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Edited Transcript of ABB.NSE earnings conference call or presentation 29-Jul-19 4:30am GMT

Q2 2019 ABB India Ltd Earnings Call

Bangalore Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of ABB India Ltd earnings conference call or presentation Monday, July 29, 2019 at 4:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* C. P. Vyas

ABB India Limited - President of Electrification Products

* Madhav Vemuri

ABB India Limited - President of Industrial Automation & Country Service Manager

* Sanjeev Arora

ABB India Limited - President of Robotics & Motion

* Sanjeev Sharma

ABB India Limited - MD & Director

* T. K. Sridhar

ABB India Limited - CFO & Chief IR Officer

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Conference Call Participants

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* Abhishek Puri

Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power

* Aditya Mongia

Kotak Securities (Institutional Equities) - Research Analyst

* Apoorva Bahadur

Jefferies LLC, Research Division - Equity Associate

* Bhavin Vithlani;SBI Mutual Fund;Senior Analyst

* Fatema Pacha;ICICI Prudential Life Insurance;AVP Investments & Portfolio Mgr-Equities

* Renjith Sivaram

ICICI Securities Limited, Research Division - Assistant VP

* Renu Baid

IIFL Research - VP

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Presentation

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Operator [1]

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(technical difficulty)

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [2]

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(technical difficulty)

so good morning. And I think as most of the people are from Mumbai, and then welcome to the call of Q2 2019, right? So this is -- here, we will discuss the results of ABB performance in quarter 2.

And I think it has been an interesting quarter for all of us, right, with a lot of macro activities, which has taken place in Q2, right? And we had a Board meeting on Friday. So because of the weekend, we could not have a call immediately, which we normally used to have. And so we follow it on a Monday, right? I am sure that we have loaded the presentation to the website and you have been able to access that.

And over to you, Sanjeev. So on the call, I have Sanjeev, Country Managing Director for ABB India Limited. So in the room, along with me, I have: Madhav Vemuri, the Division Manager for Industrial Automation; and on the call, I have Sanjeev Arora, Division Manager for Motion; Subir Pal [Karmakar], Division Manager for Robotics and Automation; and also C.P. Vyas, Division Manager for Electrification Products.

Apart from that, I have my communication colleagues, Beena and Sohini, also on the call. Right. So over to you, Margaret -- or over to you, Sanjeev, where and then we can give them a perspective.

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Sanjeev Sharma, ABB India Limited - MD & Director [3]

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Good morning to all of you. Thank you, Sridhar. So I'll briefly give you a bit of an overview of what we observed in last quarter and how the results relate to the macros as well as with respect to the effort which the company has been doing in the marketplace.

We know that last quarter was a big event, which was the election, the national elections. I think it's the one of the largest exercise any nation carries out or India carries out and where a lot of resources get channelized into the market for the government as well as there is a bit of a lag in the marketplace in different market sectors. What we observed for ABB business, if you compare the results of FY 2018 quarter versus the results that we had given in last quarter, we have seen overall growth. We have grown compared to the last quarter, the quarter last year, we have grown in orders, we have grown in revenues, we have also grown in profitability.

So if you really look into the macros. The macros point into directions which shows that the markets have been subdued. But as far as the forecast for the economy is concerned, there's a optimism there. The core impact, I could say, for the macro, some of the things which are happening in the quarter 2 was on the revenue side. The uptake of the revenue was a bit sluggish. I think that represents the confidence the customers had in terms of what we were doing in the marketplace. But then all those revenues will pass through in this quarter. And I think that uptake is reasonable for us.

If you really compare the performance, starting from FY 2017/2018 and how our first half 2019 looks like, this is -- if you compare these numbers, and you see where we are on H1, our run rate on H1 is higher than preceding years in orders, in backlog, in revenues, in operational EBITDA, in operational EBITDA margin percentage, as you can see, and PBT percentage and PAT percentage. So this is pointing in good direction. And typically, at the half year mark, if the run rate is good, I think that gives us a pretty solid feeling in terms of what we expect in quarter 3 and quarter 4, wherein the push becomes even higher from our side in the marketplace.

If we compare quarter 2 2019 and quarter 2 2018 numbers, our orders are up by 23% quarter-to-quarter; revenues are up 4%; PBT is up 61%; and PAT is up 57%. And if we compare H1 '19 and H1 2018, our orders are up 14%; revenue, 11%; PBT, 80%; and PAT, 76%. And what we have seen is we have seen growth across all our businesses and majority business lines. And we run multiple business lines, which have exposure to multiple market segments and also exposure to multiple geographies. And we play these metrics to extract growth from the marketplace.

So among all the business lines, I think the traction has been quite satisfactory for us. And you can see that the growth in the base orders is going in the right direction. It is up 16%. Exports have been up for us. And also we continue to make investments in our facility expansion, R&D and special customer connect initiatives, which increases the penetration and expansion of our capabilities in the marketplace. And we do believe that we are able to deliver good and attractive shareholder returns.

If you take some of the recent highlights, we are currently engaged in delivering a very large data center project. I cannot name the customer because of the nondisclosure agreement. So just to let you run the imagination, it is the largest global company in the world. And they are the ones who have been setting up a very large data center here and they rely on ABB technologies for power distribution as well as the electrical distribution control system, which is part of our ABB Ability digital platform.

We have been -- we take a lot of pride in having commissioned the largest single location lift irrigation project globally, wherein all ABB motors, drives, relays, switch gears, breakers are involved. And you must have seen this in the news. And I think this will -- not only the technology feed in the country, but also it will help a lot of farmers who will get the water at their doorstep to irrigate their lands. And of course, we had other segments, like for example, we supply drives and smart sensors for food chains. So that also shows that the diversity of the portfolio and the diversity of the market segments we operate.

And also we had solutions supply for robotics palletization for edible oil company. And that's another area wherein right now we are experiencing downside in the auto industry. And we have been rapidly diversifying ourselves into the nonautomotive sectors so that we keep -- we ensure that the robotics business continues to stay on the growth part or sustain [theirselves]. And we are seeing some very good traction in nonautomotive sector in terms of absorption of robotics.

We continue to invest in our customer connect program in Tier 2 cities and also enhance the digital demand. And we typically do this investment based on typically ROI. That if we put some dollars out in the marketplace, we like to see positive returns on those efforts. And we monitor them. And so far, all the efforts we are making in the marketplace, we get positive returns.

Again, a few more examples of expanding ABB Ability portfolio in India. So we do have some good absorption or solutions in the -- by a beverage company and other distribution control systems that we are supplying. We have been able to give good cybersecurity solutions for a petrochemical major, digital service order for mining sector and repeat orders for cement industry in the digital space.

Now what I'd like to mention here is that there are a lot of talk out in the digital side in the market and people are trying to give different propositions. The way ABB operates is we have a very solid base of portfolio, installed base and very loyal customer base. What we offer and what we deliver is the layers of digital on top of what customers already have and that creates an immediate value. It is not a kind of a standalone small software here or small software there. It is really creating a solution and an ecosystem, which extracts more productivity out of the assets, which are owned by the customer and we understand them well. And it has an immediate and direct benefit for the customer. So that's where our story is. And typically, customers really respond very well to our proposition.

Again, on the export side, the exports have been growing, so is the service portfolio. We are also experiencing a good leverage of a good spread of short-cycle orders. And we have reduced dependence on large orders, I think which is also positive for us in terms of the net results that you see from us.

Well, just to give you a very quick overview in terms of how each of our divisions did. On the electrification division, it was a strong execution and growth orientation in quarter 2. Orders grew 19%, revenues grew 14% and PBIT was up 24%. And of course, there are a lot of things which this particular division is doing in terms of pushing itself in the marketplace. And we are seeing that the results are very, very positive and good and we have a good story ahead with this.

Now in terms of motion division, again the orders were up 14%, revenues are up 9% and PBIT up 10%. Again, a very, very strong momentum in this particular business that we continue to see. And not only in the domestic market, and we see this division is also expanding its footprint globally for the export markets.

On the robotics division, okay, we had -- orders were down 16% relative to quarter 2 the previous year, I think, because the automotive sectors, I think it certainly took a nosedive. But at the same time, our pipeline is healthy and we are also seeing diversifying into other segments, like food and beverage and many other applications, pharma. And also we are looking into some other segments wherein we are testing out certain applications for those segments. We find that the uptake of robotics across these sectors is quite high and the interest is very, very high. And it is not only with the large players. We see the Tier 2, Tier 3 customers are also showing very high interest on using robotics in their lines as we go forward.

On the industrial automation side, we did see orders going up 15%, revenues were flat and PBIT was down. I think we are seeing the initial shoots of recovery in energy orders and metals. But still, I think it is growing or it is taking time for them to recover. But our focus on serving our existing customers, delivering value-added services and also looking into new offerings within the digital domain are paying us good dividends in this particular area.

A very quick comment on Power Grids. We are sustaining focus during transformation. So none of our colleagues in Power Grid are involved in transformation. We keep them away. We keep them close to customers. So that's why you can see, given it was a hard quarter compared to last year, but still we have kept our performance and it is at best flat. And I don't follow the industry results, but I'm sure you can follow the peers in this particular segment and see these results are really good compared to what's happening in the marketplace at the moment here.

In terms of our 2019 priorities. One is that our focus is -- I do read about macros, but I focus more on micros because given the product portfolio as well as the market diversity we have in the country and the geographical diversity, we keep tracking the segments wherein we can do better and we can gain on the market share. And that's exactly where the resilience of our teams come. And I think that itself is a testimony why you see the growth in the results in previous quarters.

So I think that typically is a mix that we keep and that's the kind of a focus we do. And our focus will going forward, given our growth in backlog, will improve our revenues. We will continue to focus on quality as well as very resilient approach in terms of reaching each and every nook and corner of the market where our products and services can be delivered. And of course, it goes without saying that we continue to have lot of programs which are increasing the productivity in the system, be it in the execution, cash and cost-out.

And as far as the transformation projects are concerned, which is a pretty heavy kind of [de-hand] for us this year. So PG demerger is on track. I think we are ahead of the curve there. All the decisions and key decisions are in place. So we are keeping the time line. And also we announced the divestment of solar inverters business. And that also is on our plate. And we are ensuring that it follows a good path so that by quarter -- end of this year, quarter 1, we have that in place. And also while we are doing the demergers, the new ABB or the rest of ABB that will be future ABB, we are ensuring that there is a proper structure in place so that we really focus on the diversity of the market as well as on the growth topic. So those are also -- have been put in place by us in parallel to this activity.

So now I will switch on -- switch to the financials and also request T.K. Sridhar, our CFO, to take us forward on the numbers.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [4]

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Yes. So thank you, Sanjeev. So we go to the financials. I think, first of all, I want to say this quarter was a pretty interesting quarter. And as I mentioned, we've got a few macro moving parts about it. And instead of that, I think we had full ability to pull out a decent performance, right? So -- and that's how I see or we all as a team look at how we could perform. And this sets the base for the next coming quarters going forward.

So the next slide, which is on the -- how it looks, yes, for the quarter. So we did -- I think most of it was base orders. And this is -- these results, what I see, is more for the continuing business. This doesn't include Power Grids at this point of time, but I will give the Power Grid information separately so that we have a total picture on hand.

So the total orders, which we had received in this quarter, was roughly around about INR 2,000 crores. And this was definitely up by 23 percentage, as what Sanjeev was mentioning. And we got a large order of INR 110 crores, mostly from the lift irrigation and the EPC contracting teams, right? And order backlog was pretty much robust, INR 4,600 crores. And so if I look at the breakup of these orders, right, for the half year division-wise, right, so electrification division, INR 1,645 crores is the order -- amount of order booking for the (inaudible) H1. MO has an order booking of INR 1,270 crores, robotic and automation has INR 158 crores and industrial automation has INR 786 crores. So totally after netting it off, we have INR 3,769 crores as the order book for the H1, right?

So -- and when it comes to the order backlog, I could say that we have a pretty solid order backlog, which was able to give us visibility into the revenues. I think they are all really executable order backlogs. And we only make sure that before we dispatch the material or take it up for production, we ensure that the financial securities are in line because that's very important in a market where we could see there's definitely a liquidity crisis.

And we do not want to end up with receivables. So we always believe that cash over revenue still follows a better method as to how to drive the businesses. When it comes to order backlog, I think division-wise, we have; EL with INR 1,405 crores; and motion with INR 1,627 crores; robotics and automation [INR 153 crores]; and industrial automation at INR 1,386 crores. So without (inaudible) off, we have an order backlog of INR 4,656 crores, right? So this is basically [10% or 8 percentage] up than the previous half year. And that all goes well for the future revenue plans.

Profit after tax, I think we grew at 61 percentage, I think quarter-on-quarter, right? And I will come to the sequential later. And profit after tax was INR 70 crores, right, with a growth of 57 percentage. And for the half year, we were 76 percentage up on the profitability, right? And cash was very strong, so we did a cumulative cash of INR 75 crores against INR 82 crores last year in spite of all the crisis we had (inaudible). And I am proud to say that we have a squeaky clean balance sheet, so which is -- which will provide us all the levers to have a profitable growth going forward.

Coming to the sequential quarters, on the orders, we were up by 12 percentage, right? So last quarter was INR 1,780 crores of orders received. And this year was the -- this quarter was INR 2,000 crores. And whereas revenues and profitability were down, revenue is down by 16 -- or 6 percentage and profit after tax was down around about 18%. So this is something which actually is something which we could rather really understand, and we come to that in the last slide.

So I go to quarterly financial summary. So this slide is more transformation as to how our credible performance continues. I think if you go to the next slide, where we deal a bit more in detail about the financial numbers, right? So if you look at this particular slide, it's a very informative one from the point of view of looking at how the cost structure of the company is now really shaping up.

So we have material cost of 65 percentage for the quarter and almost 67 percentage for the half year and which is less than the previous year's, right? And it's mostly driven by the mix of the orders, right? And also -- I mean more product execution and which has got a lot of indigenization on the ground, right? So when it comes to the revenue mix, I think product revenues really drove the growth and -- but service was slightly down and that sort of impacted slightly the profitability at the bottom line. Cash position, definitely strong at INR 1,300 crores, right?

And when it comes to the PeX cost, we are very -- I mean I would say that we are modest at 8 percentage of total revenues as PeX cost. But on a year-on-year, we still are better than the previous year, right? And when it comes to the other expenses, where I would like to go a bit over more in detail because this was an expense which you could see that we have increased compared to the previous quarters as well as the sequential quarter.

And let me assure you, here, it was more driven by the operations, right? And so it's more due to contracted services, warranty provisions for new products, which we supply in motion and also in EL and part in robot automation, right? And also we had, in the last quarters, reversals for provisions based on the commissioning of the project site as well as claims which we received. So this was a onetime gain, which was there. And so on a quarter-to-quarter -- on a half year to half year basis, if you see, so our expenses are at the range of 17 percentage is what you would see, right?

So the higher tax expense was more due to nondeductible on the MSME interest, which is as per law, which we can do nothing, but it really went out towards the year-end. And when it comes to the interest cost, which was slightly higher in this particular quarter, is more because we had the customers -- as I said, it was more from the -- on projects where and products where we secured our finances. So we had -- and there you see in the business accounting charges, which are higher. And so that actually sends the expenses higher -- a bit higher.

So we believe that doing this is more better rather than waiting for it because it puts pressure on the customers to get the cash, right? So this is overall and comments on the quarterly financial summary. So I think the ETR was at 36.8 percentage for the quarter, and that, as what I mentioned, was around because of the nondeductible which we have on tax.

So leading through the transformation. So some updates on the PG demerger update and as well as solar inverter business update. I think demerger is progressing as per regulatory guidelines. So we have a court-convened meeting happening on the 9th of August, right, for the shareholders and the creditors. And then we have the internal processes of forming a subsidiary on track. And also we have the various work streams working together to make sure that we have a solid carving-out, which happens by January 1. And then by June 31 will be the day 1.

On the solar, I think the Board has accorded its in-principle approval for the sale, right? So we have the subsequent actions, which are in progress at this point of time. So the income statement, what we have provided, it includes solar. And another thing that as we have held the assets and liabilities of the solar, as I said, held for sale, right?

Over to the next slide. It's about the quarterly trend in Q2. So this is a bit more interesting. If you look at it, the electrification products, looking at a nice uptick in the margins as well as the revenues and the orders, I think it also tells about the micro factors, which Sanjeev elucidated, and also on a better product portfolio, which is there, and solar is all export-based. When it comes to motion, I think it's more a concerted focus on markets and for volumes and, of course, a deeper focus on operation with respect to how the capacities can be utilized and how the material cost could be driven.

Industrial automation is a mixed bag, as we rightly said. It's more about projects, less a bit of products and less of services, right? So orders pickup, I think now instead of it, I would say that during Q2, industrial automation showed good pickup in orders. And I think, therefore, it secures us future revenues. Robot automation, it reflects the market scenario, so major customers being automotive and where we find a challenge at this point of time. I think that they are well poised for the future growth. And once the market picks up, they should be better.

The next slide now gives a view of how our total mix of orders and revenues by division. So by and large, if you look at this particular slide, you can see the orders come majority from the products. So products form almost 75 percentage. Projects form just 10 to 12 percentage. And then the services form 15 percentage. So they're the overall split of orders.

And then when you go by the division, how each division contributed, right, in the next slide, and you could really see that electrification products forms almost 40 percentage of our orders and revenues, right, and motion forms 25 to 30 percentage of our revenues and profitability as such. So I think what I would like to mention here, the higher the revenues and orders of electrification and motion, right, so I think that drives the profitability because it's more product-based. And actually, the capacity advantage is rising when they more go [more about] the breakevens, right? And the contribution of IA has been constant at 20, 21 percentage and robotics form 4 percentage.

So the last but -- the next slide and the penultimate slide, key ratios. I think this is one of the new inputs which we wanted to give as to how I'm 100 percentage sure that you would also be doing independently, right? When you ask us as a company, thought we should bring this outside-in view and look at for us just as to how we behave.

So I think if we look at it, so EBITDA margin growing consistently. And here, 2016 includes PG. '17 onwards, it doesn't include PG. So if you look at it, EBITDA margin on the right trend, EBIT margin on the right trend. And PBT and PAT also on the right trend up to the half year. And ROCE is also on the right trend. So hopefully I think by H2, when the revenues peak and the performance peak, I think this should show a better solid results going forward.

So EPS at INR 11.63 for the half year, right? And we should be able to maintain or better the EPS as what it was in 2018. And we're happy to see the cash earnings per share because this is something which reflects the health of the business and a real flexibility to operate on decisions what we could take. So this is also pretty much healthy at INR 28.49.

So when I look at the gearing. So as you know, that we have repaid the nonconvertible debentures last year. So we don't have any debt on the balance sheet. So we are zero-debt company. So NWC at 1.58x. So DSOs and DPOs and DIH of the inventories are trending in the right direction. So the conversion cycle was slightly higher. I am sure with all the efforts which we'll put in the next 2 quarters, we should be able to bring it back to normal because we have a target to make sure that we have a linear balance sheet than what it was [previously].

So the next slide. We would also like to give you a view as to how the market expected from us and how did we fair against it. So this looks at how we would like to position ourselves with others' expectation. So revenues, I think we performed INR 1,725 crores. The market expectation, this is an average of the analysts who had given the estimates. And what I looked at it was we were down by INR 145 crores. And I could really say that this was all efforts were taken to make sure that we maximize the revenues but not at the cost of the cash and bad receivables, which you would create. And also Q2 being the April to June quarter, having quite a few macro events in the country. I think even the offtake from the customers were pretty much subdued.

And so we had sort of a slow growth on the revenues. And that's reflected in the profitabilities and PAT. So really seeing if INR 145 crores is what has been lost in the revenues. And had it happened theoretically, I think we would have been better off in the profitability as what you would expect. In other words, I would have said that we would have almost the (inaudible) expectations of what it is.

So this is -- this is actually what I would like to say about how we are on the performance for Q2, right? And so I think with this, we can open up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Bhavin Vithlani from SBI Mutual Fund.

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Bhavin Vithlani;SBI Mutual Fund;Senior Analyst, [2]

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Could you give us some color on the exports, how were they during the quarter? And how do you see the exports going forward? A comment on the PG division's exports also would be helpful.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [3]

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Okay. So Bhavin, let me give you a view on the exports. I think during the quarter, both PG as well as the running businesses of ABB, right, showed a good uptick on the exports, right? So we were almost more than, I would say, a decent growth, more than 30 percentage of the exports' growth, right? And hopefully, I think this was more driven by PG, right? So on a half year basis, I think on the non-PG side, we were actually 20 percentage up. And the PG side, we were more than 50 percentage up.

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Bhavin Vithlani;SBI Mutual Fund;Senior Analyst, [4]

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And how do you see this trend going forward, especially given the global environment that you are seeing? Any color on that also would be helpful.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [5]

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Yes. So PG has got, as you said, its dedicated -- it's a dedicated fleet of factories for its businesses. And of course, Bangladesh and Sri Lanka provided a good opportunity for the system orders. So I sincerely feel that PG will continue its good strategy on the export side of it. So when it comes to the continuing business, I think it's a very interesting space which is developing. So we will have our divisions, like motion and industrial automation, gearing up to provide more into the newer markets. And they would, of course, would like to have a more share of exports. They have -- I mean rightly said, improved quite drastically from the previous years. And as you say that as industry picks up in the external market, definitely IA will see a corresponding growth. And when these orders come up, definitely I think you could see a corresponding uptick in the profitability as well.

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Bhavin Vithlani;SBI Mutual Fund;Senior Analyst, [6]

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Okay. My last question is in your opening remarks, you mentioned auto being soft. Any help, if you can give us, some sectoral breakup between your top 5, 6 sectors? And how are you diversifying out of auto that your -- the negative impact of the auto is offset by the other sectors?

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Sanjeev Sharma, ABB India Limited - MD & Director [7]

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Sanjeev here. As far as auto is concerned, as I said, I mentioned only about robotics. So our major exposure is under the robotics portfolio for auto sector. But rest of the portfolio, if you see, we focus on the larger industrial side. Then in the industrial side, you have all the core sectors. The core sectors, I think our trend in the case of the engineering -- EPCs who execute the contract is up. Oil and gas sector is up. Our metal sector is up. And if I look into automotive, actually, overall, if I see, it's not negative, it is flat. And if I look at transportation, it is heavily up. And the pulp and paper is up for us. And there's a significant traction in health and social sector areas where we participate.

Education sector, we have good orders and agriculture and forestry. I think these are the segments that we follow. So these are the ones which have been showing the uptrend. So on the order side, I think that's the kind of a break. And of course, since we participate in different market segments, so there's always a cyclicity built into the segments. And since very recently, we don't have an overexposure to a particular market segment, that's why we are able to ride through whatever the changes in the formation of the sectors take place here.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [8]

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So Bhavin, I think to continue on Sanjeev's statement, I think if you look at it, if I look at our sectors, right, manufacturing, which is more to deal with the wholesalers, the retailers, electronic (inaudible) and electrical equipment, that has also shown definitely a marginal increase than what it was in the previous half year, right? But that's more due to the fact that we have been consistently focusing on the micro factors rather than the macro factors alone, getting into segments of Tier 1, Tier 2 and Tier 3 cities, which has helped us keep this particular momentum even in subsectors which the market sales is downtrodden at this point of time.

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Operator [9]

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The next question is from the line of Fatema Pacha from ICICI Prudential Life Insurance.

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Fatema Pacha;ICICI Prudential Life Insurance;AVP Investments & Portfolio Mgr-Equities, [10]

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Could you just explain this entire solar inverter transaction and how we -- because you have set up a dedicated fleet of factories on the solar inverter manufacturing side. And we understand that the opportunity in the solar EPC is huge globally. So what is it going to be like for ABB India on that front, like the plant, everything will be transferred? Or what is it?

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Sanjeev Sharma, ABB India Limited - MD & Director [11]

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Well, it is true that the solar segment per se is quite large. And now as we see in the marketplace, you are getting more concentrated players, who are becoming active in that market. So in the case of solar, we are transferring this business to a company which is dedicated to solar business, which is FIMER of Italy. And they will get all our assets in terms of the capabilities that we have built at the feeder factory in India, both people as well as the capabilities to continue to produce the equipment and the technology that we have. So we will transfer it all. So it means in terms of serving the market, that capacity will remain. And hopefully, they will expand it going forward. But as far as ABB is concerned, we have decided to step out of solar inverter manufacturing business.

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Fatema Pacha;ICICI Prudential Life Insurance;AVP Investments & Portfolio Mgr-Equities, [12]

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(inaudible) cash consideration on this whole thing?

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Sanjeev Sharma, ABB India Limited - MD & Director [13]

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Yes, there's a overall deal structure at a global level. We are evaluating what it means for India.

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Fatema Pacha;ICICI Prudential Life Insurance;AVP Investments & Portfolio Mgr-Equities, [14]

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Fair enough. And sir, on the general environment side, what is your sense? Like April-May, I can understand it was election season. But how is it going? Like are you seeing any improvement going forward? Or what is it like? Like are you seeing June better than April-May and then July looking okay?

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Sanjeev Sharma, ABB India Limited - MD & Director [15]

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Well, it's anybody's guessing game. And I believe there are enough experts available every time, every day on the news headlines as well as on the television on an every minute basis.

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Fatema Pacha;ICICI Prudential Life Insurance;AVP Investments & Portfolio Mgr-Equities, [16]

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You are the guys who have the pulse of the market whereas we could just be speculators.

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Sanjeev Sharma, ABB India Limited - MD & Director [17]

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Yes, that's what I'm saying. So there are experts available, which can actually transfer the macro trend into the real economy parameters. I think what we do is we do what we know the best. And what we know the best is our product portfolio and the market segments where they apply, the proposition we have towards those market segments and also the geographical spread which we are penetrating. So quite frankly, we are not a dominant player in any of these market segment or any product line. So that means the headroom that is available for us to grow the market share by concentrating and focusing our efforts in the right place, that pays dividends.

So I believe, whether the market is up and down, at least I'm a personal believer with respect to -- with my team is. It doesn't matter because the size of the market in India is big enough and headroom that is available for us is large enough. And if we make the right strategy and right foot forward, you see the results that you have seen in quarter 2, wherein we have a substantial growth in our orders. So I think that's what carries us. We are a very long kind of player for India. So for us, these small micro trends, which go up and down, don't really matter much.

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Fatema Pacha;ICICI Prudential Life Insurance;AVP Investments & Portfolio Mgr-Equities, [18]

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So (inaudible) ?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [19]

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Yes. I think while we are basically focusing on it, as I really said, that cash over revenue will prevail. We will make sure that our -- we are ready to do the revenues required to sustain the momentum and go into the right sectors.

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Operator [20]

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The next question is from the line of Renu Baid from IIFL.

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Renu Baid, IIFL Research - VP [21]

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Firstly, I would like to congratulate you for an extremely detailed press release over the weekend as well as a very informative presentation. So congratulations for continuing to being slightly more open and transparent there. Sir, my first question is continuing with what Fatema was asking. I'm just trying to understand the business environment. Because there are a lot of headlines which are not as comforting.

But from your perspective or day-to-day business-wise, are you getting concerning input from customers, from your clients despite having the orders in hand with respect to headwinds on execution? So from your perspective, are you seeing the broad market and from customer and business environment improving, deteriorating, remaining status quo? What are your feelers from the market?

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Sanjeev Sharma, ABB India Limited - MD & Director [22]

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Well, going by the sentiment of the market, I think it looks sluggish. And I think our more concern, at least my concern, is more in terms of cash realization from the market in such an environment because we have a good order backlog. So we are very selective and we are very careful in terms of how we generate revenue so that we are able to convert cash when we place these revenues out in the marketplace. So that's -- I think that's our first priority. Second priority with respect to the sluggishness in the market place is concerned, I think that is quite visible. But again, as a company, what we do is we double our effort during this period of time to compensate for that. So that's typically the outlook we take at the management.

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Renu Baid, IIFL Research - VP [23]

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Sure. And broadly, as we see for the first half, we have grown double-digit terms in revenues, 11%. Order backlog is strong. The inflows have been good. So wouldn't it be broad -- as in safe enough to say that if the market hasn't deteriorated further the way it is, one should be broadly able to see a similar or double-digit growth for the year? Or do you think there could be risk despite having orders in hand?

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Sanjeev Sharma, ABB India Limited - MD & Director [24]

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Well, at every start of quarter, I think when I speak to my business presidents, they're always very careful. So if you want me to be careful towards you, I can do that as well. But I think basically, by the time we end the quarter, I think it turns out to be quite reasonable. And if you see our performance in the last 12 to 14 quarters, I think that has been the story. But yes, I think the sluggishness in the market and the lot of news and headlines do worry us. But I'm not able to kind of tell you whether it is going to go this way or that way. In my view, our engagement plan is pretty solid. Unless something really falls off a big cliff in the marketplace, I think we should keep the momentum.

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Renu Baid, IIFL Research - VP [25]

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Sure. Sir, my second question would be on the railway portfolio. Now that solar is probably on its way out, how are we seeing the business momentum, both in terms of orders, revenues and our new portfolio addition in the rail equipment side of the business? And does the environment [both] from the metro as well as the main line rail base look -- how is the market environment looking on that perspective?

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Sanjeev Sharma, ABB India Limited - MD & Director [26]

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Well, I think railways look pretty solid. But I can pass this on to my colleague, Sanjeev Arora, who has the motion division. Sanjeev, what's your outlook for railways, metro and the associated areas?

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Sanjeev Arora, ABB India Limited - President of Robotics & Motion [27]

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Yes. Sanjeev, thanks for that. I would say that the next growth story for India lies with infrastructure growth and traction. And we are very upbeat, we are expanding, as Sanjeev has mentioned earlier. So we are expanding in our product range. We are expanding our operations. So I think this is there to stay and there is more to come. It's just a tip of the iceberg.

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Renu Baid, IIFL Research - VP [28]

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Any new categories that you would like to highlight within railways or product ranges there expanding?

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Sanjeev Sharma, ABB India Limited - MD & Director [29]

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So Renu, this is a bit sensitive information, right? So we would not like to disclose it in this particular call, please.

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Renu Baid, IIFL Research - VP [30]

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No issue. And if you can just mention what is the order backlog in the Power Grids business at the end of the first half?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [31]

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I think I mentioned it, so I will repeat it for your benefit. Again, just give me 30 seconds. Yes, it's INR 5,383 crores.

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Operator [32]

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The next question is from the line of Abhishek Puri from Axis Capital.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [33]

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Two clarifications, actually. One is on the Slide #9 on the exports and services portfolio. You said that the exports are up significantly. So could you explain the chart that has been given in terms of the 3-year average looks to be much bigger than the first half?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [34]

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Yes. 3 years, it's a full year average and there's the first half, right? So if you extrapolate the first half into the average, we said that we will beat the 3-year average. That's what is the meaning of that particular chart because that's how we see.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [35]

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Okay. And a question on these postponed decisions that you have mentioned in this slide as well on the digitization. Is it on the order side? Or is it on the revenue side that you're seeing postponements here?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [36]

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On which -- no, this is basically...

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [37]

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On the same slide.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [38]

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The thing is it's more from the order side of it, right? And so -- and also it's partly because this happens to be a mix of products and services. So some part of it also move into the revenues as well because they're all book and bill.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [39]

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Understood. My second question is on the segment-wise margins that you have reported. I mean if I look at the overall numbers, I think that's close to 9% remains if we add the 4 segments, the continuing segments, whereas your EBITDA growth has been very strong when we look at the consolidated numbers, which is about 38% and the margin there increased almost 180 basis points there as per the presentation. So what has led -- if the segment-wise margins are not increasing, what has led to the overall margin increase for the company?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [40]

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I didn't catch you, correct. What you mean to say is that the segment-wise margins remained consistent but whereas the overall margin. That's a good question, right? So if you look at it, so we definitely had in the previous quarters, I think previous years, you had the closedown or the discontinuance of the EPC business, which was forming part of the total results. And that seems to be coming to an end. So you definitely have a stronger buildup on the bottom lines of this. So whatever be the margins which the company has earned through the running divisions is translated to the bottom line margins.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [41]

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Yes. So you mean to say the EPC business or the projects part of the business is -- was under the cost segment earlier, which is not there right now.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [42]

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The average is very less at this point of time.

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Operator [43]

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The next question is from the line of Renjith Sivaram from ICICI Securities.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [44]

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Congrats on good set of numbers. On the other operating expenditure has gone up, so you mentioned that there is some provision related to warranties and other things. So is there any number which you can share, which is kind of one-off, which has led to this higher other expenditure?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [45]

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If you come to the -- Renjith, first of all, we don't give those numbers. I think these numbers itself, what we have given is far more granular than what we used to give earlier. And then the next thing is about why this warranty. Of course, as you see, we have increased the exports footprint quite substantially. So when exports come up, it also -- it is prudent to have a certain warranty provision to take care of that. And also we have new product ranges being implemented in the first time, supplies from the motion division as what Sanjeev Arora was mentioning from a few minutes before. So that's some of the reasons why we are. And it is absolutely after the guidelines. And there's no -- there's nothing like onetime on this factor. Yes, onetime because that was not there. That production and supply was not there previous quarters. But it has come up in the current quarter and that's why it is there.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [46]

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So is it fair to assume that this kind of warranties will continue going forward?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [47]

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It will continue going forward until the production, until the supplies are completed and the commissioning is done, right? And after that, then it's a matter of fact that how sort of the experience has been. And finally, then you have a flattening of the warranty cost later.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [48]

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Okay. And was there any ForEx-related gains/loss, anything to mention about in this quarter?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [49]

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Yes, it was there. Definitely, it was there. But I thought that it's a normal thing, which used to happen every quarter. And that's why I highlighted the major ones.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [50]

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Okay. And sir, lastly, this solar inverters, we have not put it in discontinued in the P&L. So from next quarter onwards, will we move that to discontinued? Or will it continue the similar way?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [51]

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So it depends totally on the Board decision. So we cannot at this point of time give a sort of a direction to that, Renjith.

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Operator [52]

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The next question is from the line of Apoorva Bahadur from Jefferies.

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Apoorva Bahadur, Jefferies LLC, Research Division - Equity Associate [53]

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Just wanted to know, I mean in continuation with the last question, the solar inverter business, so if you could share the broad-based financials for the business, I mean the revenue with the PAT side?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [54]

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So we don't do that normally. So as we normally say, I think I could give a very qualitative impact on that, right? So I have been always been saying that solar revenues are around about 7 to 9 percentage of the total revenues and order mix. And the margin is not so great because we have definitely challenges in the market as what we see. And that decision goes forward to the ultimate divestment.

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Apoorva Bahadur, Jefferies LLC, Research Division - Equity Associate [55]

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Okay. Sir, I also wanted to know something on this, the Indian budget, the government had come out with a directive on increase in the public shareholding. So have you received any communication or any sort of a trajectory that they have decided on this?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [56]

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No, we are also part of the news, which has come out as a part of the budget [decision]. So we still await more information on it. And I think it is more of a proposal. It will take time to take its shape into more as a directive or a law. And yes, we wait and see. We don't react to it at this point of time.

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Apoorva Bahadur, Jefferies LLC, Research Division - Equity Associate [57]

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Okay. Sir, last question, I think I missed this part, where you provided the order book breakup between the various segments. If you could do that, it will be very helpful.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [58]

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Order book or order backlog? I think, as what we mentioned is order backlog, if I'm not wrong, right?

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Apoorva Bahadur, Jefferies LLC, Research Division - Equity Associate [59]

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Right.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [60]

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Right. So I think order backlog. Order book or order backlog and order booking for us is order booking. Okay. So order backlog, EL, INR 1,400 crores, right? So MO -- I am giving you round numbers. So I think you guys will tally it up and say it's not matching. But I just want to sort of caution you there so that it's easy for us to remember. EL is INR 1,400 crores; MO is INR 1,600 crores; RA, robotic automation, is INR 150 crores; industrial automation is INR 1,400 crores. So all put together would be in the range of INR 4,600 crores is what is there.

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Operator [61]

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The next question is from the line of [Aditya Poot] from Kotak Securities.

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Aditya Mongia, Kotak Securities (Institutional Equities) - Research Analyst [62]

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This is Aditya Mongia. So I had a few questions from my side. And these are more on the margin front. So I start with the electrification product segment, wherein you're seeing a smart improvement in margin happening over the past few quarters. Is this just (inaudible) of capacity utilization? Or there's more to it in terms of improvement in margin?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [63]

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Okay. So I have the Division Manager of Electrification Division, C.P. Vyas, on the call. C.P., would you like to sort of explain the margin movement?

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C. P. Vyas, ABB India Limited - President of Electrification Products [64]

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Yes. I think the 2 or 3 reasons was definitely the product mix and the capacity utilization of the factory also helping us to improve the margins.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [65]

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Fantastic. And also to add to that, I think we also have good export revenue, a lot of EL division at this point of quarter so that also helps.

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Aditya Mongia, Kotak Securities (Institutional Equities) - Research Analyst [66]

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Sure. That explains. A similar question on the industrial automation side. I understand that the top line over there is not growing. But my sense is that this is obviously a segment wherein project exposure is also there. In that kind of segment, a sharp decline in margin has been seen. So if you could provide some more granularity as to why this margin decline is happening in that segment? And is there any kind of takeaways for margins in the future?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [67]

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Okay. So I will first put my comments. And then afterwards, I think maybe I have Madhav, who could probably give us more expert and deeper insights into that, right? First of all, industrial automation, is the major customers like in the core sectors, right? And most of the orders come from the core sector of cement, steel and mining part of it and from pulp and paper. And that segment, I think you could -- as you really see the macros, I think does not favor that. And so we have a lot of offtake which is pretty much flat, right? And the good part of it is that while the markets are degrowing, we are able to keep it consistent and have -- make sure that our revenues and revenue streams are pretty much protected.

And if you look at the profitability mix, I think the reason why it has probably gone down in this particular recent quarters is a lot about the mix. So service revenue, I think if you look at the slides, which we have given on service, I think we have clearly articulated that it's because of a higher base which we had in the previous year. So I think that's something which you could draw your comments on. And of course, the exports were slightly less compared to the previous quarter. So anything else you want to add, Madhav?

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Madhav Vemuri, ABB India Limited - President of Industrial Automation & Country Service Manager [68]

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No, I think that's correct. It's more of the revenue mix and [we've seen some] results of the mix again.

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Aditya Mongia, Kotak Securities (Institutional Equities) - Research Analyst [69]

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Sure, got that. Also just a clarification, when you said the solar business is 8% to 9% of the revenue, these are the continuing business revenues that you are focusing on, right?

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [70]

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Yes, you are right.

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Operator [71]

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Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. T.K. Sridhar for closing comments.

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T. K. Sridhar, ABB India Limited - CFO & Chief IR Officer [72]

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Thank you. Thank you, Margaret, and thank you to the entire team who could put up this particular presentation because all the -- and also the participants and the management team who is here on this particular call. And just in case, if you still have any unanswered questions, please feel free to come back to Sohini, Beena or myself, so we'll be more than glad to give you more insights into, just in case, were still not answered. Thank you very much, and wish you a good weekend -- good week.