ABB India Ltd
NSE:ABB
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ABB India Ltd
Earnings Call Analysis
Q3-2024 Analysis
ABB India Ltd
ABB India Limited reported a robust performance in Q3 2024, maintaining an order inflow of approximately INR 3,000 crores. This marks the sixth consecutive quarter of strong order bookings, driven by a combination of both base and large orders. The current backlog stands at around INR 10,000 crores, with large orders making up 25% and base orders comprising 75%. The company anticipates gradual execution of these orders over the next four quarters, providing solid revenue visibility.
The company saw a 5% increase in revenues, attributed to the ongoing execution of base orders. Additionally, the profit after tax rose by 22%, benefiting from an improved revenue mix and strong post-order execution efficiencies. Current profitability margins are stable, hovering around 20-21% of PBIT. The healthy revenue growth is anticipated to continue as the backlog is executed, though large orders naturally come with longer gestation periods.
ABB India has reported a solid capacity leverage, ensuring that it does not require heavy incremental investment to meet market demands. The operational efficiency has improved, allowing the firm to maintain a competitive edge. Despite minor fluctuations in expenses, the core cost structures remain stable. Cash flows and collections outpace revenues, enhancing the company’s financial strength.
In the electrification segment, ABB India has made significant strides with a solid order intake, bolstered by large contracts from data centers and railways. The motion business serves as a key component of revenue, while process automation has faced some decision delays in order executions. However, the management remains optimistic about converting opportunities into firm orders, reflecting a robust pipeline moving forward.
Looking ahead, ABB India aims to achieve a steady growth trajectory, with guidance suggesting the potential for revenue increases along the lines of historic growth rates. The firm has consistently performed above market expectations, and while no specific revenue targets are announced, a continuous upward trend is anticipated as project execution progresses. The management expressed confidence in sustaining a healthy demand base, despite recent indications of general economic slackness across consuming industries.
ABB India remains committed to sustainability initiatives, achieving notable certifications such as CO2 compliance for its manufacturing sites. The company has been awarded high ratings for its sustainability practices, reflecting a strong commitment to reducing environmental impact and supporting local communities. This focus on sustainability not only aligns with corporate values but also enhances brand reputation and customer loyalty.
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Ladies and gentlemen, good day, and welcome to ABB India Limited's Q3 CY 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded and any unauthorized recording of this call is strictly prohibited. The recording will be made available on the company's and SEBI's website subsequently.
I now hand the conference over to Mr. T.K. Sridhar, Chief Financial Officer of ABB India Limited. Thank you, and over to you, sir.
Thank you. Thank you very much, right? First of all, ladies and gentlemen, very good morning for the call before we start, and wish you all a very, very happy Diwali because we just come out of a Diwali vacation and also New Year for some of the people. So wish you all a happy New Year.
So on the call, I have with me Mr. Sanjeev Sharma, the MD of ABB India Limited; and also have Sanjeev Arora, who leads Motion; and Kiran Dutt and Ganesh, who are part of EL division as well. But we don't have people from Process Automation, Robotics because they are busy with their customers and execution topics so that we will handle it as it goes.
So very good. I think without wasting much of the time, I hand over to Mr. Sanjeev Sharma for taking us through the Q3 number, right, our Q3 performance issues and there are many topics. Yes, over to you, Sanjeev.
Thank you, Sridhar. And I hope each one of you had a good festive period and good morning. We will give you a very quick overview about our quarter 3, which was July to September 2024 and followed by financials by Sridhar and then we take as many questions we can.
When it comes to ABB in India, I think those of you who are familiar with it, I think it's just as a reminder and those who are joining for the first time, just as an overview of ABB in India, we are 4 verticals: Electrification, Motion, Process Automation, Robotics and Discrete Automation. It is all about energy efficiency, energy distribution and providing productivity to our end users in energy industries, process industries, marine and ports, measurement and analytics. And of course, with the Robotics and Discrete Automation and machine automation, we provide solutions for automating [ ABB ] shop floors.
We operate with 5 locations: Nashik, Faridabad, 2 in Bangalore, wherein we have about 25 plants catering to different products that we supply into Indian market largely and then also we export out of it. We serve the market with 28 sales office, and we have a very strong battery of 750-plus partners. And out of India, we are exporting to over 30 countries.
Now giving you some business highlights. We had a performance chart as orders are 11% up for our increase of share of large orders in the overall basket. So that -- if you go back to our commentary of last 4 to 6 quarters, so we have been telling, "Listen, we have a very good inflows from the base orders and also our, what we call it as, fast-moving industrial goods, which get distributed to our channel partners and our integrators."
And it's a matter of time that the large contract from our core sectors will start picking up. So we started seeing the uptick of some of the market segments, which are very important for us. We have started seeing the uptick of large contracts there. So that's what has started forming our books as we go forward, apart from continuation of the base orders or the fast-moving industrial goods orders.
Our revenues are up plus 5% based on execution of base orders across segments. But now given that our books have been mixed with now the large orders, which have larger gestation period, so the conversion rate that we may have witnessed in past, that may not be the same velocity because the large orders take some time to digest and execute. So you -- I think you can have some questions around that, we'll be happy to answer it.
Our profit after tax has increased by 22% due to revenue mix as well as how we have captured the margins in the orders, so both preorder as well as post-order execution efficiencies. So we have a good capacity leverage, which is available to us. As you know, that we have a capacity to manufacture and most of the expense for any additional volume that we do here, we have been able to do it with incremental investment. We didn't have to make very, very large investments to cater to the market demand.
On the Electrification side, we have launched a new portfolio in ABB-free@home, which is essentially a very smart portfolio. Any of you considering to automate your home, so you can look into this solution. Our team will be also very happy to help you.
And on the Motion Drive Product, we have reached a 10-gigawatt milestone in renewable energy automation solution. And only 3, 4 years back, we used to talk about 5 gigawatt. Now we have reached 10 gigawatt supplies into this market segment.
We have continued to focus on making sure doing the right thing for sustainability. Our Nelamangala campus in Bengaluru is now certified CO2 compliance, zero CO2 compliance emission scope on Scope 1 and Scope 2 GHG emissions. It's a very significant achievement by any standards for an Indian company and also in our global network. So that's the kind of a focus we keep in this area.
And all our locations like Nashik Plant 2 has been awarded our Platinum rating by Indian Green Building Council under the green factory building system, again, credit to our location team there. We continue to run this with a lot of passion.
And also, we were ranked #1 in electronics and hardware at Sustainable World Conclave 2024 by BusinessWorld on sustainability ranking. And overall, among all the listed companies across the country, we are ranked #4, and we are very humble in terms of recognition of the efforts we do in this particular area.
Now with respect to market, so we -- though there is a lot of commentary about market, which way it will go and how long the robustness in the Indian market will stay, we continue to see base strength in the market. And as you know that we have 18 divisions, which focus on 23 market segments, rather a cyclic nature of certain market segment, which we continue to see up and down. But overall, I think we have a positive outlook in terms of how market is developing in the country.
The new market segments, which we started data centers about 5, 6 years ago, now they have become significant contributors to us. And given the digitization rate in the country, we see there will be an uptick here. And we have quite a good reputation and demand from the large-scale data centers, which have been set up in the country. Same thing goes for the process industry, and also the transport equipment, which is expanding, and we have a portfolio, which caters to these market segments.
So you can see some of the examples. I think these slides will be available in the interest of taking more questions from you. I will not read everything, but you can see how our products and solutions go across the market segments. And that diversity gives us the good resilience around our portfolio and our results quarter-to-quarter and year-to-year.
We continue to engage with partners deep into the geography that we go deeper into the geography. We also go to deeper into the new market segment so that our customers can appreciate the portfolio that is available through ABB, which is very well localized and served locally with a global portfolio, and we are seeing a lot of traction and our team continues to do this religious work of making sure that they keep making this deeper penetration in the marketplace.
This is something how we see the market in terms of growth, high market segments, moderate segments as well as low uptake market segment and there is always a cycling nature of it, and we feel the ones, which are low today, I think it's just a matter of time, they will join in the moderate and some of the moderate guys will move into the high segment and maybe there could be a bit of a reversal on the high to moderate. But this is a picture which is very dear to us, and this is how we look into market, and this is how we continue to develop our footprint in the country.
The theme of the quarter is, we always talk about one particular market segment, it is power distribution. And in this area, you can see that the power capacity, India is the third largest producer and consumer of electricity worldwide and with 442.85 gigawatt as of April 30. So it's likely to double to 817 gigawatt by 2030. So you can imagine the rate of growth that we will see here and the areas where it will get used.
So we have our portfolio in the Electrification that goes right at the sweet spot of this, especially ELDS and ELSP and ELSB portfolio, and we continue to see good gains in that area. And these are very solid and very high-growth businesses, which are also contributing heavily to our results.
And now sustainability in practice we talked about. We continue to focus on key parameters. And you can see year-on-year, if you continue to see our journey, we continue to make progress in all the right parameters.
We have good CSR programs. Recently, our Motion team led by Sanjeev Arora, we opened an electrical machines lab in IIT Mumbai, wherein they have requested to upgrade their machines so that the next-generation engineers can really play and train themselves on the best of the machines. And we are making sure that all the education institutes across the country, they continue to receive that as part of our CSR initiatives. Apart from education and skilling, we do a lot of work in the communities and environment. And this is something which gives us a lot of satisfaction as a management that we can do contribution other than contributing to our shareholders.
Here, the key growth drivers are the investments, the way they are happening. I think it was -- we are hoping and we are seeing private sector uptick alongside public sector. Make in India campaign definitely has seen good depth of how the purchasing gets done in India and how much value added gets done in India. And also, the customers appreciate premium products related to how they used to be a few years back. And of course, there are factors to watch on the domestic economy, consumption growth and global drag. But these are not the ones we can directly correlate with our business. We really participate in the market as it shows up in 23 market segments for our individuals.
At this point, I hand it over to Sridhar and he'll take you through financials.
Give me a moment please, just getting myself ready. So thank you. Thank you, Sanjeev. I think it was a good session on how the markets are and how do we look into a big picture view. So just coming back to the basics of how did we perform in Q3. So I think these numbers are already there with you. Just to add some commentaries to what you see on the slide.
So the good thing is that we are able to maintain the momentum of orders at this point of time, INR 3,000 crore. I think this is the sixth quarter in a row where we have seen that INR 6,000 crores has been the order inflow roughly on an average, plus/minus 10 percentage here and there. And it's also comprising of both large as well as base orders, base orders being the maximum out of it. And therefore, we see a good visibility of revenues for the next 3 to 4 quarters to come in because it'll be get executed over time.
On order backlog, I think we have a specific slide on order backlog, which is next to it, so we could always do a bit of a common storytelling there. And now we -- on the revenue part of it, we were 5 percentage up. So I think this goes with the execution of the backlog, which is base orders. The large orders are yet to kick in with the revenue because they have to align with the project milestones with which we have to deliver the material. So I think we need to wait for it to happen.
But we didn't see any risk of any backlog being a slow moving or a non-moving order backlog at this point of time. So profitability, so I think we successfully again posted a 15 percentage -- PAT percentage is what we see and that's basically coming from a good mix of revenues between exports, services, projects and products and also to various markets and solutions is what we are alluding to. And also added to that is the advantage of capacity utilization, so which helped drive the profitability.
So cash, I think the cash remains strong. Our collections in the market continue to outpace the revenues as such. And -- but a good part -- I mean, but the other part is that we are definitely built up on inventory because we have a backlog to execute and, therefore, these inventories, which are earmarked for the execution of this backlog will become -- resumed over the next quarters to come.
So I think overall, the messaging is we have a strong cash position at this point of time with an inventory to liquidate for the execution of the backlog. Sequentially, I think momentum and cost structures have been maintained and cash inflows, as what I said, is steady. But only thing is in Q3, there was a cash outflow for dividend. And also, we did the CapEx. So cumulative CapEx is INR 135 crores is what we see for the last 9 months, to say, and then we still have projects ongoing for the various expansion and modernization of factories and plants.
So now comes then backlog. I think there is -- there could be definitely be curiosity to understand how is this backlog pairing up and what we -- how are we trying to execute. First of all, I think before we go to the backlog, we need to understand how the order inflows have been over the quarters. So if you look at it, for last 7 to 8 quarters, we have had orders which are a good mix of base as well as large orders, and large orders have been consistent over the last 5 quarters in every quarter, at least of INR 500 crores on an average.
And so they come from sectors like metals, metals and mining, oil and gas, the transportation sector and also data centers, which is a fast-growing segment at this point of time. So I think this is also reflection of the fact that government spend in CapEx, especially on transportation segment is helping us. And if you see that, it's more to do with Motion segment as such.
So overall, I think the large orders, which are there in the backlog will see an execution, which has to match with the overall project time line. So that's something, which we are trying to make sure that we're not -- we are timing it correctly so that we don't have a lockup of net working capital in terms of receivables over there. And also, we're making sure that what is needed for the project is what is delivered so that we have a seamless execution of these particular projects.
So on the backlog side of it, today, we are talking of almost INR 10,000 crores of orders, which comprises 25 percentage in terms of large orders and 75 percentage for base orders. So that's the sort of a split, which is there in the backlog.
And while 25 percentage, as what I mentioned, has to go along with the project execution time line, but 75 percentage is base orders, which ranges the lowest being 3 months and the highest being sort of 12 months' engineered products, which we manufacture. So I think -- so that's the sort of the cycle. So that means these particular orders will be distributed from execution over the next 4 quarters to come.
So going into the cost structures, if you look at it, so we are pretty much stable. So only 2 questions on this could be, right? How is the material cost stacking up? And how is the other expenses going down? So these are, I think, 2 questions which could be -- need to be answered from my side.
So I think when it comes to material cost, I think it's more about the revenue mix and you have a positive price impact of the comp, which is giving us a benefit, which we're having now. And the currency acquisition and the commodity price increase is something, which is going to be stable at this point of time. And therefore, we don't see anything, which has negatively impacted our material cost and so that is what it is.
And also, in this particular quarter, we did certain provisions because they were -- during the execution time, used to carry it as part of material cost. But once the execution is over, then you -- that it transforms into warrant cost until the obligations are completed.
And that's why we could see that there is a reduction in the material cost and there is an increase in the expenses, that's what you see, which is more for -- in the form of warranty cost, which is there for the products for the executed and for the new market segments, which we have entered into where we need those extended warranties to be applied.
So apart from that, I think the expense structures are pretty much the same. The deviation, which you see between INR 460 crores, INR 470 crores of other expenses to INR 518 crores is what we see is majority because of specific warranties, which has moved from the material cost to the sold warranty. But otherwise, I think that's something which is quite normal at this point of time.
I think this is something of the onetime projects that were executed earlier and that has been moved. But on an ongoing basis, it would be in the range of [ INR 477 crores, 480 crores ] is what you see. So yes, depreciation and interests are pretty much straightforward. They have nothing to do at this point of time. So we are consistent on those cost elements.
So if I want to do a bit of a color on the segment-wise information, so Electrification, I think growing at a good speed of today on an order book of INR 1,766 crores what we did in the -- in Q3. So solid and this was backed up by orders from data centers, railways and export orders. And it was spread out in all the divisions or business lines of EL.
And revenues, I think will stack up as these large orders start to get executed as well over there. And if you look at it in the backlog, they are at INR 3,400 crores, which will -- I think this gives us good revenue visibility and cruising at 20, 21 percentage of PBIT, I think it's sort of a solid performance is what we see.
Motion, if you look at this particular figure on a quarter-to-quarter basis, it looks to be down. But I think you need to understand, in the last year, the same quarter, we had a large order from the railway segment, which actually boosted the orders at that point of time. So if you review that like-to-like, so we are slightly above what we had booked last year in the same quarter. So -- and that means that base orders is definitely growing in spite of the large order not being there.
So yes, I mean revenues, stronger revenues. And this could only develop better going forward as the backlog gets executed, which is considerably high at this point of time. And with the profitability continuing at 23% -- plus 20 percentage is what you see over there.
Process Automation, I think we did have certain orders, which slipped out to the next quarter because of decision delays, especially in the metals and oil and gas sector. So we -- but the pipeline is pretty strong. And we assume that these particular orders will get finally converted into firm -- these opportunities will get converted to firm orders in the quarters to come. And that gets reflected in the execution of revenues as well.
And naturally, the profitability is better because we have a good service revenue component in Process Automation and that is sort of driving the profitability and also the project execution skills have been strengthened and a good mix of orders from different solutions is sort of supporting the margin expansions.
Robotics, another fast-growing division is what we see. So it has a clear reflection between how they operate in select market segments like electronics, automobile, pharma and the sort of industry. So I think that's how you see that there is a cyclical way as to how the orders are presented in this particular sector. So hopefully, I think we should be -- but we are on track because we have been doing pretty well in the last 2 quarters. And Q3 was a bit of a decision delays from the customer and that should sort of catch up in the next quarter to come.
And overall, I think here also, we see good traction on profitability as well as order backlog execution. So overall, I think on a basis other than one-off items in respect to the cost of material, which showed an improved margin versus the material and the other expenses, which have increased because we had to put that as warranty cost. Other than that, I think we are pretty much straightforward compared to what it used to be previously.
So just to come to the last slide, this is about how our segmentation looks like in terms of business, various dimensions. So in respect of businesses, so EL and MO still have 75, 80 percentage, which is a product business or engineered product business is what we say. And PA, Process Automation, is 20 percentage with Robotics at 4 to 5 percentage.
So this has been pretty constant at this point of time. And the next, when it comes to the offering projects is 11, 12 percentage. So I think this is also pretty stable and good part is the products have increased from 76 percentage is a major share, therefore, our risk profiling is pretty steady at this point of time.
And in terms of exports, we are 12 percentage as of the revenues for the exports. I think the OEMs and the EPCs and the partners are the same as what it used to be earlier, no major changes what we see.
That's it from my side. I think we are good to go. I think 30 minutes out. So we are good to go with some Q&A, Sanjeev?
Yes. So we can open up the call for the question and answers. So we'll try to do our best to make sure that we have all the questions answered in the next 30, 35 minutes, to say.
[Operator Instructions] The first question is from the line of Ankur from HDFC Life.
Two questions. One was on the Motors/Motion business. If you could just talk about -- and especially on the LT Motor side, if you could talk about how is pricing, even demand, how is that looking up? Has pricing stabilized? Have you seen any price hikes recently? And also on the channel, if there's been any restocking happening post now that elections are over because we heard that there was some destocking prior and during elections. So your overall demand, pricing and competition on the LT Motor side, that's number one.
Number two is -- and I'm sure there's a lot of questions around this decline that we see on the top line and Process Automation. So if you could just help us, was this on a specific order? Or is it just the way the deliveries are scheduled? Also high base of last year also kind of not helping us. So just some more color there, how you see execution on the Process Automation side.
Okay. So let me take the second question first. And then afterwards, Sanjeev Arora, who leads the Motion business and also the Motor specifically will help more clarity on that. So Process Automation, if you look at it in last year, 2 quarters, we had Q3 and Q4, a good uptick of orders from the metals and mining segment. And this year, we had oil and gas coming up in the first 2 quarters. And this particular quarter where we expected some orders from oil and gas as well as metals to comes in, would come in, in the next quarters to come.
So in other words, what we want to see is that the opportunity pipeline is strong and vibrant. It's only the question of decision-making, how it happens because they are project orders and have the process to follow. So that's what we see. In other words, I don't see any concern in sort of opportunity pipeline drying up as such.
And once these orders fall in place and naturally then it follows the execution time line and that is well defined because we are experts in the field who could [indiscernible] positive quarter. So overall, I think at this point of time, while you see that there is a bit of a slowness as what you see the charts, but we still find that we are -- definitely have an opportunity to move forward on this.
So over to you, Sanjeev, if you could put some light on how the Motor market is and what surprising topics, what we are facing that sort of stuff, yes.
Yes. Thank you very much. And just sorry for my bad throat for today. But I think a very, very good question. And yes, LT Motors, has been facing some headwinds when it comes to the pricing piece. And of course, large player like ABB who has a substantial market share are affected, I would say, a bit more in advance. So -- but then, overall, I would say that if we see the total economy, so every industry require low-voltage motors. And if we see the investment cycle, so first, we had the muted period, then we had the elections, then we had, I would say, some good rainfalls, which has also resulted in some flooding as well in some places.
And so I think these 9 months have been a bit turbulent. But I'm pretty confident that now the things look like that they have -- the erosion has stopped. And now with the -- and the government also was pretty involved in the election this year, so be it the national elections or state elections. So I think if that phase is over, the investments from the government will also start. The industries will also have a morale boost that the investment has started, and this will also help in stabilizing the price levels in the market. So yes, there has been turbulent times, but I would say that more or less, that's over now for the industry. So that's my take on it.
The next question is from the line of Umesh Raut from Nomura India.
Sir, my first question is pertaining to pricing power. And if you could throw some light regarding 3 aspects on pricing power. So first, basically, capacity expansion, which is kind of happening at the industry level across the products. Second, basically, any demand moderation that you can observe on any of the products? And third, basically, any request from the customer to kind of pass on any raw material correction benefit considering that in the last few quarters, we have enjoyed very healthy pricing power. So any thoughts over here?
Okay. So let me take the first question and probably throw some light on the last question as well. And then the middle -- second question, if you could repeat it for the benefit of all of us, Umesh.
Yes. So sir, I was also kind of alluding to the fact that if there are any requests from the customers to kind of pass on raw material benefits or whatever cost efficiencies that you have observed during the last few quarters and because of which we can have certain lower moderation into the pricing power.
Okay. First, cost is going on capacities. I think -- today, I think all the business lines have been definitely, which is aging business, divisions, whatever we have, have good capacity planning and they have an adequate capacity to handle the current demand development as what we see, right? And while we do so, we are also definitely on the way of looking at it forward by tuning ourselves to the market demands, how it develops. And so our investment in expansion as well as modernization of plant doesn't stop every year. So I think we have been continuously for the last at least 3 to 4 years, on an average, we are doing INR 200 crores, INR 250 crores of investments. And in this year, we've already done INR 125 crores.
So I think it definitely depends on how we liberate the existing capacities and how do we gain those productivity -- operational productivity improvements, which could also unlock the capacities. And so it's a journey, which every division and every factory takes in, right? So that's something which you do. So to sort of summarize it, we don't see any capacity constraints at this point of time. And we have enough land banks for us in case we have to put up new factories. And also the existing factories have the headroom to make demand surge.
Next coming to how are you dealing with the pricing topics in the market. I think, as you rightly say, the commodity prices have now stabilized. The pricing of the -- and also the ForEx variation is also now limited because they have also currencies or become stable.
So the pricing is a dynamic stuff. It depends on how the demand and the supply situation behaves in each and every product, in each and every market segment in which we do, right? And so it's something -- there's no fixed rule as how we see it. But of course, we know how the price and volume game works. And so the management takes a decision appropriate to the business scenario they are in.
So my next question is pertaining to the slide on 23 market segment, where you are consistently saying that data centers, railway metro and electronics are being more of higher-growth segments. But if I look at certain core industries like metal, mining, cement, oil and gas or even food and beverages, those are consistently into the low growth segment. So any assessment here, what are you observing on private sector CapEx recovery and especially demand from that particular segment to your products?
Okay. So let me take this question and then Sanjeev top it up over to you on this thing, right? So to give you a sort of a picture and could be beneficial to all other people who are listening into. If you look at our total dimensions of how we do business, if we take away 10% as exports, we have 90 percentage. And out of the 90 percentage, if you roughly take away 12 to 15 percentage as services, then you are left with 75 percentage. And this 75 percentage is what comes from these 18 -- 23 market segments from 18 divisions is what we see. It's basically in 18 by 23 metrics.
So now in this particular listing, the one which is on the left-hand side, which is the fastest-growing segment and give us a growth -- give a growth of almost 20 percentage plus in -- from where they are every year. And the middle portion of the moderate growth gives us something, anything between 10% to 12% and the low-growth segments has basically, what we call, less than 10 percentage.
So now when it comes to the segmentation of it, we still are making, 45 to 50 percentage of business comes from the core sectors, which is growing at less than 10 percentage. The reason to that is, one, the installed base is pretty high, and these are the core to the country as well and infrastructure as well. So therefore, 10 percentage growth on a large installed base is itself a large opportunity, which comes in, number one.
And number two, when you look at the top most sectors, which are the fast-growing sectors, so there -- which forms basically on 15 to 20 percentage of our -- the order pie. So that grows at 20 percentage. And therefore, so you are in well-calibrated percentage of 11 to 15 percentage, which your growth patterns are, right? So -- and so that's how we see and that's how the revenue mix, how the market mix and how the geographical mix also works for us.
The next question is from the line of Nitin Arora from Axis Mutual Fund.
I think, Sanjeev, you touched based on some large -- deal pipeline looks very strong to you. And also on the mix side, where you said that now larger orders are more in the order book, which takes time to pick up. So one, if you can throw some light how the large order book or larger orders in the order book as a percentage or some direction, if you can give?
And second, in terms of the large deal pipeline, which according to you is pretty strong, can you highlight in which areas are these? And is just that a function of what I think it was highlighted that because of the election, rains, things are getting delayed. Is it also a function of that? Or it's just getting delayed from the customer end, these large deal pipelines because I think these large deal pipelines have been there for the last 8 to 10 months, correct me if I'm wrong, but larger deals are little getting delayed, it looks like. So just your take on that on these 2 aspects.
So the market segments we are focused. So there are certain market segments. So there are -- let me rephrase. There are 2 types of large deals. One large deal is within, say, you have a data center, which is being set up and they want power supply into it. And ABB is the #1 player in that area for many reasons globally and all the global players who are coming to the country, they automatically rely on us and they repeat those contracts with us.
And then, of course, the local data center players as well who are expanding. So they go for the high-quality equipment because the reliability, availability, maintainability, serviceability of these installations is paramount in the eyes of the owners. So in this particular area, most of the equipment that goes in, it's all produced by ABB. It's our in-house value-add equipment. So that means the net effect on our books when it flows through is quite positive because the value add is quite high.
The other type of large deals are, which are integration jobs, wherein maybe we have 30%, 40% scope of ours, and then we have to get a lot of third-party materials, put them together and find a solution for us. So right now, the large deals that we are seeing right now in the market are of the first in nature. That is, these are the areas wherein, whether because of the government spend or the spend in the new market segment that we are doing, the size -- ticket size of those orders and deals is pretty high for us relative to the regular flow business that we do in -- for the same equipment.
So net-net effect, when we convert that into revenues, one is that our grip on the supply and the production is quite strong. So we are able to respond very effectively to the market because of our dependency on the third party to integrate the jobs is less. So that's something which is, I think, happening quite well.
And the pipeline that we saw 8 to 10 months back, I think that has been working quite well for us, and it is quite consistent. And in fact, there are positive surprises as well wherein a customer decided for 1 project and they surprised us maybe 1.5 months later on, they say, "Hey, I'm setting up another one. No questions asked. Please double supply -- please double the supply of number one, because I'm now setting up two." So you have that kind of a behavior, which is happening in the marketplace.
In the core market segment, like in the metals industry, mining is certainly, I think there are jobs which are visible pipeline. And there, we are seeing conversion there as well and because most of the large players in the metal side, I think they are set upon now doubling their capacity in next 5 years or 7 years period of time. So you can see there's a lot of consolidation going to take place in those areas.
Now some conversions in that area take faster -- and they are not seasonal. They don't depend on monsoon or they don't depend on the budgetary constraint. They depend upon the market price of the products we are dealing with and what is their long-term view of demand and supply. So I would say the -- so what we call as the large projects, it also changes like what our Robotics division will call as a large project for them.
And then what our ELDS unit will call as a large project for them, the value could be different, okay, because it is -- for a Robotic business, which could be $60 million, $70 million, that a large project could be something, which they do as a $16 million -- $15 million, $16 million, right? And they have those kind of projects coming from the local automotive players. For ELDS, here is a large project, but at the same time, they have -- it's much larger.
Sir, your voice is breaking, I'm sorry to interrupt. The last line we couldn't hear you clearly.
Yes. So I'm saying that we don't see large projects by the company. We see the large projects by each of the 18 divisions in the respective market segments they are exposed to. But right now, we are seeing large projects coming more with high value-added contents that we have in the marketplace. And I'm -- so whatever we have been projecting in the past, I think we are seeing a fair conversion rate, especially in the Transportation, Mobility segment.
Last year, we saw some large conversions. And again, there is a good lineup there, which is due to be, I think, placed -- converted into orders as we go forward, whether it's in metro lines or it is railway projects, yes. So that's the kind of a scheme of things we see at the moment, yes.
Getting it. And just what's the larger order book now in the overall order book? What are the larger orders?
Yes, you can refer to Slide #16 where you have the order backlog, which is INR 9,995 crores, INR 10,000 crores to be precise. On the top end of it, it is 25, 26 percentage, which is the large orders and 75 percentage in the base orders.
So just directionally going ahead, you think because we started the Q1 on a very strong note on execution, last 2 quarters have been a little lower execution. I remember last time also you said things will pick up on the execution side. How, directionally, you are looking at your revenue growth? Will that again claw back to again going towards double digit? I know you don't give any guidance, but generally, direction side is just a temporary issue? Or do you think things are taking more time in terms of going into actual execution? Just take on that. That's it.
So I think, again, I think these businesses -- this backlog is spread into 18 divisions. So like, for example, we have a large contract in our traction division, right? So you know that railway ministry decided to convert some of those orders that they had initially given for the seated trains to passenger trains. And that created a design change and have also created the revenue plan change for the people involved. So you have that kind of effect.
And it turned out that design change to get impacted and that's how your large project revenue, even if they were planned for midterm, if they get stretched a little bit, but they'll definitely come. So we are not seeing any stagnation of any projects in our backlog. So they are in our regular floor.
So we have 4 types of businesses. One is called MTO MDS, made to order, made to stores. And they fly -- they are more like FMIG, fast moving industrial goods. And then we have ETO orders, which is engineered to order. And those are the ones which take a little bit longer, but mid-cycle, so you have short cycle, mid-cycle. And then you have the long-cycle business, which are typically in the Process Automation and the transportation sector that we have talked about. So we are not seeing any stagnation, and we see this backlog executing with a good flow going forward unless some customer-related topic that comes in, which creates some kind of a delay in this 25% that we have highlighted, which is sitting in the large contracts, yes.
The next question is from the line of Jonas Bhutta from Birla Mutual Fund.
Diwali wishes to all of you. Two questions. And Sandeep, I'll try and ask same kind of question, but in a slightly different way. So if you see that post-COVID for a good 6, 8 quarters, ABB was in the INR 2,000 crores to INR 2,500 crores order inflow run rate. For the last 6 quarters, that got amped up to about INR 3,000 crores to INR 3,500 crores.
Do you believe that the pipeline in front of you and the growth opportunities present ahead of you sort of give you at least visibility that there is a possibility of another step jump in the quarterly run rate of order intake from the current band that we have been for the last 6 quarters? Can we inch up closer to the INR 4,000 crores per quarter? I'm not asking for numbers, but broadly, do you think that you have visibility over the next 12, 18 months that there could be a step jump in quarterly inflow run rate? That's the first question.
Okay. So we'll take that. So you're right, I think after post-COVID, as we also explained in our previous call that the loyalty factor of many of our customers moved in our direction based on how we really supported them during the COVID period, the continuity of their operations. I think ABB team stood by. And we felt that a lot of customers who used to be very price-sensitive, they became performance-sensitive post-COVID, and we had a significant movement of many customers who were not so loyal in terms of placing orders or they could move with very small price variation, they became more sticky in our books.
So that's kind of a phenomenon gave us a jump. And also, of course, there was a pent-up demand. And plus, there was a real expansion of economy because of the government spend and also the new market segments, which we found out, which was -- which started performing well for us. So that was a kind of an effect that came in.
And also the service orders, which were subdued during the COVID period, that mix also picked up because of maintenance and reliability services were required by our installed base, which has been created for a long period of time.
So we do believe that we reached a good run rate of INR 2,500 crores to INR 3,000 crores. We believe it's a good run rate for the capacities that we carry. And since we are -- our capacities in the country as such that any new expansion of volume we require on the incremental investment. So we are not very CapEx heavy in order to cater more revenues in the marketplace, right?
So we are able to quite easily expand our capacities as and when the volumes start expanding in front of us, in terms of pipeline or in terms of conversion rates for us. So what we see is that it's a healthy INR 2,500 crores to INR 3,000 crore band for us as the volumes go. And quite frankly, it's very difficult to predict whether when and where it will hit INR 4,000 crores.
But given -- when I look into each and -- under the hood for each and every division, they see a fairly strong pipeline in front of them. And I would -- I'll not be surprised that after you have a good gain over a period of time for the volumes that you plateau for maybe a couple of quarters before, again, the jump comes back in. So that would be -- because if there's a time when the market and that competition takes time to consolidate and also readjust to the reality, you have to allow that freezing time before the market makes another uptick and up mark again.
And also not to forget, right now, there is a lot of uncertainty in the global as well as local markets in certain areas. How that plays out to our portfolio? We have no correlation metrics to it, but we do believe as and when those things clear out, that also paves the way for continued India growth story. We have grown 21% CAGR in the last 3 years against the GDP growth of over 7%. The projected growth of GDP by various institutions for next year is also about 7%, 7.5%. So I think we will have a fair participation there.
Got it. The second question was I wanted to sort of try and better deconstruct the margin profile that we've been reporting for the Motion business. Given that I think Sanjeev Arora spoke about the weakness that the LT Motors or motors in general have been facing for the good past 6, 9 months, the segmental margins are sort of surprising given that motors -- as per the annual report classification, motors plus -- large motors plus LT Motors sort of account for 58%, 60% of the segment sales.
Given that those -- that business has not been doing that well, it seems that the traction side of the business seems to be doing a lot of heavy lifting in terms of margins. A, is that a fair conclusion? And B, in the press release, you spoke about SCADA systems that are going into renewable energy that also sort of have been driving demand for drive/SCADA. I'm just curious to know whether that sits in the Motion business?
On the Electrification business, given that you spoke about having some 10 gigawatt worth of solar projects having executed, which sort of implies like a 10%, 12% market share, given that India has roughly 90 gigawatts of solar capacity. Is this a space that you're incrementally more bullish on? And what is the indigenization levels in that product line or service line within Indian entity?
I just have a request. I think if you could keep your questions short and sharp, it could help us actually answer it faster and also give some time for the others. So -- but on this question, what I would like to say is the margins naturally, because motor definitely forms a major portion of Motion segment, no doubt about it, but also we have other fast-growing businesses like drives and traction converters and services within that, which also are growing faster and they have more value-added solutions to the customers what we feel.
In other words, they are more where, as what Sandeep was alluding to on the premiumization, the qualities, which pays off for the better is what is a reflection in this particular story. But to -- but it is not to be considered that motors is doing bad. Motors is actually in a scenario of competition, is also performing as what it was performing in the past. So the net -- the cumulative effect of certain businesses catering to segments where there is improved price realization and motors maintaining its momentum on the profitability is a result of why you see an uptick of 23 percentage and also capacity is coming to be -- being leveraged to improve the overall cost factors over there. So this is basically a broad picture of what I could paint for Motion as such.
[Operator Instructions] The next question is from the line of Mahesh Bendre from LIC Mutual Fund.
Sir, we are witnessing -- I mean, economy is witnessing some kind of slowdown. All consumption companies are reporting this slackness in the demand. Even some of the industrial companies are also reporting demand has been slowing down. So in our own assessment, have we witnessed any kind of slackness in the demand? Just a few months back, you mentioned that every [Technical Difficulty] requires LT Motors. So in that sense, have we seen any slowdown in inquiries or uptake or execution as a whole in the near term?
Thank you for your question. So what we'll do is we'll give you really a hands-on input from our division leaders, which are the largest division leaders in the company. We have Ganesh, who kind of leads us with the largest business we have in the country, ELDS. Then followed by Motion with Sanjeev Arora and also Kiran Dutt, which leads to our fast-moving industrial goods business for smart products and smart businesses in the country. So they'll be able to give you a view on it.
Now I would -- I have seen some questions or I've heard some question in the last few minutes about the motors, LT Motors specifically. My take and my understanding of the journey of this business has been fantastic. Right now, I'm sitting in the motors plant here in north of the country. Visiting this team to congratulate them in terms of the kind of journey they have performed in the last 8 years, wherein they used to be low single-digit business, and now they are on the high double digits, the profitability business running in the country. They have done a tremendous expansion in the portfolio with localization and also channelization of their business.
So I believe they are really at a very good spot not only locally, but also how they are packed globally and also seen by the global businesses. So Sanjeev Arora and his team have done a fantastic job, and they have a great position in the market together with their channel partners as well as end user connect. So I absolutely see -- even if there's a bit of a small change in the marketplace, I see that as a breather. But that also gives us a time to reassess our opportunities and what we want to do. And I think then the journey will continue. So at this point, I will first invite ELDS Head, Ganesh, to really give all of you real sense of market opportunities, whether we are seeing slowdown, is neutral or we still see a robust market ahead. So over to you, Ganesh.
Yes. Thank you. Are you able to hear me?
Yes.
Yes. So I'm Ganesh calling from Distribution Solutions division. I'm based in Nashik. So coming to market outlook, this last couple of quarters, definitely after the post-COVID, we have seen a very good increase in the order take. And in the last few quarters, we booked a couple of orders from data centers as well as the steel sector, which are really large in the nature.
So what we are seeing in the market means data center, renewable, oil and gas and building and infra is still growing strong. There is little softening, which is happening in the heavy industry because we don't see any large expansion, which is coming in steel and cement segment. But our conventional segment, power distribution is still going strong.
So in an overall, what I can see is though there are large orders, what size, which we booked in last few quarters, we see a little softening in that, but that may look like a temporary. But the base order, which is coming from renewable or building, infra and other industry segments are quite -- still looking quite strong when it comes to the Distribution Solutions business.
Thank you, Ganesh. So over to you, Sanjeev. You may give a bit of a view on the LT Motors, which you already did, but also for the other businesses in Motion, which are drives, low-voltage motor drives, high-voltage drives and mobility. But give a sense from the point of view of the market, how do we see the market is softening or market is neutral or market is kind of looking robust from your point of view?
So thank you very much. I think not to repeat myself, but then let's understand that wherever ABB has large market shares. And where, as Ganesh has said, that maybe in metal, cement, we are seeing that -- we don't see currently that the investment has been so great as in past quarters, we see a bit of a muted OpEx and CapEx investments.
But then if you see from the overall prospective, as I said, and I will repeat again, every industry requires low-voltage motors and with the growing demand of sustainability, drive is a very, very important product, and we are the leaders in the industry.
So as a mixed effect for Motion, having the full basket of the Motion products, which supports our industry in sustainability piece, we are ahead of, I would say, most of the peers in the industry. So yes, there has been the headwinds. The demand has been a bit muted, I would say.
But having said this, as sustainability piece grows, even though the demand was a bit muted, but then our drives business have really picked up very well, and we have got a strong foothold in almost be it the discrete part of the industry, the light industry or the heavy industry, we have come out as a winner there.
So overall, I would say Motion has been doing a great job in the industry. And as Ganesh has said that this is a temporary period. So -- and I repeat myself that I think the erosion now coming specific to the LT Motor piece, erosion almost has stopped but -- and we are very hopeful that with the new investment coming in, we will definitely -- I would have an upturn in the demand cycle of low-voltage motors as well.
Now I also heard the question on profitability. Profitability also depends upon multiple things. So one part is price erosion. But then the second part is how you are operationally well balanced on what segments you are actually approaching. So we have a very, very strong foothold when it comes to the energy efficiency piece. And our customers, they vouch for us when it comes to taking an energy-efficient motor from ABB. So there, in that segment, we are, I would say, market leaders in energy efficiency segment. And then the customer knows the value of the product, I think the price becomes a bit secondary. So overall, I would say, yes, a mixed reaction on the markets, but then I'm pretty sure we have a very, very bright future as India to go forward. So that's a bit from my side.
Thank you, Sanjeev Arora. Same question for you, Kiran, who really is exposed to infrastructure, buildings and industrial projects and also certain mobility projects. Kiran, what's your view of the market?
Thank you, Sanjeev. Let me give a simple perspective. As long as there is movement of power from point A to point B, or people moving from point A to point B or materials moving from point A to point B, for sure, we are there for the business. So having said that, let's also look at our 23 different segments of the market and that's where probably everybody is interested to find out what is happening in this particular segment of the market, where are we into and how is it going forward?
So when I look at it, let me just take some few examples. Most of us have spoken out data center. I think data center is here to stay, rather to expand. And we find significant expansions happening from global investors as well as local investors. So we being there, we feel that we'll continue to contribute to the success of this particular data center business.
Then we are talking about movement of people. Now railways and metros, for sure, are going to carry movement of material and movement of people as well. Now looking at that particular segment, I think it is here to stay and expand. So that is some segment which is, for sure, on a very high level of growth and we are contributing to that particular success, and that is also contributing to our growth for Electrification as such.
Let me also give you an example in terms of not the new one coming up in terms of semiconductor electronics, which is quite new in India and, for sure, it's going to expand. Maybe in the next call or something later, we can take it up. But when I look at the other kind of an industry, which is mainly on the F&B, I think what is important to understand India, the way it's evolving, the package industry is moving quite forward and very high. And we also see a lot of cool storage being installed in various locations to ensure that the food is fresh. And I think that is also some segment of the market, which is extremely having growth and we see that this particular -- even though the food industry is small at this point of time, probably packed food, maybe in the future, it's going to grow at a very fast pace. And that's where we find that the market going up very high and our contribution to this particular market is also going up. So that's what I feel, Sanjeev.
Thank you. And also to top it up, you saw my slide on power distribution as a market segment earlier, wherein the projection is to -- that the electricity consumption in the country will double by 2030. And the portfolio that ABB has is a sweet spot portfolio right in the middle of it. As the power flows through different consumption points, that's where ABB products find their place, be it in the Motion side or on the Electrification side and also helping the industries to absorb that energy and convert them into a value-added product. And also Robotics, helping the industry to become more productive.
So I think that's how we play it and that's how we see the market formation. And I think now we are preparing ourselves like say, 3, 4 years back, if you see here, heard our commentary, we were preparing for future and those results are being delivered at this point of time. Now we are preparing for the future again together with our business teams. So yes, so that's where we can leave this and maybe we can take maybe a couple of more questions, yes.
We'll take the next question from the line of Bhavin Vithlani from SBI Mutual Fund.
Congratulations for good numbers amidst difficulty. My question is on the Power -- Process Automation segment. Could you talk about the outlook on this segment on a 1- to 3-year basis? While you did mention about muted outlook in cement and steel, but specifically, the pipeline that you are seeing in the oil and gas petrochemical space. That's one.
The second is what role can ABB India incrementally play on the exports or the global side, especially in the power -- Process Automation side?
So as far as Process Automation is concerned, we have 3 divisions there. One focus is on the energy, which essentially deals with the oil and gas, refineries, petrochemical, gas distribution, paints and those kind of pharma industry. So there -- because of that basket, we continue to have good intake of orders.
So if I see the breakdown of this year as well as last quarter, oil and gas segment is a significant contributor to the order intake and the revenue mix that we have. So -- and that's something we see going forward because a lot of expansions have been carried out at the consumer side, like the city gas distribution. So there, we have a very good participation.
Then more and more blending projects are coming in the country. There again, we have a good market share. There are a lot of debottlenecking and expansion of the existing refinery taking place by the state PSUs as well as by the private sector. There, again, we are contributing.
Same thing goes into pharma, expansion in the paints. There are more players coming in the paint industry. So I think that's an area, which continues to give us steady business growth and we always go for risk-mitigated projects in that business. So it's not the extraordinary growth we look for there. What we look for is we look for steady growth, but risk-mitigated books in that area so that we can deliver good value to customers as well as good value to our stakeholders.
When it comes to the process industries wherein the metal, cement, pulp and paper and aluminum and other industries are involved, there again, it's a cyclic business. But there, we have good order intake in cycles. But right now, we have a good backlog, which we are executing and we have a good visibility for the revenue pipeline. And there tend to be a little large contract in nature. It's difficult to predict which quarter they get realized. But when they get realized, naturally, they had an uptick on the book. And as long as we carry a good backlog and a good absorption of our resources, I think those businesses continue to perform.
Then within that, we have the instrumentation business, which is relatively small, but they are expanding their portfolio, localizing it and they continue to gain the market share in their specialized segment in terms of water, monitoring, water flow as well as on the instrumentation and the analytics side of it because we have very good portfolio globally and that continues to come into the market.
And you'll also maybe hear some announcements for us maybe in the second quarter of next year in what we are doing in that area. There are some specific actions in place, which are -- which will -- when they mature, I think we will inform the market.
So as far as exports are concerned, we do have some export allocations for the energy business and partly for the PAPI that is our process industry. But that business is very export-based. And so I think there is a room for us to cater to Middle East as well as African market, which we do. But we are fairly well set as a multinational corporation globally to serve our markets. And whatever we can support out of India, that's what we do. But primarily, we are focused to serve the Indian and South Asia market, yes.
Ladies and gentlemen, we will take this as the last question for today, which is from the line of Amit Mahawar from UBS.
I just have one question on the EP division. If you see the orders for the last 3, 4 quarters have been very, very strong. I just want to understand on the medium voltage and low voltage, how are we steadying the capacity buildup and given the competition has been very aggressively expanding if you look at the global and local competition, so just some color on Electrification, please.
So we always make sure that we continue to expand based on our business case. And the business case is always depend upon our view of the market. And also the view of the market is also matched with our capacity and capabilities that we have developed in the country. So there are 3 areas that we look in.
One is the existing portfolio, how much localization we have done. We go deeper on to the localization so that we are more competitive. And also, we are faster to the market and we have less dependencies outside the India ecosystem. So that's one part, which our businesses in the Electrification are doing, and they have done a tremendous job.
We have opened new factories last year to expand our portfolio, and we have gained -- we are getting good market share with those expanded capacities and our team in Nashik has done a great job. If you go back into our announcements, all those announcements and openings have worked well for us.
Going forward, we are expanding further in line with how we see the market and the areas of focus we have. Now we don't do the expansion based on -- purely on vision, we do expansion based on how we understand the market segment and the pace at which the market segments will grow. We focus more on the productivity side in our existing plants so that we produce more out of same resources and same spaces. That's another area we invest a lot.
So given overall mix of it, I would say we have the capacity that we need right now to what the market we want to cater in the domestic side as well as whatever export mandates we carry. Going forward, we already have a 10-year visibility in terms of how we will invest in which areas, of course, subject to market adoption as and when there's a serious change on the upside or downside of the market. But we will continue to invest in expanding capacity, and you will keep hearing every year what we do and once we are ready for the expansion announcements, yes.
Ladies and gentlemen, as that was the last question for today, I would now like to hand the conference over to Mr. T.K. Sridhar for closing comments. Over to you, sir.
Thank you very much. And ladies and gentlemen, thank you very much for a very interesting question. It was an interactive session as well. It was a pleasure taking you through the performance of every quarter. So I think we have improved substantially from where we were, where we started to where we are today. And there are some unanswered questions, please feel free to sort of write down to me or Sanjeev. We will be able to answer that as much as possible.
So while I close the call, I would also like to thank Sanjeev, Sanjeev Arora, Kiran and Ganesh, who are there on the call who could make their time for the busy schedules to attend to these important stakeholders. Thank you very much, and wish you a great future.
Thank you, members of the management. On behalf of ABB India Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.