What has been the underlying reasons for the recent growth?
The company is in a good spot. We have exited many businesses. The power grid business is now Hitachi energy and the solar business is with FIMER SpA of Italy. ABB now has a portfolio, which is industry oriented. We have four (main) business areas.
One is robotics and discrete automation — the smallest unit, but one of the fastest growing businesses because of the manufacturing expansion in the country. Industry in an aspirational economy uses 120 robots per 10,000 workers. India still uses about six robots per 10,000 workers. So the opportunity is large.
Electrification is our biggest business, where we electrify and automate power distribution in cities and also buildings, be it offices or residential spaces, and all large infrastructure projects, including railways and metros.
Then there is motion business which is all about energy efficiency. We have high energy efficiency motors and those product solutions are relevant for all spheres of our industry — which typically uses between 45 per cent and 65 percent of their energy in motors
The fourth part is process automation, wherein we automate the large industries in the core sector. Within the four business areas, we have 20 divisions which operate in 23 market segments.
Earlier ABB’s numbers would be quite lumpy but there has been more consistency in recent past. What have you done?
Today, 70 per cent of our portfolio is products and Engineer to Order (ETO) — use our own products and create a sub-system to make another product and send it out. These products are Made to Order (MTO) or Made to Stores (MTS). For ETO, we use the same products but we engineer it into a solution and that power game becomes 70 per cent of our portfolio, while 20 per cent of it is services.
The remaining 10-15 per cent is project oriented which has gone through a fundamental change in our portfolio construct from the past. So typically, projects have a large gestation period, it could be utilities, government or going into NPAs, and you will get stuck with those. So those things are out of our books. Now it’s clean, and fast-moving.
How are you tackling rising commodity prices?
Two things — resilience towards the market and the economic cycle. The second part is the investments we have been making in our internal efficiencies and productivity side. Our plants use our own robotics in a big way. That has given us 30 per cent more space while producing double the earlier output. Moreover, some key activities, which were earlier done in-house, are now outsourced. We have realigned our processes to be more efficient and productive, and they're also responsive to the market demand.
You’ve been taking price hikes fairly consistently as well.
Whatever we commit, we deliver it at that price. However, if commodity prices move during that period, we pass it on to the customer to an extent. Most of our customers are aware of the macro happening around the globe and the supply chain squeeze and are participating in the price change.
In case of robotics, haven’t the supply chain constraints affected you — especially semi-con chips?
There is a constraint but only in certain products that we have. We are careful in terms of what we commit to customers at this point in time given the supply chain constraints. We don’t build volumes and then not deliver. Instead, we adjust our intake of volumes through the capacities we can deliver.
Electrification business has grown the slowest relative to other parts. Has that been constrained by the health of State Electricity Boards, the launch of larger projects?
It is indeed our largest business, and it is growing at a healthy pace. If you see our core, their growth rates are fastest than ever. Our exposure and dependency on SEBs are limited.
Today, our exposure is more to industry, end users, OEMs — which supply to the industry or the government, and the other channel partners who participate in the general growth of tier-1, -2, -3 and -4 cities. There is quite a resilient uptake of demand in the infrastructure side of the projects, growth of cities, industries, and also a lot of OEMs are exporting more now.
How have exports accelerated?
Our prime purpose to be in India is to serve India and help in nation-building, and grow over a period. In certain product lines, like in the motion division, the business has grown by almost 2x in two years. Similarly, in medium voltage switchgear, we are number one in the global market. But at the same time, our reputation in the global setup is to add value at the local level, plus we have a strong supplier base in India, which makes us more reliable.
In terms of manufacturing footprint, are you able to expand at a pace that is required?
We are in a good spot at the moment and our cash book is strong. All the businesses have the ability to collect cash from the customer by delivering on time. It continues to build as we go forward because the cash cycles are pretty short. The conversion of it into cash is quite robust.
One thing which is not visible on our balance sheet is the land bank that we hold next to our plants. So, that adds almost double the capacity of this company. This means that runway is also available with us going forward. Our group is also looking at inorganic opportunities globally. As part of our ongoing modernisation plan, we do a capex which varies in the range of ₹60-100 crore every year.