Ladies and gentlemen, good day and welcome to ABB India Limited's Q2 April to June Quarter CY 2025 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touchtone phone. 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, Rayo. Very good morning. Warm welcome to all of you, ladies and gentlemen, for the Q2 analyst call that we have today. I'm just proud to say that we are in the NSE boardroom today taking on this call. Along with me, I have Mr. Sanjeev Sharma, the Country Managing Director of ABB India Limited, and I have all businesses other than Kiran Dutt, who is traveling at this point of time. We have Balaji representing Process Automation. We have Sanjeev Arora of Motion, and we have Ganesh Kothawade representing Electrification, and also Mr. Subrata from Robotics. We also have the other management people in the room. It's a great privilege for us to address this particular call from this iconic place where we have been associated for the last 30 years, since we are there.
Without wasting the time, over to you, Sanjeev, to take us through the Q2 results and also get to hear from the leaders.
Thank you, Sridhar. Good morning to all of you. Welcome to this call for our second quarter of 2025. We are happy to join, you know, addressing you from the National Stock Exchange. We are using their boardroom. They have invited us here to celebrate 30 years of ABB India Limited's listing on the National Stock Exchange, and the whole management team and other team members are present here. I will kind of give you, given the occasion, a bit of a snapshot of how ABB India Limited has delivered shareholder value in the last 30 years, a kind of journey that we have performed together with NSE. As you know, we are manufacturing in this country for 75 years, but this snapshot that you see is for the last 30 years.
Total shareholder return is 8,500% during this period, and consistent dividend has been paid out every year since the listing of ABB India Limited on NSE. Our share price has risen 6,745%, and market capitalization increased 68 times. A lot of 100 shares is worth more than INR 6 lakh, and net worth is 33X. Now, key financial performance indicators between 2024 versus 1994 is our revenues from our core operations are in 20 times in crores. Our PAT is 37X, EPS is 27X, DPS is 6,209%, and dividend payout is 2,850 basis points. That's the kind of shareholder value that we have created from our India operations for our shareholders. That also is the belief that we participate in this market.
You can see in the last 30 years how many ups and downs have come in the markets and how many ups and downs have come into the global economy, local economy. Our belief system is that these are all temporary, passing matters. We stay consistent in focusing on our customers, bringing more products for the country, which are good for nation-building, continue to localize it, continue to expand into the geographical reach, and also continue to connect with new market segments which show up as the country is growing in its sophistication, across the length and breadth of it. That continues to reward us and also continues to reward our shareholders. Next slide. If I look at the many last quarters, I think practically after we came out of COVID, we saw continuous growth in orders, revenues, and profitability.
I think all of you who have been joining this call have been part of that journey, and we are very pleased with how that journey and the growth has come for our portfolio. We enjoy this, and we have created a very strong balance sheet at this point of time, and also good momentum for our portfolio within the company. So much so that for the first time, our backlog is about INR 10,000 crore. When the market has been strong for a very long period of time, a point comes when the market takes a breather. I believe we are passing through that point. Maybe last quarter and at the current point, we see that the market has been readjusting its growth trajectory. We believe it's going to be momentary, and then it will come back to its own forward trajectory again.
That gets kind of reflected in our orders, which is also kind of correlated with the large orders we had last year, which are missing in the last quarter. Our backlog continues to expand, revenues continue to expand, and we have certain exceptional items in the PBT, which T.K. Sridhar would be able to explain as we discuss this further. Next slide, please. You can see that the financial performance, the base orders, we continue to see base effect is strong. It's only the large orders are a bit cyclic. We continue to enjoy the growth on the base orders. Revenues expansion is 12%, which means the execution capability of the business is at a solid level. Our cash balances stand at INR 5,500 crore, and the Board of Directors has declared an interim dividend of INR 9.77 per equity share of face value INR 2.
This is again in consistent season the last two years that we have started declaring the interim dividends for the shareholders. Now, the portfolio, we have introduced some new products which are prime for this market, and we will continue to gain more market share of the existing market, as well as we are introducing new products and opening up new market segments. On the sustainability front, if you take 2019 as our base, we have reduced our GHG emissions by 87.5%. We are rated strong in ESG performance by CRISIL, and comprehensive sustainability training is delivered to over 50 suppliers. We continue to see stronger momentum in core segments in quarter two, complemented by a few emerging segments, like for example, we particularly like transport, building and infrastructure, discrete, and process industries.
At the same time, there are certain classic segments within these segments which are kind of subdued and sluggish. We have a mixed market picture, and as you said, our order backlog stands at the highest level above INR 10,000 crore. Some of the key highlights, and I think you can go through them, like I say, this shows the diversity of the applications and the markets we supply, be it SCADA for remote terminal unit for pipeline projects. We have the power distribution for energy major. We have machine and factory automation for large paints and polymer companies, supplying solutions for tires, robotic solutions for a two-wheeler manufacturer, automation for a smelter project, and for electronic building block for control system for India business.
You can see how diverse our product portfolio gets applied in the industry as well as in the core projects across the country. The same way, we continue to deepen our connect with our customers. Not only in tier 1, we go to tier 2, tier 3, and new emerging markets within the country, and we continue to enjoy engagement and growth in this aspirational country that we have at this point of time. Our focus remains on the market segment which is relevant for us, which are considered a high growth, which is about 15%. Moderate is between 8% - 15%, and low is the need of less than 8% growth at the moment in the market.
That gives you a snapshot of how we are seeing the market at this point of time. The theme of the quarter is pharma and healthcare, and just to give you a little bit of an in-depth view of how we see, India is ranked third for pharmaceutical production by volume, and the pharma industry shall reach $130 billion by 2030, a CAGR of 12%. We see that the pharmaceutical market continues to grow in the future, and we continue to engage with our solutions. I think this is the one sector which always stays part of our solution engineering, whether it is the automation systems, our drives and clean room solutions, or it is the powering such large plants, all those solutions go. Also in robotics side, there are pharma majors who apply into certain applications as well.
When it comes to sustainability in practice, our goals for this year, we are on track. As I said, 87.5% GHG emission based on 2019. Our target is that four of our campuses will become zero waste to landfill. Already three are achieved. That means no waste goes to the landfill from our plants. Out of four, three, we have already achieved the water positive unit. That means we put more water in the ground than we take out. Water recyclability target is 50%. We have already achieved 41%. We continue to have a CSR focus, not only at the central level, but at all the locations where we are present. Our leadership team really is very conscious in terms of engaging the communities which we can affect in a meaningful way.
This is something which gives us a lot of pleasure and a lot of fulfillment apart from delivering good results for the market as well as our stakeholders. As far as the outlook is concerned, we see mega trends in electrification, energy transition, digitalization, automation, and sustainability, because these are elements which are really appreciated by our customers, which is part of our portfolio. On the macro factors, of course, continued government expenditure, private investments, private consumption, and as inflation is easing, I think these are good positive tailwinds for us going forward that we hope to exploit as we go forward. Before I hand it over to Sridhar to give you financial highlights, let me take the benefit of all of our business presidents present in the room to give you a very quick snapshot of what's happening in process automation, motion, robotics, and electrification.
Let me invite Balaji for a very quick comment on how he sees process automation so that you can take a benefit of a more granular view of each of the business areas we have. Balaji.
Thank you, Sanjeev. As all of us know, in process automation, we cater to solutions to various segments, specifically oil and gas, power, water, specialty chemicals, pharmaceuticals, and the heavy industries of metals, minerals, mining, etc. From a process automation context, I think we are continuing a journey in what ABB does, which is to make the industries leaner and cleaner. Our solutions are bringing both scale and sustainability to various industries that we cater to. In terms of our performance of H1, I would say what's standing out, as you might see, in the subsequent best prices, are profitability. We are holding course. This is a reflection of a good order backlog, strong execution, notwithstanding the FOREX variations. I think these two positives have reflected in good results. We do see demands coming in from core industries of various energy, mining, and paper industries.
Overall, we have seen the markets have been sluggish in the H1 of 2025. We have seen some late positive movements that we hope will continue for the balance of the year as well. Overall, we remain positive. We are watchful about the market. We stay prudent and cautious. Thanks, Sanjeev.
Thank you, Balaji. I invite Sanjeev Arora, who is the Business Head for Motion, Motion Business Area. Sanjeev?
Thank you, Sanjeev. Good morning to all. From Motion perspective, as you are aware that we are into motors, both low voltage, medium voltage drives, same low voltage, medium voltage, and traction business. I would say I would start with a positive note that, although we talk about the sluggishness and other aspects a bit later, the baseload orders for us are intact. If I see the progress from last quarter to this quarter, the baseload orders have shown some improvement. However, having said this, what we are missing is the large orders. On top of it, of course, we are facing some headwinds when it comes to the price realization. Our theme still remains that how we can give the best of the technologies, globally available to our local customers. That is our motto. We are promoting energy efficiency with all the product ranges we have across our Motion.
The customers are also appreciating and really going in that direction as well. Overall, I would say, the good part is the Motion portfolio is so large that we are serving, be it the light industries, the heavy industries, infrastructure, railways. We have a large bandwidth of operating in many segments. We can really counter the cyclicity of that segment as we go forward. Having said this, we are quite hopeful that in maybe H2, probably once we see some momentum in the large projects, the things would be back on track.
Thank you, Sanjeev. I invite Subrata to give a bit of an overview of the robotics side.
Thank you, Sanjeev, and good morning. As you know, in India, manufacturing is getting smarter and smarter, right? In that way, robotics use in manufacturing industries in India is rapidly growing. Industry segment, if I talk about automotive and other than automotive, electronics, the warehousing technologies, everybody is today, adaptation of robots is very high. Small, medium, and large customers are also proportionately, we see the demand from all segments. Software-wise, the digital twin, one of the highest levels of software today, and AI and digitalization on top of it, actually getting robotics technology smarter, and demand for robotics in the industries is growing. We are very hopeful in India and the growth for robotics automation in the future.
Thank you, sir. Thank you, Subrata. Last but not the least, I think our largest division head for the ELDF Distribution Solutions will speak on behalf of the Electrification, Ganesh.
Yeah, thank you, Sanjeev. When it comes to electrification, basically, we are supplying the technologies, which is the switching and protection of the power distribution network. Typically, we supply the medium voltage and low voltage components and the switchgear, and majorly into the power generation and distribution building segments, rail and road infrastructure, data centers, renewables, heavy industries like cement, steel, oil, and gas. If we see post-pandemic, the momentum was really good, which is a little bit softening when it comes to the large inquiries, typically which is coming from the heavy industries and the data center. Base inquiries are still strong. As you can see from the results, our base orders have actually shown a growth, and we also see a very good pipeline when it comes to the data centers, renewables, and building and infrastructure.
Thank you, Ganesh. Over to you, Sridhar .
Thank you, Sanjeev. I think with the business leaders participating, the time taken to explain the results would be shorter. Let me try my best at this point of time. That's okay. Base orders for the quarter, we grew at 5% last year. The same quarter, we had some orders from data centers and mobility sector, cements in motion, which is not there at this point of time. I think this definitely shows that our focus on tier 2 and tier 3 has been pretty consistent, and they have been paving the results. Just to sort of, you know, give a good insight about, we did improve our tier 3 and tier 4 market shares during the first six months, and that is also reflected in this result.
Order backlog, INR 10,064 crore, all solid order backlog with clearly managed scheduled deliveries over the next 18 - 24 months, both large and small orders, which will happen. Every business segment will have its own cycle to do it. While process automation will have a longer gestation time, and part of motion business also will have a longer gestation time, the balance all will be executed in the next 6-9 months to come. Revenues grow, I mean, the overtime high for the second quarter in the last five years, INR 3,175 crore. EBITDA is at 13% lesser than compared to the previous quarter. We will definitely come back to the story of what impacted the profitability in this particular quarter.
Cash balance at INR 5,054 crore, this is after also declaring and distributing the dividend of INR 700 crore, which we did last after the month of May, after the AGM. We still also have the board has approved interim dividend, which will also happen in the next few weeks to come. Going to the next slide, I think. Yeah. Now coming to the profitability story, if you look at it, we have a profitability of 21%, which we started for the same quarter last year, 21%. What happened in this particular quarter? We had a few things, which was basically very specific for this particular quarter. The first and foremost is because there were QCO guidelines, which we had to comply. We had the customer orders on the other side, which we have to deliver.
Therefore, we had a hard choice to make in terms of importing material to supply to the customers to meet the delivery requirements as well. This definitely impacted both motion as well as electrification business segment. Motion to a small extent, but definitely to a quite large extent to the electrification segment. That's number one. Because of which your import content was higher. The second thing was also the mix of the revenues. As in definitely larger impact from the trading revenues. This was basically depending on the project schedules and the deliveries, what we had to be made to the customers. The other couple of things was we didn't take one-off costs in the case of electrification segment. As you know, ABB follows a conservative accounting and then risk mitigation risk appraisal process.
Therefore, wherever we saw a risk and to the extent what is evaluated is right, is what we took in. We also declared it to the market in the CB results that we have taken a one-off cost of INR 39.5 crore. Apart from that, I think the one which was basically beyond our control was the exchange rate, right? Exchange rate, we follow our fair value hedging, in which the results of this particular hedging impacts go directly into the P&L. That's something that was unexpected, especially when it comes to euro and CHF. The currencies in the last quarter appreciated more than 10%. All the evaluation of the forward, which we had taken at the cost, which we had that we had the importance. Definitely had an impact on the material cost per se combined, which we had a 4.6% rate. Another expense is what you see.
It's all volume-related. We did not have any one-offs over here. The personal expense is pretty steady and stable. I think a long story short, I think this was a very specific quarter where we had these particular impacts. This is something what everyone is working around to understand how we should mitigate this going forward. Electrification is working on the one-off claims as to what how we could mitigate and so on on the imported content and the mix as to how we could make it better so that we could deliver it in the better results going forward. Having said that, I think as what Ganesh was alluding to, what Sanjeev Arora was alluding to , I think the market is definitely a bit of a mixed bag at this point of time, a bit softer thing in some sectors where some other sectors are doing.
It's a basically a cautiously optimistic approach which what the businesses will take. The next slide. Yeah, I think this has been the pattern, what has been there for the last eight quarters where we see, where we have seen consistently each and every quarter we had some large orders which give a favorable impetus to the order. Now in this quarter, we did not have a large order, but the base order definitely grew by 5%. It's still very strong and is a bit of a motivation factor for a lot of us. Order backlog is INR 10,064 crores. They are a mix of large orders and also the product orders which we can deliver in this, right?
I think almost a 50:50 percentage of it is coming from large orders and they will get delivered over the next 18 to 24 months depending on the project schedules we have. The next slide. This is a slide which I think is more only from the investor standpoint when ABB Group looks at India. They look at a 9% degrowth, whereas they look at on a standalone basis at 12% degrowth. This is how the demand order and the supply side of it is interpreted. Yeah, the next slide. Here is basically a bit of aggregation which we already explained too. I think this is pretty much very evident that in this particular quarter we did have INR 56.5 crores or INR 56 crores of impact on a quarter of FOREX and INR 39.5 crores of the sprayed cost which we had taken out of one-off in electrification segment.
Other expenses stayed steady. There is no impact or ETR at 25.7%, which is also steady. Yeah, next slide. We dwell a bit more into the division-wise, segment-wise numbers. Electrification, INR 1,400 crores roughly in orders with. I mean, and this is basically in, if I look at it from the previous quarter, this is in the previous year, the same quarter, we had a large order there to the extent of INR 148 crores. That is something because whereas we see here INR 1,432 crores. If you take only the base orders of the electrification quarter on quarter, we have delivered 9% growth on that. It's in, I would say, the focus of electrification on the building segment, the data centers are strong, and therefore we have got this growth momentum still continuing.
Revenues, INR 1,379 crores, it could have been higher, but I think we had the issues to deal with in terms of QCO and the import content. I think that's important. That's something which probably had to be scheduled according to the clearance of what we get. Backlog at INR 3,500 crores, I think most of it will get exhausted in the next 12 - 15 months. That's the trajectory of what we see. Profitability, as we mentioned, has a higher import content, a revenue mix of higher trading revenues, therefore, and we had a FOREX solidarity in the one-offs impacting them. The next slide. Motion. Motion also had INR 396 crore of large orders in the INR 1,329 crore of the last year. Therefore, on a standalone basis, for the base order, it's still delivered and solid growth as what I would see.
Orders definitely grew for control system railways and good system drive products in a sale which happened. Also, in terms of the base order, yes, there was a bit of a competition impact when it comes to some of the business divisions in Motion. I think the overall basket of large orders and the base orders is still growing. Backlog at INR 4,000 crore, here is where because we have a good mix of system orders of the project orders and also the base and the base orders to do. I think it will get spread between 18 - 24 months for the total execution. Profitability was impacted again as to what we had in the case of Electrification. They also had a FOREX impact. Part of the businesses had to deal with the QCO challenges.
There was an impact of price realization for some of the business divisions in, especially motors in Motion. I think that's more of a competitive scenario which is emerging out over there. Good, next slide. Process Automation, I think this is a division which actually is reflection of the large orders getting decided in the market. If you look at it, it's pretty much stable between what we had last year to this year. It's a slight decline. That's for the fact that a couple of orders from decisions has been for the last two quarters. That's a reflective of the investment scenario, which is more cautious at this point of time. Revenue slightly as subdued to the extent of INR 500 crore. We expect that this should actually become the next two quarters to come as the delivery schedules are getting framed up for the supplies.
Order backlog and it's flying by 12%. That's more reflective from the subdued order intake orders happened in the last two quarters. The revenue execution maintained its influence. The good part is profitability, despite they had a bit of a FOREX impact, they were able to recover that or offset it in a way through a good revenue mix. They had a high service content within the orders, and also they had a good amount of projects which they could close out and accelerate the margin to the quarter. I think this was some of the positives which could help offset the impact from the FOREX. Next slide. Robotics, last quarter had a large order from the electronics segment, which is actually not present in this particular quarter.
They are just INR 320 crore roughly in this quarter, and the future, as what you heard from Subrata, is pretty much promising. We stay committed on this particular division as such. Revenues grew to an all-time high of INR 276 crore, but it was more evident from the fact that it had a large content of trading revenues. That's something which, because robotics has a longer runway to do more in terms of localization, we still depend on quite a few integral components, and therefore the trading revenues are higher. They also had a FOREX loss. I think the basic fundamentals of the business segment remain strong. Next slide. This is something to prove as to how we are in the different offerings to the customer.
The business areas, Motion and Electrification, still hold 75% - 76% of the businesses coming from, and that's also represented in the product portfolio of offerings, which we are 75%, 12% from the services, and 13% from the product for license and so on. Channels to market, our partners and OEMs, and partners and end users are important for us. They constitute 80% where OEMs and EPCs are there. This is also a reflection of the fact that the large order in terms of decision-making are slightly getting delayed. By geography, we are predominantly still a domestically focused organization. 80% of it comes from the local market and 12% from the exports. Earlier, we would have seen 90% coming from the domestic market and 10% from exports.
There's a bit of a change at this point of time because there's also a reflection of the domestic markets surrounding it at this point of time. Overall, I think, as Sanjeev was mentioning, we had quite a bit of a strong run in the several quarters after COVID and in the quarter where we had specific issues to deal with. We are more than happy to take you to the next aspect way and just give it to the exchange, I mean, and the results are part of the results. That's what we have done. Thank you very much for patient listening. We can open up for the question- and- answer.
Sure. Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask questions may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Renu Baid from IIFL Capital. Please go ahead.
Yeah, hi. Good morning, team. Thanks for the opportunity. My first question, Sanjeev, is now it's been almost 6-9 months that you've called out that the business is a bit soft with respect to large orders and CY 2025 like 2-3 years of moderation. How are you seeing the second half of the current year panning out? Is the momentum being sustained, slowing further, or improving? In your view, what will drive back the positive investment sentiments from the private sector, especially large projects?
Our take is that, especially as Balaji explained, we do have a pipeline of orders which are yet to be converted. I think we do see something in process automation, but it's not a big mountain of, you know, forward log, but it's a reasonable log for us to convert. Likewise, in the motion electrification, I think on a regular scale, it's a good market setup going forward, but not super strong as we have experienced in the last quarter. I would say on a normalized basis, it's a good market, but not as strong as we have witnessed in the past couple of years or three years.
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What we can see going forward is that there's a bit of an uncertainty in terms of what's going around the world. Especially on the private capex, during these times, people become more cautious in terms of how much capital they want to commit till the clarity comes in terms of domestic market as well as for the export participation for our customers. We do believe that the government capex has started picking up, but not at that it is yet to gather pace. I think that will be one defining factor as we go forward. We will see that the new market segment and new trends which are emerging in the marketplace, energy transition, cities expanding and creating more robust power supply, data centers, and recent events wherein something happened in terms of somebody was not able to kind of participate in the cloud services.
I think that may lead to more digitalization services and the localization of the cloud and the data centers locally. Those trends may start emerging as well. That goes positively for our business. I'd say a second half, yes, it will take time for it to come back, but I think if I put a midterm, which is say next year onwards, hoping that everything falls in place, I think we should start gaining the momentum back in the marketplace. That's the expectation we have.
Excellent. Secondly, on the profitability of margin funds, a demand moderation and plus inflationary impact has been probably visible in some of the segments like motion and EM. Sridhar, in your view, the QCO impact, how elongated could that be in terms of readjusting for the domestic standards and getting the qualification done? Probably the lingering impact of that on our margin profile.
Okay. Good question. Thank you. I think this time being six months, what we are performance, we also definitely would have given you the you would also have looked at the balance sheets, which have been updated, which have been published. We do have inventories, which are high at this point of time, and which was roughly INR 1,800 crores -INR 2,300 crores, INR 500 crores. We have imported quite a bit of material to meet these compliance requirements. They got probably relaxed as late as last month. Therefore, we expect that we will have to use these imported components to supply in order to gain time and also create these inventories. That gives you an impact as to what we see. We have in some of the products one-year runway. Up to September 2026 is what we need to be ready for that.
In some other products, we'll come to know in the years in the months to come. As we have renewed to, as we're preparing for this, we will have to be making sure that we stay committed to the deliveries, what we are development as per the customers. Therefore, we are okay to invest by importing material and using it in the consumption. I think in the next six months, we will have a mix which could be, which we have to do judiciously in order to ensure that we have a balanced consumption between imported and the localized and also the revenue mix in terms of how we do more of manufacturing revenues and service revenues to shore up the margins.
Sure. The pricing impact in terms of inflation as well as big demand, any price hikes that you are taking or the market itself adjusting?
I have the Motion and Electrification leaders over here. The question is, are you going to pass it on to the market if the price adjustments?
Yeah, of course, w hatever inflation is there, the market definitely should be able to absorb it.
I think, Renu, what could be a bit of a challenge is that the volatility of the products is something the market may not be so easily accepting. The reason is because we have short-cycle orders. The long-cycle projects orders definitely have a possibility of correcting it because they go by indices or by adjustments. That is protected. Whereas if you look at our products, which are 70% and they are more short cycles, I think this challenge of balancing the volatility risk vis-à-vis the margins we have committed on is going to be definitely a work to be done.
Thank you and best wishes too. Thank you, sir.
Thank you. The next question is from Mohit from ICICI Securities. Please go ahead.
Good afternoon, and thanks for the opportunity. My question is, are you any way impacted by the tariffs announced by the U.S. or India, either on the revenue side or the cost side?
I think you can, as you can see, that 90% of our business is domestic, right? That is where we get it. Most of our products, we have quite high localized content. That's the strategy of ABB globally to be local for local. That means we are increasingly post-COVID deepening our supply chains locally. That's something which is helping us. As such, on the kind of a tariff side, we are not exporting a very high volume into the U.S. at the moment. There are a couple of products which we do. We will see how that pans out. That is not a very high mix of our overall orders and revenues at this point of time.
Yeah. Understood. My second question is, can you please explain the nature of hit you have taken on the electrification side? Why? Are there any risks of further surge? How are you mitigating it?
It is a kind of a typical project topic wherein we have been executing a project wherein certain corrections had to be done into the installed equipment. That is where the hit comes. As far as we are concerned, we are an engineering company. We can deliver engineered solutions, and all these engineered solutions need to comply with the local standards. At times, if there's a deviation on it, we never step back. We always correct it first and then make sure that the customer enjoys the product how it is meant to be. That is the nature of it. We have already corrected those, what you call, anomalies that we detected. In collaboration with the customer, we have that back online for our customers.
Thank you. Before we take the next question, I request participants to please limit your questions to two per participant. Should you have follow-up questions, we request you to rejoin the queue. The next question is from Bhavin Vithlani from SBI Funds Management. Please go ahead.
Yeah, good morning. Two questions. One is, what could be the impact on the exports given the tariff that we have seen and many products that ABB is the feeder factory for the global side? The second is, on the motors business, we have seen a significant increase in the competition where MNCs like WEG and Nidec have set up greenfield facilities and the larger existing ones like CG have doubled capacities. You also spoke about price realization being under pressure. Some more color on this would be more helpful. These are my two questions.
As far as the tariff is concerned, I think I answered that question in my previous response. As I said, as far as 90% of the market is domestic, and out of the 10% of the exports, only a very minor part goes into the U.S. specifically. There is some export, but that's something we don't see as a major impact. We hope this situation, like in other countries, will resolve itself given the tactics of negotiation in place. We don't see significant impact on us at this point of time. When it comes to competition, I think competition is a way of life. ABB is a global company. This competition in one form or the other exists in many markets globally for us. We deal with it and we know how it plays out.
Especially in the domestic market, we have had a very strong run of our motion businesses in the market, which is visible in our results post-COVID. There's always, when there's an extraordinary performance by a company, which was us, there are always competitors who get more interested in those market segments, and there is much more activity. I think it's a fairly normalized behavior that we see as part of our portfolio. Unless, Sanjeev, you have something to add? Sanjeev Arora.
No, definitely, Sanjeev. I think you have given the right perspective. As far as the price realization, if I pick up that point, definitely, we will have that push of increasing the price level to the market. We have been connecting that in the last quarter as well. Coming back to the competition that Sanjeev has explained very well, we are expanding our base in India. We are going into segment-specific energy efficiency, the best of the technologies present at this point of time in the globe, with the, I would say, the local footprint so that we keep that forte. The customers are also appreciating, and they are actually giving that kind of a credit to ABB India as far as motors you are asking specifically. We are seeing, and that is also getting well explained in the improvement in the base load orders. Yes, the competition is welcome.
On the other part, we are doing our stuff to stay ahead. Thank you.
Thank you so much for taking my questions.
Thank you, Bhavin. It's great to hear you after a long time.
Likewise, Sridhar. Thank you so much.
Thank you.
The next question is from Amit Mahawar from UBS. Please go ahead.
Hi. Sanjeev, I have two questions. First is, you know, last year you had a very strong base of large orders also. In the second half, can you recoup? I don't see too many large proportion orders for you. I don't see a lot of segments which otherwise would have been large orders in the second half. Is it safe to say this is going to be a 5% or maybe 5-7% growth year for orders? I know we don't give guidance, but some color here. That's question number one.
On the expansion side, I think we still have some play out in the market, which we are hoping to secure going forward. It is not dried out, but it was not in the last quarter. We do see some good play there because the expansion by railways, metro, I think that is still quite a strong market segment. I think that's something we should keep back of mind. Our portfolio is pretty strong as well as the pipeline is reasonable there. When it comes to the other market segment, as we said, yes, if you net out the large contracts, which are cyclic in nature from the previous year, our base orders remain pretty strong. I think that's what counts. Also, our small cycle orders remain quite strong. I think that's the nature of large contracts that you get them.
They show up in your backlog and you execute over a period of time. That is why you can see our backlog numbers are expanding. We will take the market as it comes. Typically, we don't second guess the market. We really deal with the market as it shows up. I would say for the conversion point of view, for the large projects or reasonably medium-sized projects, the pipeline is reasonable at this point of time. We are hoping to convert them in the third and fourth quarter of this year for us. Yeah.
Thank you. Next question is from Atul Tiwari from JP Morgan. Please go ahead.
Yes, thanks a lot. My question is whether you are seeing increased competition from Chinese imports in any of the product segments that you are presenting?
We did have a lull for a period of time given what happened between India and China. I think though it is not out there in the open, we do see participation from the Chinese manufacturers in the marketplace. Some of the corporates, when they are deciding, are bringing them into the mix of buying as a possibility from Chinese players. I think your question is in the right direction. Chinese players' participation with the products which are manufactured in China and imported directly by the corporate has come into the mix now.
Which product segments would this be?
Mostly it is coming in the heavy industry or heavy equipment.
Which of your product segments in this competition is coming in, electrification or motion?
We have seen some of it in our process automation segment.
Sir, obviously, I mean, all of us know about heavy industrial overcapacity in China and the prices, which are obviously totally unrealistic. Is the same situation here that the prices are way off the mark?
I think the buyer is taking benefit of that sentiment. I think that's not the price level we'll participate just to keep the order and the revenue books going. We typically, as I said, have a long experience in this area. It always comes for a period of time and then it dies itself out. We participate where there's a reasonable kind of quality in terms in the eyes of the customer and the appreciation for the local value added carried out by us. Wherever we see the participation, that appreciation, we participate. If the decision is purely based on price and which is way out of fundamental expectation, I think we don't participate.
Sir, which is your view?
We still let the customer know what the value proposition we have, but sometimes customers get enamored with the price level they get.
Have you not seen any competition in electrification and motion segments till now?
No, we haven't seen that in the electrification and motion at the moment, nor in robotics. A little bit, but not much.
Okay, thanks. Thanks a lot.
Thank you. Before we take the next question, I request participants to please limit your questions to one per participant so that the management is able to address questions from all participants in the conference. The next question is from Sameer Thakur from Ambit Capital. Please go ahead.
Hi, thanks. On the high import content, I understand that the increasing imports volume could impact remaining quarters as well. Is it safe to assume that this is the bottom quarter and we can maybe get back to that 20% - 15% pack margin in the quarter from Q3?
Sameer, we don't give any guidance, but I think to answer your question, to add a color to that, as I was mentioning earlier as well, we have a topic to handle, right? The QCO compliance is not a simple topic. It has its processes to go through. On the other side, we have deliveries which are committed to the customers. We stay committed to the customers. There is a momentary impact in terms of using more of imported components to deliver to the customers. Therefore, we will continue to have a judicious mix between using the imported material, which we have, but which we have definitely stopped, assuming that we don't face any headwinds in the future, and also increasing the other manufactured content. At this point of time, to answer your question, it would be a mixed bag, right?
The earlier sort of a band which we had given with 12% - 15% is something which we need to, you know, work out to be there.
Okay, thanks.
Thank you. Next question is from Parikshit Kandpal from HDFC Securities. Please go ahead.
My question is on the prospects pipeline. I know you spoke it earlier, but has it reduced or is it just timing delays? I just want to understand the discretionary and non-discretionary part of that and whether it's there or whether it's getting delayed and when do you think the recovery will happen in which quarter?
Let's give you a very quick snapshot. Balaji, do you see it is reduced or it is delayed in the process automation?
I would say that it's just picking up. There's been a general sort of a delay in decision-making. We wait for the customers to make the decisions at the appropriate time, and then we proceed ahead.
Okay. Sanjeev Arora, do you see in motion it is reduced or it is delayed?
As I said earlier, we have good prospects, and I don't see it reducing. It's a matter of just time that when we get into our motions.
What do you think, Ganesh, on the electrification side?
Yeah, as I said, the base inquiries are still strong, so it has not reduced. Some of the longer inquiries, particularly in chemical, oils, oil and gas segment, is getting delayed, some of the decision. Some reduction, which we have seen in heavy industries like cement and steel.
What do you see in robotics, Subrata?
It's a little bit of a time gap, but the percentage level is very good.
There you have it.
This continues even in this quarter. It looks like what the commentary is spoken by the business leader. Maybe towards the end of the year, we see some pickup happening.
Let's hope so. I think we will meet again.
Yes, yes.
Just one question to Sridhar. On the margins earlier, you've been guiding about 12 %- 15%. Now, how do we pivot now, just given that H1 is over? Do you think now we will be able to maintain the lower end of the margins?
I also wish this was the lower end of the margins, right? I have the business leaders do it as well. We had a market commentary, and we had an operational topic to deal with, and a prediction to be listed. Are we out of the QCO? The answer to that is no. We still have to deal with it in the next couple of quarters to come as well and be ready for 2026, right? As we navigate the next quarter, we will make a judicious mix of how we use this, but also showed up the manufacturing revenues to be at this point. To give you a bit of a qualitative direction, the quantitative direction is not possible, and we don't do it.
Okay. Sure. Thank you, team.
Thank you. The next question is from Aditya Mongia from Kotak Securities. Please go ahead.
Thank you for the opportunity. I just wanted to clarify, when we talk about base orders and large orders, are they separate topics? Like certain sectors only go for large orders, and those are not coming, and thus we should be seeing base orders separately? I just want to get a better sense as to whether large orders are just a summation of bigger parts of orders, which can also be given up with base orders, and thus the trends should be seen in combination, or should one just focus on base orders separately? Thank you.
If you really see our portfolio construct, I think we may have explained it earlier also, they have three distinct areas. One is the MTO and MTS business, which is the made-to-order and made-to-stores, which are the made-to-store stores. These are the ones which are high-flying equipment. We make it as a regular production, and it gets channelized into the market convention. That's what is a classical base orders. Therein, it's pretty robust and shows a good strength out in the marketplace. It's a function of the demand and also the competition product of participation and the price realization and whether we want to participate in that price organization. There, I think we have a very good connection, and that's a very good expanding area. The second part which comes is called ETO, engineered to order, that we use the same products that we produce.
We do value-added engineering and make more subsystems for the customers, let's say in the energy, you know, ELDF kind of a business wherein we give a complete power distribution solution for industry, cities, etc. There again, I think it's a small to mid-cycle order. The MTO/MTS is a small cycle order. This ETO business again is quite robust, and it is going into the new emerging market segment. There again, we will call it as a base plus orders. They are not the large orders because they can be a single unit or it can be a very large, maybe data center order where the multiple of the same units are required. That again is a volume that happens on our shop floor.
The last but not the least is our systems order, wherein what we do is we use our core automation technologies and electrification technology as well as third-party materials to integrate a system order for a customer wherein a value-added performance-based solution is given. Typically, that's where these large orders come, and they are quite cyclic in nature, and they're very dependent on large CapEx happening either directly by the government through EPCs or end users securing them themselves. The other large order that can come is in the ETO space, which is say in the data center or in the MOTR, you know, the traction business wherein suddenly a particular partner has a very large trace contract or a metro contract, and they will offload a lot of volume of the technology into those. I would say as to the base order is concerned, it's pretty robust.
The volumes are not affected. A particular market segment may get affected because of the increased competition intensity, but we choose how much we want to participate in terms of price correction. We continue to play the premium side of the market there. ETO is quite robust, and system business is quite cyclic. If you compare previous years, I think we had a fair mix of the systems orders as well as large orders coming from railway and traction. Related to that, if you see the numbers, that's where I think they are kind of showing a different picture. The base orders remain fairly, fairly robust for us at the moment. Yeah.
Just a related question. Do we have meaningfully different hit rates in base orders and, let's say, large systems orders? That will be the final question. Thank you.
Good point. Base orders are a pure function of flow in the market, like how we channelize ourselves in the market. More expansion of channel partners, more expansion of our integrated partners, it's a function of that, plus reaching out to tier 2 and tier 3 markets, and also participating in more market segments where the machinery manufacturers are catering to those market segments. It's a function of channelization. It's less of a hit rate, but more of channelization. I think a major part of the business comes from the channel management. I think that's where we continue to get better and better. The other way we get better there is by localizing and introducing more products in the market so that the channel partners can do more meaningful value add for their customers in the marketplace. That's how the base order functionality works.
When it comes to large orders, yes, that's a pure hit rate. For example, I mentioned that we had a couple of opportunities we let go because of the Chinese competition, wherein the price which was put on the table of customers was way out of a normal trend, and the customers took a bite on it, and we let it go. That's where the hit rate goes down, but in favor of not mixing our books with a toxic order, which typically will not give much value to our shareholders. Yeah.
Thank you.
Thank you very much. Due to time constraints, we'll have to take that as the last question. I would now like to hand the conference over to Mr. Sridhar for closing comments.
Thanks, and thanks to Rayo. It was very nice to talk to all of you once again in this quarter, which was definitely a different quarter than the previous quarter since COVID, where we had always been declaring absolutely pretty strong results. I would also say that this result, what we declared, given the market situation we are in, according to us, is decent enough, apart from the impacts we had on the profitability, which were one-offs. Having said that, I think we would like to look forward to talk to you again in the next quarter. Thank you once again for all participating and supporting us in this particular journey, and to the management team who is here. From here, we go for the next event.
This is the bell ringing ceremony. I think we'll do it on behalf of everybody on the call.
Yeah, who has been a strong support for us in this journey of 30 years. I think from where we were to where we are today, it would not have been possible without the support of all people like you and the investors who have imposed their confidence in ABB . Thank you very much. I'm looking forward to talking to you next time.
Thank you very much. On behalf of ABB India Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.