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Published on: Feb. 27, 2023, 10:07 a.m.
ABB India gets ready to accelerate
  • An interior view of an ABB plant

By Ritwik Sinha. Consulting Editor, Business India

It may not be difficult to identify an element of symbolism in a recent initiative of ABB (ASEA Brown Boveri) India. Earlier this month, the company organised the ABB FIA Formula E World Championship in Hyderabad on a 2.835 km circuit (the route had 18 turns) alongside lake Hussain Sagar. The Hyderabad round of the global motorsport show marked the Indian debut of ABB's grand event, which had sustainability as its key theme. “The Hyderabad E-Prix is a great opportunity to showcase the future of e-mobility to a new market – one of ABB’s largest – particularly given our role as official charging partner. Although it is a new market for the Championship, ABB has been a key player in driving progress in India over the past 100 years,” Daniela Lužanin, Head of the ABB Formula E partnership, said on the occasion.

However, the speeding cars at the inaugural edition of ABB FIA Formula E World Championship probably did not just underscore the commitment of the Indian subsidiary of this global automation and electrification technology giant to the issue of sustainability. Viewed through the specific lens of its current positioning, the event also symbolised the company’s desire to accelerate its growth. Having achieved commendable growth figures in FY22 it now has a more balanced footprint in serving both the old and new economy segments. As a result, the company envisions an even more exciting future for itself with clear growth momentum in verticals it is aligned with in India.

Furthermore, there is the larger restructuring plan initiated by the Group CEO Björn Rosengren in 2020, which also involves taking inorganic routes apart from divesting from businesses that are past their prime. Sanjeev Sharma, Country Head and MD of ABB India (since 2016), confirms this strategy could be reflected in domestic operations, which would further propel the Indian subsidiary to the top market league. “In terms of scale, we are currently at number 5 or 6 for the group. But in the next 5 years, we could well be among the top three,” he says. Sharma is an old-timer with the company, having spent nearly 3 decades in various roles.

Recent performance

The past few months have seen a series of positive developments for ABB India, convincing the company's leadership that they may be at a new inflection point. FY22 results reflect strong numbers in critical parameters such as the order book and revenue. ABB India achieved a significant milestone by crossing the Rs10,000 crore mark in CY22 order booking, a commendable jump from the previous year’s Rs7,666 crore.

The company’s revenue for CY22 was Rs8,568 crore, the highest in the last 5 years. For Q4 CY22, ABB India posted revenue of Rs2,427 crore, with robust double-digit growth across business areas. The company also reported a strong and consistently growing order backlog, which stood at Rs6,468 crore at the end of December. Another prominent financial metric the company has put forth is its cash position – Rs3,616 crore at the end of 2022 vis-à-vis Rs2,688 crore a year ago.

The ABB Group, in its current structure, was born out of the merger between Sweden's Allmänna Svenska Elektriska Aktiebolaget (ASEA) and Switzerland’s Brown, Boveri & Cle in 1988. Both firms were formed in the latter part of the 19th century and specialised in electrical equipment, a domain where they remain a dominating force. 

  • Sharma: innovation is in our DNA

    Sharma: innovation is in our DNA

Post-merger, the company has focused more on a clutch of markets where India now figures prominently, and where the manufacturing presence of the parent firm had begun more than 70 years ago. Today, the Indian unit boasts a diversified and vibrant portfolio of technological solutions and products. In a way, its current portfolio subtly encompasses the best of both worlds, with a decisive positioning in the old economy segment while simultaneously scaling up its new-age economy verticals.

Cumulatively, the company operates in four clear verticals – electrification, motion, process automation, and robotics & discrete automation. Together, these businesses have nearly 20 divisions, which also comprise segments like distribution solutions, smart power, smart buildings, system drivers, energy and process industries, marine and ports, and machine automation.

A recent report by a leading brokerage firm presents the pecking order for verticals – the biggest vertical for the company is electrification (Rs3,529 crore) closely followed by motion (Rs3,367 crore), industrial automation (Rs1,573 crore), and robotics (Rs233 crore). “We have a diversified portfolio, and it is in our DNA to be innovative in terms of churning out new solutions. Periodically or every few decades, we let go of some businesses that are past their prime. Our current focus is to have a rich portfolio aligned with Industry 5.0 norms,” says Sharma.

In one of its leading global markets, the $29 billion revenue group (a figure achieved in 2022) has an expansive manufacturing base comprising 25 plants in 5 locations – Nelamangala, Peenya, Vadodara, Nashik, and Faridabad, with defining innovation centres in Hyderabad and Bengaluru as additional assets. With  9,000-strong workforce, the company claims a strong presence across several critical sectors, making it an ‘in-the-thick-of-things entity’ on Indian turf.

According to a company presentation, 60 per cent of oil and gas produced in India is monitored by ABB systems; 90 per cent of cement companies make use of its systems; 20 per cent of installed solar and wind projects use ABB solutions; 20 smart cities deploy ABB technology for resource efficiency; over 300 electric locomotives use ABB traction converters; 65 per cent of made-in-India cars are painted by ABB robots, 26 states use ABB efficient power technology solutions; and over 80 per cent of metro networks have deployed ABB technology. 

The company's business in India is led by its products section, which has a hefty share of 80 per cent in the revenue pie, followed by services (12 per cent) and projects (8 per cent). For ABB, India is a growing export hub too, but its share in business is just 12 per cent, while domestic demand takes care of 88 per cent of its business.

The large-cap company (current market cap is in the range of Rs65,000 crore) is largely equated with firms like Siemens and Honeywell Automation when it comes to peer comparison by analysts. Furthermore, its operational focus and priorities are driven by the growth trends in its different verticals, which are broadly classified as high growth (above 15 per cent in businesses like electronics, railways and metro, data centres, warehouse and logistics, renewable), moderate (10-14 per cent growth in segments comprising food and beverage, pharma and healthcare, water & wastewater and automotive), and moderate on the lower side (below 10 per cent annual growth with the category including segments like power distribution, rubber and plastics, building and infrastructure, cement, oil and gas, metals and mining, marine and ports, pulp and paper, and textiles).

  • Sridhar: definitive capex plan

    Sridhar: definitive capex plan

Strong tailwinds

The company is banking on its strong order book to accelerate its growth. According to a recent report by a leading brokerage firm, its current order book of over Rs10,000 crore and strong order backlog ‘provides good revenue visibility and support for growth in coming quarters’. It has several major orders in its kitty, including a Distributed Control System for a greenfield and brownfield paints major, a traction order for Vande Bharat trains, instrumentation & analytics for Jal Jeevan Mission in UP, and design and robotics solutions for an Indian auto major.

“Our primary target in the near to medium run would be to ensure that the order book remains above the Rs10,000 crore mark,” says TK Sridhar, CFO of the company, adding that maintaining this level in the near run does not look like a major challenge, given the positive trends in the country’s projected modest pace of growth, irrespective of a troubled spell for the global economy. The company cites a host of macro-economic pull factors that will probably trigger more than average buoyancy in its business.

These include the recent capex push provided by the union budget by provisioning for a humongous Rs10 lakh crore expenditure, mostly on infra projects. And then there are a slew of mega infrastructure projects, which are currently at different stages of development. Epic scale projects like Mission Gati Shakti, National Green Hydrogen Mission, Jal Jeevan Mission, Pradhan Mantri Awas Yojna, which are reaching different stages of fruition, will lead to further growth in the near future.

According to Sharma, a significant factor reassuring the company as it seeks to further consolidate its positioning in India is the emergence of high-opportunity segments like data centres. Its LV switchgear and control gear assembly solutions are slated to receive a major push with data centres emerging as a new sunrise area in the country.

“There is a clear policy push from the government to localise data storage. Large players like Microsoft, Google, Amazon, and others are setting up large data centres. We have a very strong book because we serve these customers globally. Data consumption levels will further increase with the gradual rollout of 5G. And once the unified platform for commerce (ONDC) also sets in, the ability and need to use data will be high. Data centres will go a long way,” he explains.

Several projections suggest that the data centre business in India will grow by leaps and bounds. According to Arizton Advisory & Intelligence, the data centre business in India will more than double between 2021 and 2027 and comfortably cross the $10 billion mark, growing at over 15 per cent CAGR. At the end of March 2022, the country had 138 data centres; this will rise to around 200 by 2025.

Capacity expansion and strategic shift

According to Sridhar, the company has a definitive capex plan in place and is consistently enhancing production capacity. Leveraging the cash balance position is a big plus, and making existing plants world-class has become a top priority, with upgraded facilities and capacity. “We are a debt-free company, and that is a big asset as we tend to further drive the scale,” he says succinctly, adding that while the order book ascension has been at a modest pace of 14 per cent, the company's profitability metric has also considerably improved.

  • ABB India's manufacturing base at Nelamangala

Capacity expansion has clearly been a key driver for the company in recent times. According to a company note, during 2022, ABB India announced the expansion of three facilities, including a first-of-its-kind unit with collaborative robotics for the Electrification Smart Power division. It also expanded the digital substation products and digital systems factory in Vadodara, Gujarat, which will meet the growing demand for a wide range of digital substation products and digital solutions in India and more than 50 countries.

ABB Measurement & Analytics also opened its first smart instrumentation factory in Bengaluru to support the region's ambition of transforming into a global design and manufacturing hub with precision field devices, converters, etc. Recently, ABB India unveiled its new state-of-the-art factory in Nashik, which will double its Gas Insulated Switchgear (GIS) production capacity. This factory will manufacture primary and secondary GIS.

It will serve customers across various industries, including power distribution, smart cities, data centres, transport (metro, railways), tunnels, ports, highways, and other infrastructural developments. Spread over 78,000 sq ft, the new site is equipped with smart and lean manufacturing capabilities and deploys advanced robotics.

An equally important factor for the future growth of the Indian subsidiary of ABB will be the overall makeover drive, which was put in place by Björn Rosengren in 2020 when he took over the reins as group CEO. Mandated to give a major push to the global group business, which had somewhat plateaued during the last decade, Rosengren is credited with having brought in transformative measures, including operational decentralisation (giving more freedom to country units), getting rid of businesses that lie outside the core business vortex for the future, and aggressively looking for viable inorganic options.

Under his stewardship, the group has moved at a swift pace on the restructuring front with a spate of notable buyouts. These include Codian Robotics (Netherlands) and Cylon Controls (an Irish firm with expertise in smart buildings and a major presence in Europe). The group has also announced its decision to acquire ASTI Mobile (a Spanish firm which is considered a leading global autonomous mobile robot manufacturer) and Siemens’ low voltage NEMA motor business.

The restructuring drive has obviously had a bearing on Indian operations. For instance, following the decision of the group in 2020 to completely sell off the stake in the power grid business to its JV partner Hitachi Energy, this unit was also demerged from the portfolio of ABB India. It was quite sizeable, and currently, its annual revenue from operations is in the vicinity of Rs4,800 crore in India.

The decision to strictly stick to core businesses led to ABB India's turbocharger business being hived off as a wholly-owned subsidiary (on a slump sale basis of Rs310 crore) last year. Meanwhile, last year, ABB also announced its e-mobility division had acquired a controlling stake in Numocity, a leading digital platform for electric vehicle charging in India.

  • The Hyderabad round of the global motorsport show marked the Indian debut of ABB’s grand event

“There is now a clear focus on acquisitions which can complement the existing portfolio. All global divisions have been empowered to look for potential firms which can add strength to their portfolio. This will be critical for future expansion,” confirms Sharma, who emphasises the inevitability of fast-paced expansion for ABB India in the next few years, even as he concedes preparing manpower for future growth could be a major challenge. The market, meanwhile, is also keen to know if Indian turf will eventually emerge as a much bigger export hub for the group.

Currently, it is broadly in the 10-15 per cent range of ABB India’s business. “Exports will definitely grow, but their share is unlikely to dramatically rise in the near to medium run as domestic opportunities are huge,” he says, while ruling out the global slowdown projected for the current year having a major bearing on the company’s overseas business.

Some of the recent research notes released by leading research and brokerage firms after the unveiling of ABB India’s yearly report clearly endorse the fact that the company is well poised to steadily grow in the next few fiscal years. With a strong ‘buy’ rating of its shares, most reports project the company's revenue, with comfortable EBIT margins, crossing the Rs10,000 crore mark and steadily growing northwards in a regular scenario. Quite clearly, Sharma and his team will have to ensure that the acceleration effort decisively comes into play with market expectations so high.

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