ABB India says customer enquiries have increased, hopeful of private sector capex revival

ABB’s global CEO has said that the global supply chain continues to be an issue, or else order execution would have been faster and revenue booking could have been at a higher pace. How much of the disruption in the global supply chain is still impacting ABB India?

All our 18 business divisions are very local in nature. We have localised our value chain as much as possible. So the impact of disruptions in the global supply chain has been less. But then there are critical areas where we have to import as the local supply chains are not so developed. Our local business and global supply chain did a good job in handling whatever demand projections we had.

The robustness in demand surprised us. For the extra demand that came, we had to take extra efforts with materials and components to serve customers.

The supply-chain disruption has impacted availability and has led to price escalation. How are you managing that?

Availability of semiconductors and plastics has been hit. These are critical components. Not all our products use semiconductors, unlike some other industries. We are a 130-year-old company and have flexibility in production of different products that use different chips. There were a number of strategies we could use. But I have to admit there was a crunch of semiconductors which continues. Our team detected the plastic supply crunch pretty early and organised themselves well.

We are a company with a long-term view. So, whatever we had on our books and the delivery time we had committed, we had to deliver that and we did. Wherever the supply contract allowed, we changed the price. But when we started booking new orders and the cost and inflation was visible, we passed it on to the customers.

Almost 70 percent of our business is products which have a two-and-a-half month cycle. That means, earlier orders are already delivered. Of the rest, 20 percent is service, which is billed on the basis of usage, and 10 percent is projects where large contracts have been executed. What we have now are fresh projects.

ABB sold a majority stake in the power grid projects business globally, and ABB India’s business mix has undergone a lot of changes. You are now a products company. What is the strategy here and what’s the way ahead?

In the last few years, the main reason why we have very strong cash flows, conversion of profits, balance sheet and cash position is the product portfolio. The conversion cycle of orders to revenue is short and cash flow is good. We had to let go of our power grid business at a global level, and we followed in India by going with Hitachi, which is now Hitachi Energy.

We also hived off our solar inverter business to Fimer. So our footprint now is less towards utilities and more towards industrial work. We have the solutions for power distribution in cities, energy efficiency, robotics automation portfolio and process automation. We are mostly directed in this space for projects. We expect the projects portfolio to increase, going forward. The Indian economy has seen low capex in the core sector in the last many years. But now when capex recovery will happen, it will translate into projects.

Segments like food and beverage, pharma, data centre, power distribution, automotive, building and infrastructure are growing over 10 percent. Some other segments -- like coal, cement, oil and gas, chemical, metals and mining, pulp and paper, plastic and textiles -- are growing below 10 percent.

Now there is a clear visibility of capex formation in the latter category and they will also grow above the 10 percent level.

In the current environment, many of your peers are aligning their businesses to segments which derive jobs from the government capex as private sector capex has been low. Are you pinning hopes too much on the private sector capex revival?

I didn’t say that. Our exposure to government- and private-sector capex is equal. We will benefit from both. We will not take direct engineering, procurement and construction (EPC) orders from the government due to the portfolio’s construct. There will be EPC contractors who will take government orders and buy products and solutions from us.

What is your assessment of private sector sentiment on the ground? Are there greenshoots in private sector capex?

On the macro side, we have a government which has a fairly robust and positive policy towards capex formation and all incentives are in place. The non-performing assets in the banking sector are somehow getting resolved. This means banks are ready to give credit. A lot of work has been done on the corporate governance side. This will help capital distribution in the country.  I have a positive view for India in the mid- to long-term.

When we judge if there are greenshoots, we look at how business enquiries have been for the 20 segments we have presence in. That indicates the planning and spend of customers. That is very strong right now.

What is happening in your robotics and automation business?

The market has improved in the robotics business. During the peak of COVID, in 2020, we inaugurated a large facility for robotics and automation, and, immediately after that, we secured some large orders.

I can't disclose the name due to a non-disclosure pact but we have an order from a very large player in India, which is acting on behalf of a global buyer. The scalability of that is very sophisticated. It’s a five-year repeating order. Ola secured all robotics supplies for their new mega factory from us. If you take the top five 5 FMCG (fast-moving consumer goods) companies, they are acquiring a lot of robotics from us for advanced packaging.

The use of robotics has increased. Earlier, it was four robots per 10,000 workers; now, it is six.

This will continue to expand because if you want to make in India and export, you need robotics for flexibility and scale.

How is the process automation business doing?

We have two segments under this – energy and other sectors. On the energy side of the business, there has been quite a bit of investment and we have received some orders from the oil and gas sector in the last quarter of 2021. We are very selective about the power generation sector; but we have a very strong solid installed base which offers strong services opportunities.

In case of process industries automation, we now find that capex formation is quite visible and we are seeing strong conversion of orders.

Our other vertical– motion division– is all about energy efficiency. That’s the area where we are seeing quite good growth and our portfolio is quite well accepted in the market.

Your electrification products business is doing well. Are there any gaps you need to fill in the portfolio?

We have a portfolio we need. We start with medium voltage switchgears and technologies which go into the power distribution of these industries. Now, the focus is moving from power generation to improving the distribution side and that will see a lot of investment. The data centre is a new entrant and is growing quite rapidly. We see good scope of expansion in energy efficiency for buildings.

You have been hiving off businesses in the last few years. Are there any other businesses you would like to exit or any new businesses that you would like to add? What is the mergers and acquisitions strategy?

We are a 130-year-old company. We have survived this long and we continue to thrive because we know that as and when industrial and market cycles change, you have to shed some portfolio to stay relevant for the future. That’s what we have done.

Now, ABB has good cash balance at the global and local levels, and we are keen on organic growth. We continue to invest in the expansion of our portfolio and capacity. We are also very actively looking at inorganic options, both globally and in India. There are criteria set for each of our 18 divisions. They are empowered to expand their portfolio and we have a pipeline.

Given that, what is the capex for ABB’s plans in India? Have you earmarked any amount for acquisitions?

On an organic basis, we are expanding our factories and constructing new ones. We are also making good investments on our ESG initiatives. Typically, our rolling average is about Rs 100 crore a year, but it goes up and down based on order sizes.

As for M&A, they will be financed within the cash flows we generate. We will look at acquisitions not from the perspective of ticket size, but for the opportunity in the market and how much value they can add to us.