 15 percent of the company orderbook.Below is the verbatim transcript of Sanjeev Sharma’s interview to Sonia Shenoy, Latha Venkatesh and Anuj Singhal on CNBC-TV18. Sonia: Let us start with the margins which came in at 7.1 percent, the lowest margins that the company has delivered in the last many quarters specially the Power Grid business or the margins halving this time around given the reverse auction. Is pricing becoming a pressure? A: For quarter three it is purely due to the margin mix that we had and you know we have a wide product portfolio. It is just a function of the margin mix we had during this time. Anuj: So is it fair to assume that the margins have bottomed out or is there more downside? A: It is not a trend. We are looking at certain orders and contracts which were on the lower margin side. They played out in the revenues in quarter three, it is a result of that. Latha: How has the ordering been from Power Grid so far, you have seen any uptick in ordering from state electricity boards, generating companies will we see any meaningful growth basically going forward? A: What we see we continue to gain orders from Power Grid expansion of the transmission networks in the country. That continues to play through our order books and also we are selective with the certain state electricity boards where we participate quite actively and there again the contracts are flowing into our books.Sonia: So competition has been increasing in the industry. How are you guys placed, is there are lot of pressure on profitability because of the competition or is the market size shrinking as well? A: From our point of view we have very healthy backlog and if you see the margin that we talk about for quarter three we have some short cycle orders because our portfolio is pretty wide. We have short cycle orders, we have orders which are in the engineer to order area and we have the orders in the systems area. So, what we find is that the margins are holding well in the short cycle orders and so is the case in the system orders where we are selective in what kind of context we go in. So, we don\\'t see any margin erosions there but in the quarter three as I mentioned before it is just a matter of the margin mix we had and what we deliver in part of our revenues. Anuj: In the Global meet ABB said that India is a point of interest and they would be looking at M&A. Are you in talks with someone? A: Yes, our global CEO he mentioned that the there is an active interest in India in few areas. One is to use ABB India as a global hub and a technology hub as the manufacturing hub. So, we are very well entrenched in that area and we are ready and we are already helping the group in that area. The second area is that India ecosystem is very fertile with lot of innovations. There are lot of start-ups taking place. So, our interest has been specially in the areas of digitalisation. There are lot of capabilities here in the country and also some other areas which are part of our core portfolio. So, we have a healthy pipeline of our interest which we continue to evaluate and of course we will mention to you when we are close to a decision. Latha: The earlier target that you mentioned when you gave us guidance was to keep your raw material as a percent of revenue to around 65 percent, this time it is 66 percent. Now given where commodity prices are, are you looking to revise this guidance? A: From the previous announced you see we always kept a corridor for the material cost between 65 to 66 percent, so we are well within that. And as I mentioned that if you have the revenue mix which is on the lower margin that is another impact that you see. But we have very structured programs on the Organization of the Petroleum Exporting Countries (OPEC) side which continue to give us relief that we maintain the material cost from the right side of the projections that we make which is between 65-66 percent.