ABB India Ltd
NSE:ABB
Earnings Call Analysis
Q4-2023 Analysis
ABB India Ltd
The company's order backlog surged by 30% to INR 8,404 crores, underpinning a robust revenue outlook. This growth reflects the strong positioning within their customer segments and a mixed portfolio of large and quickly converting base orders.
Revenue grew by 14% in the quarter and 22% for the full fiscal year. Operational EBITDA remained solid, highlighting efficiency in project executions and cost management. Notably, the company's growth in margin levels outperformed last year's by almost 400 basis points when adjusting for one-off items related to the sale of a project in the auto business.
Material costs were well-maintained at 62.6%, reflecting successful localization, improved business mix, and control over profit leakages. Personnel expenses dropped to 6.5% for the quarter, due to increased productivity. The effective tax rate was stable at 25%, and interest costs remained controlled at INR 8 crores, primarily associated with MSME vendors. Depreciation costs rose due to investment in factory modernization, but Return on Capital Employed (ROCE) remains high at 21%.
The electrification segment experienced a growth of 24% in order booking, driven by high demand in data centers, OEMs, and the metals and energy sectors. The motion segment faced a Forex impact, but order backlog remains strong at INR 3,500 crores. Robotics saw a miss in orders for the quarter but shows a promising pipeline. With a focus on product and technology offerings, the company is seeing a shift towards premiumization across sectors like robotics and A-grade buildings, reflecting better realization potentials.
Investments in private and public sectors, along with initiatives like Make in India, are anticipated to spur growth. The trend towards premiumization is expected to benefit ABB, as consumers increasingly prefer quality and technologically advanced products. Exports are growing by 13-15% despite the challenges in global markets, and domestic market expansion is outpacing export growth. However, the focus remains on the Indian market, considering the sophisticated operations capable of catering to global demand as a secondary effect.
While the base order inflow has been consistent, the rate of growth may normalize from the previous 30% seen in recent quarters. The company is investing in integrated solutions and an online marketplace, which, although still nascent, is expected to become an important revenue stream with the potential for exponential growth in the future.
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Ladies and gentlemen, good day, and welcome to ABB India Limited Q4 October to December quarter and full year CY 2023 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, [ Yashasvi ]. A very good morning to all of you. Thank you for joining this Q4 and full year results call. I think we are in Nashik today, right, from where we have entire Board as well as the management team over here. So along with me on the call is Mr. Sanjeev Sharma, the Country Managing Director; and I also have in person, Ganesh Kothawade, the Head of the location in Nashik over here; and also on the call, I have Mr. Sanjeev Arora, who leads the Motion division; and then we also have Subrata Karmakarm who leads the Robotics business. We were not able to have Balaji in because of customer requirement where he is traveling. Subrata will try to make sure that we are able to answer the calls which pertain to process automation as well.
So I think it's a good time now to go to the presentation, what we have already uploaded on the website. So I will hand over to Sanjeev to take us through the business highlights now.
Thank you, Sridhar. Good morning to all of you. Thanks for joining this call. And again, I recognize our host Ganesh Kothawade, who is hosting us. He leads the largest business we have in the country, which is Electrification distribution. And also, we have integrated facility here in Nashik. Very good sustainability credentials. And the Board, when he was -- they were here yesterday, they were all impressed in terms of how our facilities work and how well our teams are performing in business results as well. Thank you, Ganesh. Thanks for hosting us.
Now with respect to quarter 4 and full year last year, we talk about it. But just as a reminder, just to again anchor what -- how ABB India operates and what ABB India structure is. So we have 4 distinct business areas: Electrification, which largely deals with power distribution, both at the medium voltage and low voltage levels, and also installation product and some UPS services. These are the typical products which go into the increasing the reliability of power distribution in the cities, industrial plants, infrastructure projects and also making sure that the buildings we have there deployed, they are more energy efficient and they have a better energy footprint.
Motion division, which largely deals with the low voltage, medium voltage motors and drives. It's an energy efficiency portfolio. Wherever we apply these, our customers benefit in terms of having a better energy footprint. And relating with more of our products are used, less greenhouse gas emission are created by our customers. So that's the kind of the power of this portfolio.
And the process automation is automation of the energy industries, process industries, which are in the core sector, and also our marine and ports, which are very critical infrastructure for import and exports. And of course, measurement and analytics, which goes into the sensors that are used by the industries.
Now what we have as a fourth division is the robotics and discrete automation, that's where we have the division, which is delivering automation to increasing appetite of manufacturing industries, which are not only working well, but they are expanding, and their need for applying robotics automation is increasing day by day. And we have seen very heavy growth and healthy reserve in this division as well, and also the sophistication what industry is [ requiring ].
We are operating in 5 manufacturing locations in Maharashtra, Gujarat, Haryana and Karnataka. And we have 25 plants in these manufacturing locations with 28 sales offices across the country to serve them for sales as well as services. And we have an increasing network of our partners who really take us to the different market segment and to the depth of geographies of the country.
You may be familiar with this picture. This is our -- in short, our strategy to engage with the market. So what we have here is at the bottom, they could be the smallest contributor but highest growth market segment because they have come into being recently, like data centers, railways and metro and electronics. These are our sectors, which are growing very fast. And our -- we are having an increasing contribution into our order books from these market segments because we have product portfolio which serve this market quite well. So renewables, electronics, metro, data center and railways, they are really tracking positively forward.
And when it comes to the water and wastewater, warehouse and logistics, power distribution, building and infrastructure. All these sectors are moderate growth. Moderate growth, when I say it is between 10% to 15%. And these are also contributing in a significant way. These are the ones which we maybe started engaging middle of last decade, and we have matured these market segments in a significant way, and they are becoming good contributors.
Low growth segments, which are traditionally in the core sectors. For example, marine and ports, oil and gas, pharma and health care, pulp and paper, cement. They have been muted for a period of time, but now we see many of these market segments have started tracking. The project pipelines have did well. We have a very strong installed base in these market segment, and we service them quite effectively. And we have a very strong ongoing relationship here. By the way, though it may be low growth, but it has the highest contribution to our order books.
So that means as and when the formation of growth and CapEx takes place we get another kick up in these segments. So most of it is led by high growth and moderate growth into our growth from the segment perspective and also our geographical penetration in the market. But the low growth segment, though they are called low growth, but they have a substantial contribution. So when they move, they move really well for us. So that's the kind of a constellation we're seeing. And we do see there are some growth figures, which still have to happen for our business as we go forward despite having very strong growth already into our book in the last many quarters.
Now we are going to cover like every time we cover a segment, we take a deep dive there. So in case of India, India aims for 500 gigawatt of renewable energy installed by 2030. And it has been very impressive how we have gone about executing it. We have almost 180 gigawatt of installed capacity wherein it is distributed into different resources, wind power, solar, biomass, small hydro power, waste to energy, large hydro. And there has been 30x increase in solar power and 2x increase in wind power since 2014. So it's very impressive.
I've spent quite a bit of time in Europe, especially in Germany. I go back in 2008, 2007, when they were forming strategy. And I could see similar kind of development there, wherein there was a policy and there was a policy biased towards renewables. And within 5 to 10 years, they really became leaders in this particular area. So India has a very natural need to expand into renewables. And you can see the government policy is really very well aligned. And I think that's something which is a new normal in India, wherein the national policy and the action and the entrepreneurs and the incentive and the long-term vision in this area is all coming together, be it in the form of natural green hydrogen mission, PLI in solar PV manufacturing, solar city, solar park and 30-gigawatt offshore wind, we believe this is something is a long play, and we have a very good portfolio to support it.
And we sometimes continue to add new products, which really debottleneck these market segments because when you expand too much, then you require a special technology. We continue to pay attention to it, and we're also bringing technologies which help engage in distribution of these power generated.
Now with respect to how our growth is coming in quarter-to-quarter. It is totally rooted into how our teams and our businesses engage with customers. We have a very strong engagement strategy with customers. We go deep into the country and across the market segments. We are engaging with customers in Mumbai, Kochi, Mahad, Ludhiana, Lucknow, Leh. So this is our secret open recipe for you, that it is how we continue to find new customers, get them excited about ABB products and technology and quality and our credentials on sustainability. I think we can get a very good response wherever we go. And we again have a long runway in the country to reach out to more and more customers on the geographical front piece.
Some business highlights for you. First, on the operational performance, we had a strong operational performance with quarter 4. We had orders, which were up 35% from both emerging and traditional segments, as I explained to you earlier, as a mix. Revenues were 14% up. Profit after tax is 13% up, mostly driven by operational efficiencies, and we continue to maintain a strong cash position. Board has recommended a final dividend of INR 23.8 per share. I think maybe Sridhar can explain to you a little bit more in terms of where we were and where we have expanded in a very short period of time. I think a lot of cash is being directed towards the shareholders, and we are very happy to that [indiscernible] company together with our shareholders.
I'm sorry to interrupt. The last line, sir, was not audible. Can you please repeat it again?
Okay. So what we are doing is we are sharing the performance of ABB with our shareholders in terms of expanded dividends. . Now on the ESG and customers, we have 50% of the company manufacturing campus is certified as water positive. Just to give you a color to it. Nelamangala, which was our first plot, which became water-positive. That meant we are putting more water in the ground than we are taking it out. About 2 years back, when we monitored it with an electronic meter, the water levels. And we have invested in technology. 2 years ago, we had water depth around our Nelamangala plant at 60 meters. And 1 year, 1 month bank, when we checked, it has risen to 29 meters. So these positive elements, when you do it consciously, you do it with the right technology and you monitor it in good faith, and you want to make sure that you succeed, they work. And we will have all of our manufacturing [ facilities ] go to water positive as per our plan.
And we have reduced almost 88% in greenhouse gas emissions in Scope 1 and Scope 2 with a baseline for 2019, so that shows our commitment and the programs are working. And they are well monitored, they're well managed at the central level, but really led by our Campus teams or the location team. And all of them are very proud, and our global teams are very proud the kind of achievements in India and the businesses have made it here. Because we do it not to impress the world, we do it because all the management team feels it's the right thing to do.
For simple reason, India is a water stressed country. India is an energy stressed country. India has kind of circulation or kind of how we put the base to the landfill issues. We want to make sure that from our side, we created minimum footprint on the environmental impact and we create a positive impact in terms of contributing to water table, contributing to sending no waste to land and also other elements, which really contribute to the environment. And also encourage our suppliers, our customers as well as other partner companies in the areas we are present or the industry programs we represent.
Now we had significant orders in traction , large orders with a steady base orders. We had the automotive sector performing well for us. And likewise, in Process industry, metals, mining, chemicals, textile companies gave us good integrated solution orders. And in the transport side, railway and electrification of metros is a net positive for us and high-growth sectors like data centers, electronics, railways and metro, and renewables, these are really tracking very well for us in our order book.
And our portfolio in all these segments, which are tracking well, we have a sweet spot in terms of how we can serve these customer. And as a result, our order backlog grew 30% to INR 8,404 crores. So that again gives us a very solid outlook for our revenues line. And we have a fairly good mix of for now large orders as well as the base orders that convert rather quickly.
Now when it comes to the overall impact on our balance sheet. You can see that we have good growth. We're 23%. Backlog have grown by 30%. Revenue grew by 23%. Operational EBITDA and margin grew by 54%. And EPS has grown by 11%. Cash has grown by 31%. And our GHG emissions have gone down by with 2019 base by 88%. So we believe we are tracking the right KPI in the right direction.
Return on capital employed is one of the good measures for all of us to manage. So you can see compared to 2019, when we had 10%, we are now at 21%. So this is something which is notable for all of us, and it has grown 110% over this period of time. Now we get orders across market segments. As we said, we have 18 divisions, which connect with about 23 market segments in the market. So it gives you some kind of idea that power distribution package, which comes out of Nashik, where we are selling for a data center of IT majors. There's a huge expansion of data centers in the country for small, medium and large size. And ABB's product portfolio provides the power supply at the medium voltage and low voltage into it. We've become the core because data center is nothing but a power consuming block, where you have servers, which require a lot of power, and we, ABB, supplies that power into it. And globally, both with the global IT majors as well as majors in the country, we do get lot of preference because of our portfolio and our ability to execute.
Robotic solution for electronic business of a conglomerate. Again, a lot of demand for robotics from us. And newer applications are being tried out by the customers. And then our traction technology offering for railways. Electrics, drives and automation for a leading integrated metals and mining company. Our distributed control systems for a specialty company. Vacuum circuit breaker for solar and wind projects. These are a few highlights of some of the applications.
On our green credentials, you can see all our units are now green certified units, mostly platinum. And our Scope 1 and 2 GHG emission is down, as I mentioned before, to about 78% (sic) [ 87% ]. Energy productivity is up 65%. Water recyclability is 45%. 50% of our units are water positive. And we already, one unit has become zero waste to landfill, and we will convert other units also. And the picture you'll see on the left is our real picture of our plant in the Bangalore. This is not a stock picture from Internet. So we really pay attention for our green consciousness. So when you visit any of our plants, you will see a lot of green conscious in among how our campuses are matched.
We continue to make sure part of our value system of care. We have a meaningful and impactful CSR project and external agency reviewed our project. We've got very good scores in terms of impact and our ability to create a positive movement into all the projects where in we are focused. So be it in the infrastructure, women education, water and providing really medical equipment for cancer patients. So we make small contribution in our way, given the amount of contribution can be done. But we are happy to engage with what we do. And we are also very happy that our earnings have increased. They have doubled in the last few years. That means our CSR budget also has doubled in proportion. So that gives us even more capacity to serve society as we go forward.
So on the financial highlights, now I pass it on to my colleague, T.K. Sridhar, to take you through this. Thank you.
Thank you, Sanjeev. So I take this opportunity to take you through the performance numbers. I think this is more focused on how we have performed in Q4 '22 and also some snapshots of the full year.
So orders, we closed at INR 3,147 crores for the quarter, which is 35% above the previous year, the same year -- same quarter. Now of course, this also include a large order from the projects and the systems division from traction business, which is a onetime order. So then we have an order backlog of INR 8,400 crores. And this is an all-time high because we had good order intake in this particular year, which is almost 23% growth for the full year. And this has definitely resulted in an order backlog of INR 8,400 crores, which gives better visibility of revenues for the future. So this is something which everyone of you will understand it.
And when it comes to the profitability. We are INR 454 crores for the quarter with 13% up from the profitability compared to the previous year and also on the PAT a similar 13% which is there. But if you look at the full year, we are definitely up on the profit after tax by 22 percentage. And this is in spite of the fact that last year, included an exceptional income of INR 339 crores for the sale of turbocharger business to Accelleron. And this -- therefore, this year represents pure operational performance, which has improved substantially than what it was in the previous year.
So I mean, so -- basically how did this happened? I think it's more about the quality of the orders, operating efficiencies capacities, which are utilized now to quite a good extent, and also definitely supported by a positive price movement, which contributed to the profitability. And last but not the least, also because now our portfolio is pretty straightforward, all product businesses. So our predictability of profitability and execution and also a good orientation towards service is really helping us to become a -- move into these particular ranges what we are seeing, right?
And the next is around cash. Cash, we are at INR 4,700 crores [indiscernible] this is also reflected by the fact that all the net income, which we have generated over the years, our conversion ratios to cash has definitely improved. And we are trying to make sure that every profitability, every profit which we earn is reflected into cash.
So this is just to give you more details about it. So orders received we discussed 35% for the quarter. Revenues, we grew 14% and for the full year, 22%. Profit and operational EBITDA is somewhere -- pretty solid about from how we ought to do it. So one point which I would like to bring to your attention is that if we remove the so-called one-off items of the last year, which is on the sale of project on the auto business. So our growth is almost 400 basis points on the margin level.
So just to give you a bit of more color on how did we perform in the structure of the profitability, right? So here, if you look at it, I think our material cost is, I don't know, about 62.6%. This is proud a very comfortable area where we are in, the range where we are in. So I think we have been -- the teams have been consistently working on localization, on improving the mix of the businesses, what they are executing and also making sure that we don't have any profit leakages during the execution of the orders, what we have, right?
And just to mention if someone is curious about what is the other income. Other income majority of them, almost INR 70 crores that presents the interest on the fixed deposits, what we hold. And that's something which is -- because we have a cash which is there, and we are allowed to invest only in absolutely secure and safe securities and which is the bank's similar deposits and the other related instrument is where we gained particular interest.
So personal expenses, we are holding on to 6.5% for the quarter and 6.8% full year compared to 7.4% last year. And this is majorly coming on the fact of increasing productivity and making sure that we are ideally employing people over here.
Then coming to the -- I think, the one element which probably is not largely under the control of the business is about exchange and commodity variation. So this is INR 10.5 crores negative compared to the INR 3 crore positive in the immediately succeeding quarter and INR 30 crores positive in the last quarter of the same period last year. So I think the swing is around about INR 40 crores. So this is something which we'll also see in the waterfall chart, which is already executed and has already included in the next slide.
Depreciation, I think we have been investing consistently in the modernization of our factory, the expansion and sort of stuff. So that's probably increasing the depreciation. But that is for a good cause, and that supplement that the ROCE still stands at 21% is what we have total.
Interest cost is INR 8 crores at this point of time for the quarter, and this is more related to the MSME vendors, what we have to accrue the interest and the stuff which we have. And also to be mindful of the fact that this is something which we make sure that we have a straight deal with for MSME, and we pay them on time to make sure that we have no large interest cost accruing over there.
So -- and our effective tax rate stands at 25% as what you would have seen. And so now I think in this quarter, probably the 6 months and the full year, we decided that we would give more details in the press release, and that's something which we have been published in this quarter as well, because this being the year end. This is about talking about what's the waterfall. So if you look at it, we had a favorable volume impact and a mix impact, which contributed to the accretion of the profit and with slightly definitely compensating the increase in expenses, absolute values and also the ForEx, which is there. And still we did manage to get to the numbers, which was considerably credible number as what we see.
So just doing a bit of a deep dive into how we see the business-wise performance. So this is pretty interesting as I see that how business is evolving. So electrification growing at almost INR 1,000 crores every quarter in terms of order booking. And they grew round about 24% for the quarter and from the previous year. And then, of course, electrification doing a thought cycle businesses, we could see the conversion of the orders booked into revenues as well. And that probably has a healthy impact on the profitability, which is there in the PBIT chart below. And their order backlog has increased by 24% compared to the previous year. So they have a good short-term visibility of revenues going forward. And I think the orders may also constitute from the new growing sectors like the data centers, OEMs and major metals and energy players.
So now the motion. So motion, I think motion is represented by motors, system drives, the services division, about it and also the traction. So we did definitely book large orders in Q3 and Q4 from the traction business. So that is reflected in the large orders, which is there. So -- and there's also a good visibility of order revenues going forward. And the -- I think the profitability, I think could be a bit of an explanation, which I need to do in terms of how from 19% to 17.4%.
I think if you look at the ForEx impact, which we mentioned earlier. So this is something which has impacted in the motion because they have quite a bit of imports, which they do when it comes to drive and drive products and systems drive, and that's something which has impacted and I think this is more temporary in nature. It will settle down in the average rates, what has already been depicted over here. So I think order backlog, even though it looks pretty impressive, around INR 3,500 crores, we need to understand because they've got a system order, a large component, it gets executed over the next 24 months. And so that's something which we should be aware of. It's not -- unlike electrification, where it'd get executed in immediate quarters.
Motion, I think they have been having a consistent run. And they are more project-spun focus, so they are a bit cyclical from time. So -- but that's why therefore, you could see a slight dip in the order intake number. And revenue is definitely driven by the order backlog, what they have. They have got good execution pattern. And we see no margin slippages in the projects what they've executed. But good part is that they have a consistent order booking, which comes from the installed base, that means the services revenues are definitely creeping. That's what we see. And here also in the PBIT, if you look at it, they are probably -- they were also impacted by the negative ForEx impact what they have.
The robotic. Robotics, I think they missed certain orders in Q4, but they would definitely and I mean, going forward, we see the pipeline stronger. So they would be able to make it up as the run rate going forward as well. The revenues are consistently increasing with the backlog what is there with them. And PBIT, they are at 12%, and that's more from the [ cost ]. They have these orders, which is also good in the [ teams ].
So overall, if you look at the -- how we are structured, I think this is something slide, which you'd be all familiar with. So products constitute 78%, 76% for the -- of the revenues and 12% from the services and projects probably, 10%.
And the next slide is pretty interesting as to if you look at the composition of the -- the demography of the revenues. Today, we are talking of 90% of our revenues from the domestic market and 10% coming from the exports. So this doesn't mean that exports are falling down. This only means that the domestic market is expanding more faster than the export market as such. But if we take an absolute value of the growth in the exports, so we are almost making 13% to 15% growth, which is pretty decent considering the dry -- the sort of vagaries which we have in the different global markets. But whereas when it comes to India, it really reflects the investment momentum, which is happening in India, which always is growing faster than the global market. So this is basically how we see the structure of the business models in terms of our offerings.
And if you go to -- just roll it forward so -- because what is it we see in store for 2024? I think there are 2 topics. One is the growth -- what is going to drive the growth. Other one is what are the factors which we definitely have to monitor.
So I think from the growth factors, I think we're seeing definitely investment in the private sector along with the public sector will drive growth. I think all of us believe that the public spend will happen. Investments will happen. And so this will definitely propel the growth. And the content like the Madipur, the nation-led programs like Make in India, and this is also going to really help the investment patterns in India. And this is also -- will also help us focus on the local content, which is there.
And the next important factor, which is we have so far not often talked about it in the past, but we see that this is a trend which is visible in the market, is about premiumization. That means the affordability for quality products from the consumer, from the consumers have increased. And that, therefore, quality products or technologies and advanced products, technologically advanced products is something which the customers will start to prefer, and therefore, we expect that's a sweet spot for ABB going forward.
Having said that, there are definitely certain key factors to monitor. I think all of us know that inflation and higher interest rates will be an item to monitor because that impacts the so-called OEMs and the small vendors because we are talking of the fact that we are exposed to quite a bit about tier 2, tier 3 cities, which is our breadwinner at this point of time, and there could be impact. So this is something which we think as a parameter, which we need to watch out for.
And consumption growth, which is also driven by the rural demand, is definitely another factor to consider in the growth patterns that we see. And the last but not the least, but we had in this particular year, several countries in the world are going for election. And India also we see an election period in Q2. So there would be certain -- while we believe that there could be certain delays in decisions, but we see the fundamentals are in place. So having said that, I think we expect that we will have a positive momentum in what we see at this point of time. So this is probably my last slide. So I think with this, we could open up the session for more questions.
We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Renu Baid Pugalia from IIFL Securities.
Congratulations on the strong performance. My first question is a little bit more basic. Typically, if you look from a trend perspective, fourth quarter tends to be far more lumpier and better in terms of sequential revenue growth. And given that our backlog has been stronger [ that put ] from your side why this quarter was broadly flattish and not a growth on a Q-o-Q basis, specifically for? EL and MO, both which are product-oriented portfolio for us. So any revenue slippages, delays or any specific comments from your side?
So Renu, so from my side, I would say there has been no revenue slippages. I think the -- in terms of -- there is no destocking issue also, which we see from the channel partners or our customer side as well. I think what we see is more about a meaningful execution according to the milestones and the offtake of the customers, which is very important.
I think if you look at the patterns previously, when we are coming out from the COVID scenario, I think people try to execute whatever was required at that point of time as a backlog, they had to do. So therefore, the offtake was far faster in the previous quarter, but now has started to stabilize, right? So that means it's going to be more even in a way which matches with the execution of the various projects with the OEMs and channel partners have. And that's basically what we see both in electrification as well as motion.
Got it. And secondly, if you look at directionally, while we have been guiding or probably mentioning of maintaining double-digit net margins now, this year has been pretty strong with a combination of factors, mix as well as commodity gain side in terms of benefits. So looking at the backlog that we have in hand, what is the outlook that you would like to share for the next calendar year, especially on the profitability, given the way the macros and your order backlog is side of today?.
Renu, we don't share outlook, but I think that we know. So I think I could only give a color to that. Our order backlog is a good mix of orders from the 23 market segments, what we cater to. And also, it has an element of good amount of services, which is also a service gain. And -- but the other factor which we need to consider is 90% is from domestic market, right? So that means a content which is basically more driven by the local prices, local competition sort of stuff. So I think given this particular scenario, and we have a major event of an election, which will happen in Q2, I think we should be realistically cautious when we have given estimation about these profitability indicators. So given that we are at the double-digit margin at this point of time, I think our ambition is to make sure that we remain credible over here.
Sure. And last question, more related to the end markets. Electronics, has been one of the key growth drivers for ABB. And now with the deepening of presence in OSAT and the entire value chain, there will be more factory automation opportunities. So how are we looking at this market unfolding? And have you already started to see activities from customers in terms of inquiries in this segment? So how should we look at both in terms of opportunities on the manufacturing side and electronics in specific going forward?
Yes, Sanjeev here, Sanjeev Sharma. Definitely, electronics is a segment wherein we see positive development. Not only we see the formation of CapEx and expansion, we see a direct impact in our order books. And we are delivering meaningful projects in electronic sector. And also the nature of electronic manufacturing is now, especially when more modern plants are being built.
Because every time a electronic manufacturing plant is set up by a global major or a local, they always go for new technologies. So robotics automation is one element that go quite well into these manufacturing, and we are seeing a good uptick in that part of our portfolio. And in addition, when you have these integrated facilities come, you have other related products [indiscernible] from electrification, motion, also find place in these facilities. So definitely, we see an uptick and positive uptake of electronics segment, Renu.
[Operator Instructions] The next question is from the line of Mohit Kumar from ICICI Securities.
Congratulations on a very, very good quarter and a very good year. My first question is on the order inflow. Was there any large order inflow in this particular quarter like last quarter, previous quarter? And related question is, the life cycle of the current order book, is it very different from the order book at the end of CY '22?
Mohit, can you repeat the last question, so I will answer your question without an issue.
What is the life cycle of the current order book at the end of CY '23? And is it materially different from the life cycle at the end of CY '22?
So answer to your 2 questions. The first question is did it have a large order? Absolutely, yes. It did have a large order. I had mentioned that it had basically come from motion from our traction business from a railways customer. So that's number one.
And number two, what's the composition looking like on the order backlog. I think it's a good question. I think earlier, we used to have from the order backlog probably 7%, 8% as a large order content, the project orders, in other words. But in the current order composition, order backdrop of INR 8,400 crores, we have almost 15% from the large orders. So these large orders get executed over a period of 18 to 24 months depending upon the project, what we're executing, and the balance gets executed over a period of time with the predictable revenues.
Is it 15%, right, sir? 15%?
1-5, yes.
Okay. Understood. So my second question on the gross margin. Our gross margin was the highest in this particular fiscal and this particular quarter. How to think about as we go forward, especially for CY '24? Do you think any gross margin correction? I think last quarter, you alluded that there is some correction.
So first of all, Mohit, we don't give any forecast as far as gross margins is concerned. So gross margin is basically resultant of 2 to 3 factors. One, of course, the composition of the orders, what we execute. And if that has a larger element of project orders which get executed, as you see that we have already mentioned that 15% are large orders. So I think that will have a lesser contribution to the gross margin. But as well as product order, definitely have. So I think as the prices are stabilizing in the market, both in terms of pricing, which we do with the customer as well as with the vendor, with the steel and the material prices stabilizing. I think the possibility of increasing the prices into the market will be more even based and not a normal pattern, right? So that's how it will happen. So more expansion in the margins will come through capacities, through different market segments, what we're going to and value-based selling, right? So that's basically how the margin expansion going forward will happen.
We have our next question from the line of Ankur Sharma from HDFC Life.
So I have 2 questions. One was on the motor business, the motion business that is. Just wanted your comments on how are you seeing the competitive intensity, pricing and also demand there? Because one of your peers have said there's almost seems to be like a price war going on in that, especially on the low-voltage motors. So one -- so that's my first question.
Second was on the automation segment, where Q4 has been -- seen good growth. Overall order inflow seems to be flattish on a Y-o-Y basis. So is it that some orders kind of got deferred and you probably think that should pick up over the coming quarters? Or maybe it's more like post election? So you have some comments there, as well?
So your question about process automation, yes, our pipeline is quite strong, and there are certain orders we feel got deferred and they will come in the course of time and most likely in this quarter.
When it comes to terms like price wars and others, I think we'd never used this kind of terminology with our own internal system because that shows an erratic behavior of someone. And we stay quite steady with respect to how we serve our channels and our customers with a more consistency over a period of time. So never ever. Our pricing strategies are very stable based on how the market and the market segments show up based on the strength of our portfolio.
But yes, if there is some kind of behavior in the market. So it's not the whole segment gets affected. There may be a kind of a stress in a particular market segment on the lower side, wherein it is more price sensitive. So that's how we deal with it. I do have my colleague, the President of Motion Division, Sanjeev Arora. Sanjeev, would you like to add to my comments?
Thank you very much for the question. Thank you, Sanjeev, for giving me this opportunity to answer it. I think you are just spot on. And definitely, as Sridhar has also mentioned, it is the value-based selling. It is the portfolio and the technological advantage what we have. That is playing very well for ABB low-voltage motors. And the customer has the belief that if they are going for the sustainability as a subject on top of their mind, it is the energy efficient motors of ABB, which can support them very well. And that's how we are keeping ourselves a bit more isolated and protected from the, I would say, the general trend and that's our strategy will be going forward as well.
We have our next question from the line of Amit Mahawar from UBS Group.
Congratulations, Sanjeev and Sridhar, for excellent execution on rates, product and localization. Sir, my first question is on the Motion division. This year, almost INR 50 billion plus worth of orders, right, the largest subset for us, and it's more driven by traction. CY '24, how should we look about traction orders? Do you think we'll have the same momentum? Any color on that?
As far as traction orders are concerned, it's the direct result of spend being made in the railways and in the metro segment. In railways, specifically in terms of the new trains being launched, we have a substantial technology footprint in those areas because...
I'm sorry, sir, you're not audible.
Can you hear me?
Yes, we can hear you now. Please go ahead.
So let me repeat. So with respect to traction, our market segment, focus market segment are railways and metro. And within railways, it is the new trains like Vande Bharat and more modern train. Wherein our technologies are sweet spot technology for those segments, they're preferred technology, but we participate with the railway tendering process or through the OEMs, who are building those trains. And we have good position there.
And also in the engine, the railway electric engine. So I think when they are buying and expanding that line, we also have some technologies going there. And in the metro, of course, we supply a substantial amount of technology there. So these segments are tracking. So yes, it is cyclic. Not every quarter you have a very large tender. But whenever large tender happens for the OEM wins and then the OEM take their time to place their offload of the ABB technology orders to us. So I would say, I would consider it as an engineer-to-order business, but it will be more cyclic going forward. We will not track it quarter-to-quarter. We will track it as it comes.
Fair point. Second question is on the EL division. Our profitability has seen a material ramp up, and it's more close to the global peer, like Schneider operating in India at 18%, 19% plus. But there is a significant gap in top line. I'm not saying we have all the product portfolio, but top line vis-a-vis, say, a Schneider in India is particularly different. So which are the areas where ABB will expand and target in the EL division in terms of product profile?
So let me admit my ignorance because we never track our competitors. We only track what we can do for our customers with our portfolio. So maybe it will not be able to relate with the percentages you said. But yes, related to our quarter-to-quarter, year-to-year performance and the market and the customer segments we want to do, I think we continue to make very strong progress.
So we are quite happy with what our distribution ELDS company is doing as well as how our business in smart power and small distribution are working. And I think we are on track in terms of localization, in terms of penetration, expanding our product portfolio, and we are making a substantial kind of investments in that area.
Do we compare with somebody? No. I think that we haven't done that. Maybe it's a good question from you. Maybe we should look at it. But at this point of time, I think we are going by our plans.
Fair. But at least LV/MV, which side is ABB leaning towards in terms of expansion, sir, some color?
Last year, we expanded quite well on the medium voltage side in Nashik, you may have attracted. And Ganesh, since he is sitting next to me, I can take benefit of him. What do you think on the medium voltage side, what kind of opportunities do you see, Ganesh?
Yes. Thanks, getting the opportunity, Sanjeev. So medium voltage, definitely, we did the expansion in the last year. We brought our ecofriendly product line, which has been introduced and also a couple of other products, which is from the contracted side also has been introduced. So there is the expansion, which is the product portfolio, that has also been done and also investments has been done in basically the capacity expansion to meet the demand in the market.
So we can see a very good demand, which is coming from the renewable building and also rail and infrastructure segment. And of course, the data center because which is very highly energy intensive usage, which is coming from the data center. So we do see this good expansion is coming, and we are seeing good growth in the last quarter also when it comes to the distribution side.
So in short, what Ganesh is leading, we have a very solid performance. It's a -- I think our benchmark in how well we do at ABB globally. And I think ELDS or our division really is on the top of the benchmark globally when it comes to the business performance and also the growth. When it comes to low voltage, we have Kiran Dutt. Kiran, would you like to put some color on it?
Thank you. Thank you, Sanjeev. From the low-voltage perspective, I think you also made some key points in terms of localization and expansion of our portfolio. I think we have been doing that continuously over the past few years. We have added some products which are at different segment of the market, not only the segments what we were already having, we are also trying to get into different segment of the market as well. And one is in terms of the portfolio expansion where we talk about the rest is also important when you talk about the localization part of it.
So overall, it's -- in 2 ways we look at it. One, while expanding the portfolio, we want -- also want to increase those products into India as a localization part of it. Let me give you an example in one of the segments of data center. We also launched some solutions on the UPS side. So that's been launched in the last quarter of last year, the Q4 of 2023. So a good portfolio in the very particular segment of the market called data centers, and that kind of portfolio will support us in future growth. So overall, we continue to expand the portfolio as well as localization.
We have our next question from the line of Umesh Raut from Nomura India.
My first question is pertaining to your opening remarks about premiumization. So basically it is really heartening to see that there is a shift now happening at a ground level to more towards premiumization. But I want to kind of understand more on the vertical side, basically, in which all products you are seeing this particular shift happening? And how this can also lead to further better realization for the company?
Mr. Raut, thank you for your question, it's a good one. I think we have seen this significant shift of customer behavior, especially post-COVID, because I would say during COVID period, customers realize that when they are in dire straits, which are the companies which stand for them and which are the one and has the ability to serve them. Obviously, companies like ABB stood very tall during that period the way we were organized to help our customers who were in the remote location with our digital technologies, digital support technologies. And we didn't left any customer wanting relative to maybe not so great experience they had during their critical phases with some of the other participants in the marketplace.
And I believe that has created a strong impression in customers mind. And I do believe that has a large contribution in terms of how customers started thinking about reliability, availability and the overall strength of the company. So that's one reason we point. Now apart from the market growth, our organic market growth, there is a shift of the preference from a large customer, which was very kind of price sensitive earlier towards more reliable supplier, and they're willing to pay a reasonable price for the products and the quality and the services they get from a company like us. So that said, we could measure it, but we find that there's a substantial shift on top of the market growth itself. So that's why you can see our growth numbers are relatively multiple of the GDP growth in the country. It is being contributed by that behavior as well.
Now when it comes to the verticals, we definitely see that very clear in robotics. We see that very clearly in the A-grade buildings which are being built and the infrastructure projects being built, whether our electrification and motion products, there's a clear preference for those products from us. Their people are demanding it by brand, that what brand they would like to place in when they have that flexibility.
And not only that, even the contractors who are working in very prestigious government projects, they want to make sure they're using the best technologies and components because now the government infrastructure projects are so high -- such a high quality, whether it's a parliament or it is Ayodhya airport, railway station, Ram Mandir, you will find ABB technology footprint there because there, the preference that they should put best-in-class equipment. So that -- it means it's not only the government procurement which says to buy the cheaper, they are saying buy the best for the best infrastructure we are putting in. And that's our sweet spot, and that's where our brand, the placement is quite good.
So in the electrification, all these areas premiumization is taking place. Data centers, again, whenever the large players who are the large global players when they are coming to India, they have a choice to buy cheap, but they don't. They come and they buy our premium technologies because the data center is all about reliability, availability for the customers, and they want to ensure the best of technology goes there. So that's another area where we see a distinct advantage.
Especially on the sustainability side, we find the industry behavior has changed. Cement industry, steel industry, pulp and paper, there's a lot of demand for high-quality products, which reduces their greenhouse gas emissions by using technologies which give them more efficiencies.
Same thing with the contractors, which are building residential building, commercial building. They also have a preference for high technology. And they buy it by name or sometimes, they buy exclusively. And we had a -- just this week example, we are executing. I will not name the customer. They placed an order 3 months back. And without our asking, they repeated that order by sending an e-mail to us that listen, hey, I'm setting up another project, just please repeat it.
So that's the kind of behavior we think people are using in order to -- because the amount of money they are spending for their project is so high, they don't want to compromise on the last component by -- which used to be a behavior earlier. But there we see a mark shift there, and it's a sweet spot for us. I hope that answers you, Mr. Raut.
Yes, sir, very much. Sir, my next question is pertaining to exports and services business. So if I look at our trajectory, I think overall at a company level, we are doing very good in terms of growth. But as a percentage of share in terms of services and exports, that has kind of marginally remained same or marginally declined as compared to last CY '22. So any particular color on this front, especially now that you are seeing uptick on the renewable side globally and there might be a chance of getting better sourcing from parent side as well, especially on these lines?
As far as services are concerned, we are growing well. And exports by percentage may look low. But in net terms, we are growing 15% there. But since the domestic market is so strong when it moves percentage-wise, you will see that the exports and the services kind of relatively on percentage are low, but we have a healthy growth in that area, and we are quite happy. Now as a multinational corporation working in India, investing in India, localizing for India, our prime focus is Indian market. That's why we are here, and that's why we want to help the Indian customers.
And since we have sophisticated factories, I don't drive the export business. My business leaders don't drive export business. What they drive is they run best-in-class operations, which are so attractive for our global business leaders that they want to buy from here and serve other markets, I think that's how we treat it. We are finding increasing interest from the global business leaders who manage other markets, either they are giving the allocation to our factories to supply into markets or they're even asking our domestic leaders to be responsible for other markets.
So we see that this will be kind of a long-term trend, wherein we will have more and more participation in global market. But that's not the focus we have. We have a focus on the domestic market. And I believe that's something which will be very rewarding and is rewarding at the moment, and export will be a consequence on the side of it.
[Operator Instructions] The next question is from the line of Mahesh Bendre from LIC Mutual Fund.
Sir, last 4 quarters, we have been reporting order inflow of around INR 3,000 crores on and around that number. Now the base effect is going to come up from next quarter onwards. So is it fair to assume that we will continue to grow, but the growth rate won't be like 30% growth that what we were reporting for the last many quarters?
Yes, I think it's a fair point. So I think we grew from a smaller base to a more solid base at this point of time, which now consists of both the base orders as well as large orders. So I think it depends on how fast the large orders get decided in the future as well. So having said that, I think our focus is basically make sure that our base orders are as strong as what it was in the past. And so that's how we would like to look at it.
[Operator Instructions] The next question is from the line of Aditya Mongia from Kotak Securities.
I'm kind of picking up a comment that you made earlier about integrated solutions becoming more and more relevant. And if I'm not wrong, you had also just announced an order with Tata Steel, which is kind of more integrated across their plants. Could you give us a sense of how meaningful this, let's say, a different line of work can become for you, your positioning inside, the kind of boost to margins, if any, that can come from here?
Operator, do we have G.N.V. on the call?
G. N. V. Subba Rao.
I'll have to check, sir.
No, no, we don't have. Okay. So as far as, as we said, the 4 sector orders are concerned, we always have good healthy orders from here. Even if when the CapEx was not as high, we were having very good OpEx orders, wherein there's always an expansion or 2 which keeps happening.
But now what we find that, yes, those tick-up in certain market segments have started happening and then we are seeing the growth in these core sectors. As they are a good and large contributor to our orders, and we see that as this momentum takes place, I think it will meaningfully contribute to the weighted averages we have going forward. But you are right, there is an uptick on the projects business. And that's what we have been talking about in many quarter calls, that, that is something is a matter of time when that picks up and starts contributing even more meaningfully.
And that's where our mix of products, ETO and the projects, start becoming such that our projects take a longer time to execute. But at the same time, still, our 70%, 74% of the volumes or the revenue mix still comes out of products and the ETO business.
We have our next question from the line of Parikshit Kandpal from HDFC Securities.
Sanjeev and Sridhar for a great quarter. So I have a question on your online marketplace. So you've been talking it for many quarters in the past. So if you can help us and understand over the last couple of years, how has been the ramp-up from that in terms of contribution towards the revenues, market share gain, et cetera?
Okay. Kiran, would you like to take it? And Sanjeev, if you have any comment on top of it.
Thank you, Sanjeev. I think new e-marketplace has been quite good in India now. It's getting traction over a period of time. As of -- if I just compare what it was in 2022 and what it is in 2023, we see a substantial increase in the offtake from the customers on the portal.
There's also something known as we call it as repo research online and purchase offline. I think that has been a game changer for all of us. We find that a lot of customers research the product, find the technicality, find out what are the specifications and a lot of technical data is available online, and they would like to purchase offline. So we allow that to happen, and that's something which we see is a tremendous growth going forward.
There is also import aspect that being digital is actually reaching out to many customers across the country. So that is something on a penetration level, it is really supporting us. And it is also easy for a customer to connect with ABB because of this particular portal. So we see lot of inputs coming in, lot of leads coming because of this portal. So that's the way that the development is. And we feel that this particular business going forward will definitely be at exponential level. That's it from my side. Maybe Sanjeev Arora, if you have some comments.
I think, Kiran, you have touched upon all the important aspects of this piece. I would say this is in a nascent stage and development. And this would be one of the very important revenue streams in times to come and will definitely support the reach and response time what customer requires. So yes, we are very much bullish about this piece.
Parikshit, to give you some data because I think you've got -- you guys require data, so I have more to give you some data. right? So I think out of the total orders, what we have, I think only at this point of time, from an e-commerce as a value order stream or revenue stream, I think we are very nascent as what Sanjeev was alluding to. So I think we are just a couple of percentages there.
So I think we are -- the market is yet to catch up on that particular journey, but we expect that this could grow quite faster in the periods to come, and that's something which we are investing on at this point of time. And in this process, we're also making sure that the problem -- in internal processes, like our order management system and the other related customer interfaces, are also upgraded to talk seamlessly on this particular technical solutions.
We have our next question from the line of Sagar Gandhi from Invesco Mutual Fund.
It is on the renewable [indiscernible] there in your positioning there?
We are not able to hear you, get your question clearly. So probably you could write it out and we could answer it. That's not an issue.
Ladies and gentlemen, we'll take that as the last question for today. I now hand the conference over to Mr. T.K. Sridhar for closing comments. Over to you, sir.
Thank you, [ Yashasvi ], and thank you, everyone, for joining this particular call. This being the year-end and also the last quarter of the results quarter, right? So I thought we should try to answer as much as possible. So that -- efforts, we also increased the time, right? So we sort of elongated to another 15 minutes the call. So hopefully, and I am hopeful that this could have answered quite a few questions of yours. In case, if you still have certain things which you need clarification, please do feel free to contact us back, and we will try our best to revert back to you soon.
Thank you very much for joining this call once again, and looking forward to you for the AGM, if wherever it's possible, which is in May. Right, Sanjeev?
Yes.
So very good. And thank you for all the support, all the sort of understanding of what ABB is. So it has been a great journey for both Sanjeev and me since for the last 5, 6 years, and that is also reflected in the confidence that the shareholders have in the performance of the organization and the results and share price. Thank you very much.
On behalf of ABB India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.