A B B — Q3 FY25 earnings call

Call held 18 Feb 2025

Management summary

ABB India delivered robust Q4 and full-year CY24 results, with strong revenue and profit growth driven by operational efficiencies and strategic focus. The order backlog provides healthy visibility, despite a Q4 decline in total orders due to a high base. The company is committed to localization, sustainability, and exploring inorganic growth, while guiding for a sustainable PAT margin of 12-15% amidst easing market conditions.

Highlights

  • Full-year CY24 Revenue expanded by 17% YoY, building on 22% growth in the previous year.

  • Full-year CY24 PBT grew by 51% YoY, and PAT expanded by 50% YoY.

  • Full-year CY24 Order backlog grew by 12% to ₹9,400 crores, providing strong revenue visibility.

  • Q4 CY24 Revenue expanded by 22% YoY, with PAT expanding by 54% and Operational EBITDA by 56%.

  • Full-year CY24 Return on Capital reached 26.5%, indicating improved capital efficiency.

  • Cash balance expanded by 14% to ₹5,390 crores, and a final dividend 51% higher YoY was approved.

Concerns

  • Q4 CY24 total orders were down by 14% YoY, primarily due to a large ₹600 crore mobility sector order in Q4 CY23 not repeating.

  • Motion division orders were flat in Q4 CY24, attributed to delays in private CAPEX investor decision-making.

  • Some sub-segments in Process Automation faced 'formidable competition' from Chinese players on large CAPEX projects, though described as minority incidents.

Key financials

2 periods

Q4

  • CY24 Revenue Growth
    22%
  • CY24 PAT Growth
    54%
  • CY24 Operational EBITDA Growth
    56%
  • CY24 PAT Margin
    15.8%
  • CY24 Base Orders
    ₹2,654 Cr
    YoY +4% QoQ -2%
  • CY24 Total Orders Growth
    -14%
  • CY24 PBT Growth
    21%

FY24

  • Revenue Growth
    17%
  • PBT Growth
    51%
  • PAT Growth
    50%
  • EPS Growth
    50%
  • Cash Growth
    14%
  • Operational EBITDA Margin
    20%
  • PAT Margin
    15.4%
  • Return on Capital
    26.5%

What they filed

Q1 FY27: revenue up 21.1%, net profit up 2.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,912 3,365 3,010 2,940 3,311 +14%3,423 +2%3,184 +6%3,559 +21%
EBITDA540 657 560 401 500 −7%527 −20%408 −27%447 +11%
Net profit440 528 475 352 409 −7%433 −18%1,784 +276%362 +3%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Electrification
    Renewable, buildings, power distribution, smart power, smart buildings qualitative Growth Drivers
  • Motion
    0% Order GrowthBioethanol, hydrogen, data centers (HVAC), transport, light industry (pharma, food & beverages) qualitative Growth Drivers
  • Process Automation
    Steady qualitative Revenue VolumesSteady qualitative Order VolumesInching towards better margins qualitative Profitability
  • Robotics
    14% ProfitabilityElectronics, automotive (EV/ICE), food & beverages, metal industries, warehousing technology qualitative Growth Drivers

Order book

high confidence

Total value

₹9,400 Cr

as of 2024-12-31 quantified

12% YoY

Inflow this quarter

₹2,654 Cr

Execution

almost 65 to 70% of the existing backlog will get executed over the year. And the balance 30-35% would go to the next year in 2026 based on the project schedules, what is drawn up.

Composition

Mix 3 contract types
  • Projects 13%
  • Service 11%
  • Products 76%

Share of order book by contract type

Cancellations & deferrals

  • not repeated: Total orders in Q4 CY24 were down 14% YoY due to a large ₹600 crore order from the mobility sector in Q4 CY23 not repeating.
  • delayed: Motion division orders were flat due to private CAPEX investors delaying decisions.
The order backlog is steady and provides good revenue visibility, with a significant portion expected to be executed in the coming year. While Q4 total orders saw a decline due to a high base, overall FY24 orders were up 6%.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex Capex disclosed
    • Organic expansion and growth support
    • Investment in inventories and receivables to support growth
    So, I think, Sanjeev, just to add to your comment, it is also important that when we go on this growth trajectory, we will need to use cash to support the growth, right. Not only in terms of the CAPEX and the distribution of cash to the shareholders, but also from the point of view of the net working capital requirements which will be needed, right. So, that's also something where the cash will get consumed in the next couple of years as we have this growth journey.
  • M&A Deal Acquisition · Announced

    Evaluation of inorganic opportunities to create impact for customers and businesses.

    We also have a pipeline for inorganic opportunities. And inorganic opportunities are carefully evaluated. And it's not based on how much cash we have. It is based on how much impact it will create for our customers and our businesses in future.
  • Liquidity Cash ₹5,390 Cr Cash balance expanded by 14% YoY.
    Our cash balance is 5,390 crores. I think we have good plans to how we want to use this particular cash. So, overall, I think a strong quarter, a strong closing for the year.

Guidance & targets

Profitability

  • PAT Margin Corridor Profitability · next couple of years · High confidence 12-15%
    I think a band of 12 to 15% of PAT level is what we would like to look at, right. So, that's the basically thing which we are at this point of time focusing on.

    — T.K. Sridhar, Chief Financial Officer

  • Robotics Profitability Profitability · average · High confidence 14%
    Robotics... profitability, which is good at 14 percentage on average per se.

    — T.K. Sridhar, Chief Financial Officer

Order Book Execution

  • Backlog Conversion to Revenue Order Book Execution · FY25 · High confidence 65-70%
    Therefore, we presume, as per our estimation, almost 65 to 70% of the existing backlog will get executed over the year.

    — T.K. Sridhar, Chief Financial Officer

  • Backlog Conversion to Revenue Order Book Execution · FY26 · High confidence 30-35%
    And the balance 30-35% would go to the next year in 2026 based on the project schedules, what is drawn up.

    — T.K. Sridhar, Chief Financial Officer

Sustainability

  • GHG Emission Reduction Sustainability · since 2019 · High confidence 86%
    So sustainability, already I talked about that we have already reduced our GHG emission by 86% with the base year in 2019.

    — Sanjeev Sharma, Country Managing Director

  • Suppliers ESG Awareness & Assessment Program Enrollment Sustainability · current · High confidence 40%
    And 40% of our suppliers are enrolled in our ESG awareness and assessment program.

    — Sanjeev Sharma, Country Managing Director

  • Zero Waste to Landfill Plants Sustainability · current · High confidence 3 of 6 plants
    So, we already have converted three of our six plants into zero waste to landfill units.

    — Sanjeev Sharma, Country Managing Director

What to watch in Q4 FY25

Order Backlog Execution Velocity

next quarter
Current 65-70% of existing backlog expected to be executed in FY25.
Target Progress towards the stated execution target for FY25.

Why it matters

To verify the pace of revenue recognition and operational efficiency from the strong order book.

Therefore, we presume, as per our estimation, almost 65 to 70% of the existing backlog will get executed over the year.

Risks & concerns

  • Q4 CY24 Total Order Decline

    medium

    Total orders were down 14% YoY in Q4 CY24 due to a large ₹600 crore mobility sector order in Q4 CY23 not repeating, creating a high base effect.

    Management acknowledged

  • Market Easing and Price Adjustments

    medium

    Easing market conditions and price adjustments based on demand/supply could lead to a normalization of margins from current highs.

    Management acknowledged

  • Private CAPEX Investor Delays

    low

    Motion division orders were flat in Q4 CY24 as private CAPEX investors delayed decision-making, pushing orders to the next quarter.

    Management acknowledged

  • Chinese Competition in Process Automation

    low

    In certain sub-segments of Process Automation, 'few incidents' of formidable competition from Chinese players were observed on very large CAPEX projects.

    Management acknowledged

  • Macroeconomic and Weather-related Disruptions

    low

    Events like elections, government infrastructure spending patterns, and strong rains in 2024 had a transient impact on growth.

    Management acknowledged

Q&A highlights

5 direct
Sustainability of Gross Margins and Future PAT Margin Direct
I think a band of 12 to 15% of PAT level is what we would like to look at, right. So, that's the basically thing which we are at this point of time focusing on.

Analyst asked about gross margin sustainability, but management provided a clear forward-looking target for PAT margin, indicating potential normalization from current highs due to market easing.

Asked by Renu Baid

Impact of Chinese Competition Partial
But there are some robotic suppliers in China, which will may try to make inroads. But what Subrata and his team play is on a very high-value-added way because robotics is not about hardware. It's about application engineering and converting the solution locally. And I think there we have an advantage.

Analyst raised a critical sector-wide concern. Management largely downplayed direct competition in Motion and Electrification, but acknowledged 'few incidents' in Process Automation and highlighted their value-added approach in Robotics as a differentiator.

Asked by Aditya Mongia

Order Backlog Growth Slowdown and Macro Factors Direct
I think we should observe as we grow in coming years and coming quarters, there will be strong cycles of growth and there will be moderation before the next cycle of growth starts, provided all the policy framework and all the planned investments are done as we see, which is available in the pipeline.

Analyst questioned the deceleration in order backlog growth. Management attributed it to transient factors like elections, government spending, and weather, maintaining a positive long-term outlook for India.

Asked by Renu Baid

Utilization of Cash Balance Direct
So, it is 51% higher dividend compared to previous year. So, that's the first protocol. The second protocol is that the cash is getting consumed in our organic expansion, which are in plans and in play. So, you will hear about it as we mature them and as we open them up in coming months. We also have a pipeline for inorganic opportunities.

Analyst inquired about the significant cash balance. Management outlined plans for shareholder returns (higher dividend), organic growth investments, and evaluation of inorganic opportunities, providing clarity on capital allocation strategy.

Asked by Sumit Kishore

PBT to Cash Conversion and Working Capital Direct
And 10% is something what we have used for supporting the growth in terms of investment in inventories, in terms of receivables which we need to collect, because it's a schedule-based invoice.

Analyst noted a potential dip in cash conversion. Management clarified that 90% of PBT converted to operating cash, with the remainder invested in working capital to support growth, indicating healthy operational management.

Asked by Sumit Kishore

Quarterly Volatility from Large Orders Partial
So, to answer your question, the answer lies in the mix of our backlog and the book-to-bill business that we do every year. And that mix continues to change.

Analyst questioned if the skewness in Q4 results due to large data center orders would be a recurring trend. Management explained it's a natural outcome of their diverse business mix and backlog conversion, suggesting investors should look beyond quarter-to-quarter fluctuations.

Asked by Mohit Kumar

Electrification Division Order Run Rate Sustainability Direct
I think already there has been a comment from Sridhar on this particular topic, where we said that we did have a very large order, which was in Q3 for a data center. And that's one of the reasons why you would find a small decline in terms of the numbers of Q3, '24 versus Q4.

Analyst noted a sharp decline in Electrification orders QoQ. Management attributed this to a large data center order in Q3 CY24 not repeating, but reassured that the pipeline remains strong for future growth.

Asked by Amit Mahawar

3 min read 7 chapters

Detailed narrative

Robust Financial Performance in CY24

ABB India reported a strong financial performance for the full year CY24, with revenue expanding by 17% year-on-year, building on a 22% growth in the previous year. Profit Before Tax (PBT) grew by 51%, and Profit After Tax (PAT) expanded by 50%. The company achieved a full-year Operational EBITDA margin of 20% and a PAT margin of 15.4%, with Return on Capital reaching 26.5%. The cash balance also saw a 14% increase, reaching ₹5,390 crores.

Order Book and Backlog Dynamics

The company's order backlog grew by 12% to ₹9,400 crores by the end of CY24, providing significant revenue visibility for the coming years. Management expects 65-70% of this backlog to be executed in CY25, with the remaining 30-35% in CY26. While Q4 CY24 total orders were down 14% year-on-year, this was primarily attributed to a large ₹600 crore order from the mobility sector in Q4 CY23 not repeating. However, base orders in Q4 CY24 increased by 4% to ₹2,654 crores, maintaining a steady momentum.

Strategic Focus on Localization and Emerging Segments

ABB India continues to prioritize localization of its global technologies and expansion into Tier-2 and Tier-3 cities. Emerging segments are key growth drivers, with data centers identified as a 'very powerful segment' contributing significantly to the company's books in CY24. Warehousing technology is also expected to boom in the next two to three years. The company's focus on premiumization has also contributed to improved gross margins.

Sustainability and CSR Initiatives

The company has made significant strides in sustainability, converting three of its six plants to 'zero waste to landfill' units. It has also achieved an 86% reduction in GHG emissions since 2019 and enrolled 40% of its suppliers in ESG awareness and assessment programs. ABB India actively engages in Corporate Social Responsibility (CSR) through infrastructure projects, skill development programs, and medical support in rural communities.

Segmental Performance and Outlook

The Electrification division showed strong traction in renewables, buildings, and power distribution. The Motion division experienced flat orders in Q4 CY24 due to delays in private CAPEX investor decisions but anticipates recovery. Robotics, identified as the fastest-growing division, maintained a profitability of 14% on average, driven by demand from electronics and automotive sectors. Process Automation saw steady revenue and order volumes, with profitability inching towards better margins, despite some competitive pressures from Chinese players in specific sub-segments.

Capital Allocation and Shareholder Returns

The Board approved a final dividend that is 51% higher year-on-year, reflecting the company's commitment to shareholder returns. The cash balance of ₹5,390 crores is planned for utilization in organic expansion, including investments in working capital to support growth. The company is also actively evaluating inorganic opportunities that align with its strategic objectives and create value for customers and businesses.

Margin Outlook and Competitive Landscape

Management guided for a sustainable PAT margin corridor of 12-15% for the coming years. This outlook considers the current high profitability driven by operational efficiencies and favorable commodity prices, with an expectation that easing market conditions and price adjustments will lead to a normalization of margins. While some competition from Chinese players was noted in specific Process Automation projects, management expressed confidence in its localization strategy and value-added offerings to mitigate broader competitive risks.

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