Ladies and gentlemen, good day, and welcome to ABB India Limited's Q2, April- June quarter and half yearly CY 2024 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 conference 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, Michelle. Very good morning to all of you, ladies and gentlemen. Welcome to the Q2, April- June, investor call. So I have with me here Mr. Sanjeev Sharma, MD of ABB India. So I have also Sanjeev Arora, who leads the Motion division, and I have, Kiran Dutt and Ganesh Kothawade from Electrification business, and Subrata Karmakar from Robotics. Right. So over to you, Sanjeev, just to start off, to give a feedback as to how the quarter went.
Thank you, Sridhar. Next slide. So those of you who are familiar with ABB in India and also those who may have joined for the first time, an overview about ABB India. We are in India, doing business for the last 74 years. We are manufacturing in the country for the last 74 years. We are in 75th year this year. And, we operate four verticals, namely Electrification, Motion, Process Automation, Robotics and Discrete Automation. And collectively, we have 18 business divisions, organized under these four verticals. In Electrification, you may know that we have solutions around distribution solutions, which is the medium voltage switchgear, which powers the cities, large industries and infrastructure projects, and also automate and provide more reliable power to the large consumers.
Smart Power, Smart Building is the switchgear, low voltage switchgear businesses, and they are the businesses which really help the infrastructure as well as industry to distribute power with the low voltage technology. And then we have Installation Products, service, and the EV portfolio. Motion is all about energy efficiency. So our products in drive, whether it's low voltage drive, medium voltage drive, NEMA motors, IE3 LV motors, large motor generators, they positively contribute to customers' greenhouse emission you know, possibilities when they use it, because they are highly efficient equipment when they are employed into different high energy consuming projects or infrastructure projects. Process automation is all about again, energy efficiency and automating core process industry, be it in the energy area, process industries, marine and ports, measurement and analytics.
Robotics and discrete automation is all about providing the next generation of productivity for the manufacturing and the shop floor, be it in automotive, electronics, pump, fast-moving consumer goods companies, and many other applications, wherein the automation helps to improve the productivity of the plants. In the country, we operate in five manufacturing locations, namely Nashik, Baroda, Faridabad, and Bangalore. We have 25 plants in these locations. We serve our customers with 28 sales offices and service offices across the country. We have a very strong channel partners or integrators or in different categories of the businesses, which help us to reach even the deeper side of the market in Tier One, Tier Two, Tier Three markets, wherein our serviceability is enhanced by our partners.
Going through the business highlights of the last quarter, we recorded a strong performance with orders and revenues growing by 13%, and we see a strong momentum with large orders from emerging sectors. That was the highlight. And also revenue, based on our backlog as well as book-to-bill, we are seeing a steady execution across the market segments. Because of our operational efficiencies and many measures we have been taking over the years, now we are seeing the convergence into our both top line as well as bottom line, and our profit after tax expanded by 50% due to the revenue mix and superior order execution by our 18 divisions.
Operational EBITDA was up 64% for the quarter, and the board, which met yesterday, they unanimously you know approved the interim dividend of INR 10.66 per share. On the portfolio side, we introduced part of our Motion low voltage motors, IEC low voltage IE4 cast iron super premium efficiency motors. And as I mentioned, Motion division and our motors division is all about providing more energy efficiency to industry and infrastructure projects across the country. And that's why we continue to enhance our portfolio and localize it.
And this is having a good uptake, especially among the customers who are more and more conscious about sustainability agenda, as well as making sure cost input on account of energy is optimized in their setups, because that's one of the big cost elements for all the industries and very, you know, I think this consciousness is spreading quite rapidly across the industry, and we are direct beneficiaries of it. And also, we introduced IE3 Aluminum Motors for reliable and energy efficient solutions. We had an introduction of AquaMaster electromagnetic flow meters supporting India's water industry. As you know, water industry is expanding quite well in the country, and our portfolio of electromagnetic flow meters find a very good install base across the countries and across the states.
We celebrated the milestone of 100 years of anniversary of ABB Miniature Circuit Breaker. You may know that the circuit breakers that you use in your houses and your offices, ABB is the pioneer of this device, which was developed by us in ABB Stotz in Germany. And this is something which marked the 100 years anniversary of it. And the same product and same technology, which is produced in our highly automated plants in the country, in Bangalore, is also available to Indian consumers. As part of expanding our partnership, we partnered with Witt India to deliver advanced Tunnel Ventilation Solution, enhance safety and operational efficiency in India's infrastructure projects.
So it's not only the product selling, but also the tactical and strategic partnerships wherein the players who are expanding and helping in build the nation's infrastructure, we continue to partner with them. On sustainability in practice, now, we have a very good agenda across all our locations. Now, we are also training our suppliers and more than 300 suppliers across 14 divisions in sustainability and green products participated. And we continue this, because we will make sure not only Scope 1 and Scope 2, but Scope 3 emissions are also properly captured and contained across the value chain, across our supply chain. Now, just to give you a data point, that IEC low voltage motor install base for last five years saved about 500 GWh annually, and it is matching the state of Sikkim's yearly energy consumption.
So that's the impact, because we may see them as a product, but I think when you use the right product in the heavy, energy, infrastructure and the industrial projects or anywhere the consumption, whether it's in HVAC, if you use the right motors, right, drive, which ABB has, I think it directly contributes to, energy saving. And that means that much of less energy has to be produced, or that energy which is saved can be deployed more productively in other areas. Next slide, please. So just to give you a bit of a breakdown of what we saw in the market, we see positive market momentum across segments. I think this has been developing over a period of time, but now the momentum is there, and, that's where it reflects in our orders.
As you have seen and we talked about, it's plus 13%. Our export orders also grew by 39%, largely contribution from specialty chemical service orders from an energy major. So, but, we are seeing more and more our divisions are participating in the exports, but we are very, very, very selective and, we are making sure that whatever we deliver out of ABB India and India has a good reputation in the minds of the customers who receive our products and solutions globally. In the power distribution and energy, we are seeing much deeper adoption of power equipment, compact substations, switchgear, renewable energy.
So these are the—across the segment of power distribution, the business run by Electrification, by Ganesh, I think is seeing a very good adoption as well as in the low voltage run by, by Kiran. I think that is seeing a very, very good adoption across. Data center has been a highlight for the last quarter. We got some very large contracts relative to the past, and we have been talking about these data center as a segment for last 3-4 years, and we find that it is now really converging into a good scale-up as we go forward. Discrete automation, automotive sector, the investments are driven by EV, and there again, we are participating.
And same thing, demand from energy industry, metals and minerals and mining are consolidating, though they have not been participating in past, but in last few quarters we see now the momentum is building up there, especially from the customers who look for our products and services. In the transport side, traction and propulsion equipment for railways and metros, they continue to have a very good uptick in our order intake and also sitting in our backlog, which has grown 23% to about INR 9,500 crore compared to same quarter last year. So if you see the first half of the year highlights, we have a double digit top line growth aided by all division.
It is not like one division or few, it is across all the divisions, which. Also we are seeing a cyclicity across 23 market segments we participate. There are some market segments which are very strong in one quarter, and then the leadership is taken by the other segment. So that's the resilient business model we have in the country, wherein we participate with multiple divisions, which have multiple, which have the 18 different business models. And then when we participate in a spread of the market segments, this gives us a very good resilience, the ability to ensure the growth as well as execution of our contracts. So in the case of EPS, we have expanded by 67%, as you can see, and cash has grown by 19%.
So we continue to be a debt-free company with a good cash on our balance sheet. So just to give you some flavor about where our products and solutions are finding their place, transportation and mobility system, if you focus on propulsion equipment for Indian Railways, traction order, including for motors in metro rail, in segment in three cities, robotics application for production line upgrade for an EV major, passenger vehicle auto major. And then in the industry, you know, the efficient power distribution solution for a data center major, which is the global major, which is expanding rapidly. And this is a trend we see it continues, given the data consumption by the country and the policy infrastructure, which demands that the data has to be stored within the country.
This particular market segment has a, I think, a very long runway ahead of us, and it is just at its starting point, in my point of view. Same way in the terminal automation for energy major, compact substation, to switchgear and metals industry and of course, the analyzers and emission monitoring solution for an EPC. So these are some of the examples, just to give you what industry is consuming from us, just as a top short example. And also on the decarbonizing and sustainable operations, there's a uptick in that area. Like a, for a hydrogen project, we have supplied switchgear and also for a 4 GW solar project in one of the largest solar parks in Gujarat. Our medium voltage switchgear has been selected and been installed.
Of course, we have modular high voltage motors for a supercritical carbon dioxide extraction for Middle East energy major. So what you see here is, our solutions go number of places in different shapes and forms, and that creates a collective demand for us. Next, please. The core reason why in last three years we have been growing 27% CAGR, I think is because how we connect with our customers, and we continue to connect deep in the markets and the market segments, and we continue to find new partners and continue to find new customers and convert them into ABB solutions.
This is an ongoing activity, and we anytime we speak with each other, you'll always find either a partner or a customer activity is going on in Tier Two, Tier Three cities, so that it takes us to the deeper end of the market. And we know that despite this growth rate, which is multiple of the GDP growth here in the country, we still have a very good runway ahead as we engage more with the marketplace. Next, please. Just to give you a color to which are the market segments we participate, and you can see we have tabled them under high growth, moderate growth, and moderate low growth. And the moderate low growth still contribute quite heavily to us in our businesses, so in our volume.
The enhanced and the focused market segments, these are the new market segments we picked up and developed, say, 2015 or 2016 onwards. This is something which we are kind of reaping the benefits of growth because these have come on their own, and that's what we continue to do, is to keep on adding high growth market segments as we grow forward. Next, please. Now, every call, we take a theme, and today we have taken energy and transition as a theme, which of course is seeing a good investment from energy majors, as well as new the business houses who want to be in this area for a long term. There is a good investment potential here.
So we have actually tabulated renewable energy generation, green energy corridor, EV and charging infrastructure, and green hydrogen and certain data. That's how we read in the marketplace, so I'll let it be with you in terms of, you know, available as a data point. But from ABB's point of view, our offerings include medium voltage and low voltage switchgears in these segments, low voltage components, battery energy storage systems, motors, electrical drive train packages, rectifiers, electrolyzers, wind turbine controllers, automation and instrumentation, and robotics and digital solutions. So those, these segments will grow at their own pace, based on their development.
But our portfolio, which is distributed across our business area and divisions, this is, these are the prototypical product packages that go into these new market segments we are focusing on, where the investments are expanding. In terms of sustainability in practice, we are tracking our goals and it's a very well-focused program. And here in Scope 1 and 2 GHG emissions, you know, we are ahead of plan. Water recyclability is our focus. We have already converted number of units into number of locations into Water Positive. That is, we put more water in the ground than we take it. And we have already reached zero waste to landfill unit in one of the locations. And by 2024, we will have two locations out of five, which will be zero waste to landfill.
That's our commitment, that while we grow and while we do work, this is the right thing to do for a country like us, wherein we are water stressed, and as well as waste needs to be managed in a more meaningful, more thoughtful way. We will continue to do our contribution. Now, our margins have expanded, our profitability has expanded over a period of time, so has our CSR funds, and we feel very pleased about it because one is to deliver higher margins to the, to the stakeholders, but at the same time, we have other stakeholders in the society. We are able to spend much, much more. Compared to a couple of years back, now we are spending almost twice as much as we had part of our CET to spend, and we feel very good about it.
Our focus is in on the education and skilling and communities and, environment, as well as also we contribute in the infrastructure wherever we feel we can make it safer for communities or safer for the factory workers, safer for the women to come and participate in the industrial area. So that's why you can see in the Nelamangala, we are doing the rural road upgradation. Peenya, we have done a lot of upgradation, and every year we continue to add in. So you put forth few more years, and then you suddenly see that the whole area gets transformed. Yeah. So I will stop here, and I'll hand it over to T.K. Sridhar, our, T.K. Sridhar, our CFO, to take you through some financial highlights.
Thank you. Thank you, Sanjeev. So, morning to all of you once again. So just to talk about how did we perform when we see the numbers side of it. I think it has been a good quarter again, once again. So therefore, we could say probably that we have a consistent track record of delivering performance, which is better than the previous quarters. And, hopefully, I think, we should be able to continue that for some more time. That's what we see. So orders, we were at, we have a locked INR 3,400 crore of orders, which is 13% up. Our backlog, as Sanjeev was mentioning, is INR 9,500 crore. This also has almost 40%-50%, 40%, I would roughly say, which is about projects and long duration projects.
The balance 50%-60% comes from short cycle orders, which will be executed over the next 6-9 months period of time. Revenues, I think, INR 2,800 crores, up by 13%. We could have done more. I have been here in the sense we could have done almost INR 200 crores more, but I think that was more because of an alignment to the project schedules, which was important for project businesses to do, and also because it was elections time and also the budget time, which was there, so people had delayed the decisions. That means we did not lose any revenues. It was only a postponement of the revenues with the customers, which was very momentary for that particular matter.
So I think this should probably answer a question as to why did we not do revenues. So I thought that's why I put a bit of more color on this topic. So profit before tax, I think, this is an, five hundred and ninety-four crores, right, and, fifty-one percentage up, and which is also the same as far as tax is concerned, which are fifty percentage up. So consistently, if you look at it, so we have been, delivering the profit as well as the revenue numbers quarter-on-quarter. So, and this has resulted in a good pick up of earnings per share. And also in terms of, how much do we convert this profit to cash, we always make sure that we are there at hundred percentage is what we see. The next slide.
Just to do a bit of a second level deep dive, because we still have another level, which is third level, which will come more interesting going forward. So but I think on the first second level, I think orders, we were flat on base orders, and that was basically the reason why we said the second quarter had quite a few macro and in results, which were impacting them. And but we were successful in large orders, which came from basically from emerging sectors. That was something which was pretty strong in a way. And it is also in line with Q1 2024, where we do. So 13% up on orders, but sequentially we were minus 5%, and that's more because of the base orders, which remain flat.
The order backlog, we discussed about it, INR 9,500 crore, 23% up. So, we have done a clear scrutiny of what the order backlog quality is. We are confident that would be executed as per the delivery schedules agreed with the customer. So therefore, we don't have to see any risk in this particular topic. Revenues, INR 2,800 crore. It was, I mean, all the revenues grew definitely across all the divisions, so we were 13% up. And as I said, that we missed INR 200 crore, and that's more because of the reasons what I mentioned. And profit before tax, yes, 21%, probably the highest in the quarters what we saw till now.
And, coming to the cash balance, we have INR 4,872 crores, and this is after paying the dividend, which we paid in the month of May. So we work within, we have a force of 4,700 people to deliver those revenues. So this slide we repeat, because there is always a question, so if the group gives a color to India, and, how does India numbers stack up? So if you look at the left side of the slide, I think group, this states what group sees from India. So it looks at third party customers who, who give orders both, not to ABB India Limited, to other ABB companies in India, if it is there, and also ABB companies which are outside India.
So when we take this, this is called a demand side view from India, the growth is roughly around about 2%. But when you look at India, India, which consists of customers who give orders to India, ABB India Limited, both from outside India as well as from India, so we are 13% as what I mentioned. Next slide, please. So, EBITDA performance, I think, we are 19% at this point of time, and PBT 21% is what we said. And if you look at the PBT bridge from 15.7% for the last quarter same time and to 21%, of course, the volume and mix contributed to be the major portion of the improvement, with 606.3% coming from there improvement.
Of course, we did have other expenses which increased because we are delivering more revenues. The growth phase is on, and therefore, it's slightly definitely higher. But we want to tell you that there was a Forex gain. It's a swing of INR 30 crores compared to quarter-on-quarter, right? And that's something which also was an important element to factor in as far as the results are concerned. But is it a major one? According to me, it is not. So it doesn't matter much because the number of the value which we are talking of profitability is far higher on that. So overall, I think we did 21% at INR 595 crores. So I think the drivers for that was that definitely better margin orders.
We did have positive price movements across, and we did benefit from a steady material cost, material commodity cost at this point of time. Yeah. The next slide, please. So about how did-- how are we doing on the profitability side? The next slide, please. So this is a level three deep dive, so to understand how the structure of a P&L is at this point of time. So our revenues, we did talk about it. So the other income consists majority of interest income, which is coming from the deposits what we have of almost INR 2,800 crore. And the material cost is 57% at this point of time, compared to 63% what we were earlier, and 59.8% in the previous quarter.
The other expenses are more or less in line with what we have delivered in the previous quarter. The only change is about exchange and commodity variation. We had a gain of INR 9.5 crore, but the swing between INR 9.5 crore to a cost of INR 29.8 crore is almost INR 40 crore, as what was mentioned earlier. So other elements of depreciation and minor interest costs and discounting, et cetera, remain pretty, pretty much stable. So the ETR is 25.5 as what we see. So overall, I think this is something what how did we perform. But other important thing which I would like to share with you is I think there could be a bit of a question mark.
So how did we really go down and what is contributing from 63.5 material cost to 57.2? Just to give you a bit of a color, I think there are certain factors which are external, and there are certain factors which are internal. So when I want to say which is external, we are talking of an revenue mix, a price push to the markets, what we are talking of, and of course, on the design optimization and the SCM savings what we have. So this roughly contributed to 3.6% of the movement which happened, and the internal levers which we have in terms of operational efficiency, in terms of capacity utilization sort of stuff, contributed for the balance percentage, which we moved from 63.5- 57.2.
So this is something which I think could be interesting, and this is actually spread out across all business units in different forms, and not all businesses have the same, right? But I think it depends on how business is positioned in the market as well as in its own operation locally. The next slide, please. So we go to a bit of a color on how did electrification, motion, and process automation, and robotics perform. Motion and electrification in this quarter had 4,432 crores of orders, right? And sequentially, they are slightly lower, but I think on an average, they are pretty much ahead of the curve as what we see, right? And Q1 2024, why it was higher?
Because normally, as you know, that's a financial year for quite a few Indian customers locally. So that's the time when they would exhaust the budgets and say, for the ordering is more speedier than what it used, what is normally for the other quarters. And when it comes to revenue, so we are-- they are up, they are at INR 1,021, and here is what I said, that there was a bit of an alignment and definitely a hold back for the customers, assuming that the budgets could have some favorable impacts for them. So and profit before tax and interest, I think because led by the revenue mix and the good margin orders which were executed, and also and operational efficiencies impacting them positively, and they were able to deliver 23% of PBIT.
The order backlog is 39% up from INR 2,000 crore, what it was last year at the same time. Next slide. Coming to Motion, which is a very interesting segment, as what we all know, and it's directly relatable to the industries to which we are catering to. So Motion was up in orders with 18%. Revenue is pretty much aligned with what the backlog execution patterns are, so 17% end up over there. And, an order backlog, an all-time high of INR 3,930 crore, I think we should be aware that this order backlog has a major order from Traction Converters, from railway segment, and a service, long-term service order as well.
So I think if we sort of you know eliminate that, you would see the same amount of increase in the order backlog as compared to the orders what they have received. That means on a real-time base volume, it should be 22% higher compared to what you see, right? And PBIT, again, an fantastic traction as what I would see, 23%. Of course, they did have an positive impact also of the foreign exchange coming in over there for the momentarily at this point of time, but adding it to cycle, which always development sort of you know outcome, then comes back to the balance sheet at later date. Process automation.
So, last quarter, we, definitely last year, same quarter, we did have certain major orders from the, metals, sector and oil sector, so which were not there in this particular quarter. So we did INR 533, so we are slightly less compared to the quarter-to-quarter. And, but whereas revenues, given, given the good backlogs what they have, I think we are, 24% up on, revenues. And, profitability, tracking well at 16%, mainly aided by services revenues and export revenues over there, and, and, efficient project execution, and the mix from higher contribution orders, contribution orders. Next slide. So here is Robotics, which is a very fantastic market segment, which all of us know.
So, they are back on track with 157 crores of orders this quarter. Slightly lesser revenues, and this because these order backlogs what I think, currently, received will rectify into revenues going forward. And they track it in profitability of fourteen, fifteen percentage at this point of time. So I think there's also a good contribution of service, which help them boost the margins as well. Next slide. This is the last slide. I think this is just to show how does our business model look at. So I think if you look at it, so, we are basically a product-oriented structure, as what we see with EL and MO forming part of almost 75% of our total business model.
And with from the operating side of it, again, it represents because EL and MO being foreign businesses majorly, so then we are 76%, 75% of product businesses and 12% of services and exports, similarly 12%. And when we come to geographies, we said that we our exports increased, and that's why you could see the percentage of orders also, and looking at revenues, looking at 12% and 88% from the domestic revenue, from the domestic customers. So overall, I think, we are primarily focused on India. So India is in a sweet spot, as what we say in terms of growth trajectory, as well as the investment CapEx cycle, which has kicked in at this point of time.
So therefore, we feel that we are in a position where we could take leverage of the investment climate, which is developing in front of us. So that's it from as far as the commentary is concerned. I think we have another probably 30 minutes to go, right, for the Q&A. Michelle, we can open up the call for our Q&A.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on their touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.
Hi. Good morning, sir, and congratulations on another great set of results. My first question on base orders, sir. Of course, base order has been slightly weaker in the first half. Are you seeing increasing inquiry levels going up post the election?
So I think, Sanjeev here, we did have this election as well as budget period coming, so I think there was a bit of a slowdown in the marketplace. But going forward, I think we can give you a more granular view from our business heads, starting with MO. Sanjeev, the question is, how do we see inquiry build-up going forward? Followed by Kiran, Ganesh for ELDS, and Subrata.
Yes, thank you. Thank you for the question, and thanks, Sanjeev, for this, giving this opportunity to answer this. As we all know, that now the government is formed and it's quite stable, things are in the right shape. And the growth story of India is very much predominant still. So we feel that be it heavy industry, light industry, transport and infrastructure, all this piece where ABB is present in, in each and every segment, we have a strong conviction that this will show a steady growth path. Of course, there would be some cycles, some headwinds, maybe some global impacts, how the world is behaving, but I think underlying strength is, for India, is that we will see opportunities coming up as we move forward. So that's from my side, Sanjeev.
Same question for you, Kiran, for the EL.
Thank you. And, see, from my side, there are adding to what Sanjeev Arora said, what I would like to say is, we did see some challenges in the building sector, and we have also had some information where the building sector could have been grown by almost 18%, as a market in terms of the pickup of apartments, especially in the residential side. And that could be for many reasons, in the macroeconomics, as well as it is also what we saw was some base order decrease, probably due to the delay, from maybe because of budgets and things like that, due to elections.
So that's what we saw in some of the sectors of the market. But what we see, is also, probably the Tier two and the Tier three cities coming up. That's what we see as on the positive side, which could pick up in terms of the base orders.
Thank you. Ganesh, from the electrification distribution solutions side?
Hello, are you able to hear me?
Yes, Ganesh, go ahead.
When it comes to the distribution solution, obviously there was a natural hold or the delay due to the election, and because the budget was not announced. Because some of the infrastructure project where government has to really clear the cash to the EPC people. But if we see to the pipeline, we see a very strong pipeline, which is coming from industry as well as the upcoming segment, and we can see increase in the base order in the coming quarter, if you look it at the pipeline.
Thank you, Ganesh. Subrata, from the robotics, from the, your segment, which you cater to, how do you see the pipeline going forward?
So, good morning. From robotics point of view, I see that it's a constant growth in the market. I never think because of election, market was flat or going down and again going up. It is not like this. It's a constant growth. Still, automotive holds major share of robotics. However, I feel that small customers, base customers are growing. Number of robot sales in Indian market has grown by more than 50% between 2022 and 2023, and I feel that growth will be constant in coming years.
Thank you, Subrata. Yeah.
Thank you. I think, Mohit, you got the sort of a color from all the divisions, representatives, I think, which is more comprehensive in a way.
Understood, sir. My second question, order inflow for us versus the group within India. Is there the market share increasing as compared to our group companies for Indian orders? Or are we producing more products so Indian companies are-- so Indian company are getting more share, market share?
I didn't get your question, Mohit.
My question on the order inflow for us versus the group. Our number is 13% up, right? Compared to the group's for Indian orders were 3.2% up, right? My question is: Is the market share increasing as we are getting more orders from the global export orders, because we're producing more products indigenously? Is this the right understanding?
So I think we haven't established any correlation, and we don't pay too much attention to that, because that's more of a flow which happens based on how the group companies and the global players may be exposed, right? So other channels would be exposed. So what we can confidently say is about India numbers, how we are exposed directly to the market, and those numbers are more predictable from our point of view. So we haven't established a correlation. Maybe this is something we might have to think about.
Understood, sir. Thank you. Understood that, sir. Thank you.
Thank you.
Thank you. We'll take the next question from the line of Sumit Kishore from Axis Capital. Please go ahead.
Good morning. My compliments on a very strong quarterly performance. Two questions. The first one is, over the last five years, the EBITDA margins reported by the MNC parent were higher than ABB India. Over the last couple of quarters, and particularly Q2, ABB India EBITDA margin was higher than the parent. Your comments on, you know, the sustainability of this phenomenon, given ABB India pays royalty technology fee to the parent, and there are imports that ABB India does from the parent. That's the first question. The second question is, you know, we've seen large orders and long cycle orders from, energy and core industry segments, which contributed to order inflow, during the quarter.
Could you give us a sense on how is the mix of base orders and large orders in the order book roughly? And what is your sense on sort of what kind of execution schedule does it entail across base and large orders in your four reportable segments? Thank you.
Sridhar, you can take the second question first.
I think I have already replied the second question, but for the sake of benefit, I said that the order backlog, which is roughly around about INR 9,500 crores today, has 40%-45% of Long Cycle and project orders. That's number one, right? And that gets executed over a period of time, and normally the project execution of the the execution of projects normally hover around about 15-18 months, depending upon to which sector they did they cater to. And the balance, 55%-60% is Short Cycle Orders, and that go over an execution period of 6-9 months roughly, right? So I think that's how we see...
... No, Sumit. Sure. On the first question about group and ABB catching up and exceeding the performance in India. So I think both are not comparable because group is exposed to all markets of the world, and they have to see the cyclic nature of China, Europe, Asia, Americas, and they get at least some total effect of whatever is happening across the globe. And it's a credible performance relative to where ABB Group used to be, and our ABB way, which was implemented by our group CEO, Björn, Björn, who, of course, now has moved on, and new CEO is installed from first of August.
I think he did an incredible job globally, and we are all thankful to him for the discipline and the focus he brought for us. As far as India story is concerned, as you say, it's an India story. It's an India story about emerging market story, which should be seen in its own merit and its own isolated effect. And here, the results that we are getting now for the last few quarters, they are not made recently. They are in making for last 4, 5 years. It's a sum total of number of things that converge so that you get an effect out of operations, and one is that you get good quality orders from the market. You have much more broad-based market segment participation. You have much more broad-based geographical participation.
You do higher localization as we go. You expand your portfolio of offerings in the market, and you also make sure that all the localization being done by our OEM partners, our machine builder partners, we participate in them so that a country's import bill starts reducing. So it's a kind of a combination effect, and on top of it, the productivity measures that you take in your shop floors, and you continue to reduce your cost, and also ensure that you make only meaningful investments, so that the businesses are able to expand meaningfully and participate in the market growth and the volume growth. So I think when you align all these value chain elements in a good way, and we are lucky, and we are very thankful to our leadership of the division.
Each one of them have been doing it very well, and they have taken the opportunity in last few years to reach where we are. So it's a effect of, collective effect of all the work that has been done in past. And market is very supportive at this point of time, and also there's a much higher appreciation of higher quality products in the market relative to past, wherein the customer used to compare high quality products with the cheaper versions. But post-COVID, the mindset of the customers have changed, and they look for more reliable products rather than cheaper products. So that's where, again, it is sweet spot for us. So that's why you are seeing 27%, CAGR growth in last three years.
When you process them in the volumes, in the capacity you have, and you put more productivity in the shop floor, you start seeing the rolling results into the bottom line. So that's what, that's how we read it, how the situation lies.
Yeah, just adding to what Sanjeev mentioned, I think we've also seen a consistent growth in service revenues, which is very important for us to have the margins, right? So that's something which was a bit dulled down due to the COVID and other topics which the country had to deal with. Now that we are all past that, I think that is also a very effective contributor. And just for information, we have dedicated service business units in each of these particular divisions, catering to the installed base of the country. So therefore, the focus is very sharp, very widespread across the market, with more innovative solutions. So that is something which is aiding the profitability also.
A lot of customers are through OPEX cycle, which affects the service, are upgrading their installed base. That shows up in our service business, which again, is a high quality business for us.
Thank you so much for the detailed answers. Very clear. Wish you all the best.
Thank you.
Thank you. The next question is from the line of Jonas Bhutta from Birla Mutual Fund. Please go ahead.
Good morning, gentlemen, and, again, congratulations on a great set of numbers, and not just this quarter, probably now four quarters running. My first question was somewhat similar to what the previous participant checked, and I'll try to sort of approach it from a different angle. So if you can sort of talk about, you know, on which products particularly are seeing such a superior pricing power? You know, and I would appreciate if you can give a slightly more nuanced understanding to the extent possible on the sales mix.
Because if I were to sort of rationalize, you know, all the reasons mentioned in the press release for higher profits, something does not seem to add up, because, you know, your service and export revenues as a percentage of sales is the same as last year, so they've grown at the same pace that the consolidated entity has grown. Second, you know, your scale efficiencies or operating leverage is not visible because employee cost and other expenses, growth in both these line items are higher than your sales growth this quarter. So that effectively leaves us with largely pricing power, as commodity costs have largely remained flat in this period.
Another nuance that I'm sort of looking at is because, sir, on the process automation side, the presentation mentions that, you know, given that energy as a percentage of sales within that segment was higher, and hence we've been able to reflect this kind of margins. And our understanding was on the energy side, there's another MNC that sort of was a market leader. So have you sort of gained market share? Have you localized? So some more nuance would really be appreciated across at least EL, MO, and process automation. Longish question, but would appreciate your answer on this.
So, Jonas, I think, to maintain the profitability and the performance of the company, it is important that we have the secret sauce with us, number one, okay? So we cannot be diversifying.
Okay.
By business, by divisions, and all the stuff. It is in the interest of all of us, okay? That's number one, and we maintain it every, very consistently. Okay, number one. Number two, but I think I gave you a bit of a color as to why did you, you did a nice breakdown of the P&L, P&L, looking at the expenses and all the stuff, right? So I think the major contributor, if you look at it from the structure of the P&L, you could see the largest gain has been due to reduction in the material cost, where we have moved 6 percentage of almost 61, 62, 63 levels to 57, 57.5, right? And I did touch upon this as to how did we gain this material cost improvement.
I did say that we did was a combination of both, externally led actions and internally led activities, initiatives as well, right? So I said that, from externally led actions with respect to, accessing different markets, different, customer base, and also with the variety of, the mix of services and exports and the margins thereon, I think we got almost, 300 basis points or 3 point- 350 basis point improvement over there, right? So 3.5% over there.
Then when it comes to what are the internal led initiatives in terms of supply chain, in terms of localization, capacity leveraging and all these stuff, and also looking at how do you mitigate the risk on projects and long-term service orders, right? So there we gained almost on the balance 3%, right? So I think these are the factors. So now, will these factors sort of, you know, play out the same going forward? Right, I think there is a limit to which you could always expect these particular improvements to happen. So, what will remain is definitely the advantage of a higher capacity, the leverage which you get because of more revenues and the better cost ratios which we have, and that's something what we'll do. I think we're going forward, this would sort of, you know, stable out in an environment that what we are playing today.
Got it. So my second question was on the share of IE3 and IE4 motors in our CY 2023 sales and in our first half. So, you know, what % of our motor sales largely comes from these two product lines, given that we are further expanding our offerings here? You know, even a rough cut, ballpark number would help, and that's my final question. Thank you.
Sanjeev, Sanjeev Arora, who is here, is eager to reply to your question, so he will give you all the details.
Thank you. Thank you very much. First of all, you know, this subject is very close to my heart, and our customers have shown a great confidence in our motor business. And if we see more than half of our production, that means roughly 52%-53% of our production is of IE3, IE4 motors. Even though as per norms in India, as per minimum efficiency norms, we are still at IE2 as a country. And this clearly shows that, you know, we are serving the customers. Their causes of sustainability, we are, you know, really partnering them in their goals of energy saving as well. So giving you the perspective of production, means anything else if you want to ask, please go ahead.
This is helpful. Thanks, and all the very best for the future. Thank you.
Thank you.
Thank you. Thank you.
Thank you. The next question is from the line of Amit Mahawar from UBS. Please go ahead.
Yeah, hi. So hi, Sanjeev and Sridhar. Congratulations on a great structural journey on margins beyond, you can see on just input cost and benefit, et cetera. First question is on capacities. We have some major segments, right? Like, power distribution units for data centers, propulsions for semi-HSP and metro, isolators and circuit breakers for a lot of new applications, including hydrogen that you've highlighted. Next 3-5 years, when we plan our capacity creation, which are the areas where we will see, you know, maximum capacity creation, you can highlight? That's my first question.
Thank you, Amit. Sanjeev?
Yeah. So just to give you an overview, you know, we are in the 74th or 75th year of manufacturing in the country. So that means we had a long time to set up the manufacturing facilities, and it is always ahead of the curve, what the market is asking and what we need to offer. So what happens is, our manufacturing expansion is always incremental in nature. So whatever we expand is always incremental to continue to either, you know, within the same space, you have more better productivity measures by automation, robotics, et cetera, so that we can produce from the same space more. That's one. And the second is we continue to, you know, sectionally expand the plants in the same location.
So that's a kind of a nature of expansion that we have been doing. But going forward, we now are reaching the point, given the growth rate we have seen, and at this point of time, all the divisions, when we talk to them, they are quite okay for coming years, right? So we have the capacity that we need. We are already looking at forward for next 5 to 10 years, and there, there are certain divisions who want this, capacity expansion. So you may have seen some announcement that we did yesterday, wherein we are adding a plant here in Bangalore, wherein the units which were relatively small earlier in our business, they are expanding at a much rapid pace. So we are providing them much larger space and more sophisticated facilities, not only for Indian markets, because we also have got mandate to do the export.
So that's the one part which is very clearly, which we have gone forward. Otherwise, other areas in EL, we have a continuous upgradation and expansion in Nashik with the ELDS. Also in ELSP, ELSB, all these are based on the market requirement, and gap that we see now and next three years, I think those, you know, expansion plans are already in place. And same thing goes for MO. MOTR has expanded substantially in the railway and metro segment. You know, motors, low voltage motors, medium voltage motors, all of them are expanding. So process automation, as I already mentioned, that they are expanding in the new location. And robotics, we already invested quite well in 2020, so we already have a state-of-the-art plant there.
But then we always keep investing, getting closer to the customers, as well as making sure that we are able to serve them more effectively. So in all, we have a plan in place, mostly incremental, but wherever the capacity expansion is required by scale, there we go for the newer facilities.
Yeah, just to add to what Sandeep said, I think, you're all aware that we still have plant banks in, Baroda as well as in Faridabad, right? So which is definitely a space where we could add capacity. And, the, capacity expansion what has been announced for PE and this thing will help in unlocking space for the expansion of MOTR as well. So I think that the traction, you know, so that, that could probably answer your question with the large, impetus on, railways and the same order inflows from them, how do we, cater to that? And this would help us doing this. So this sort of churn of, the volumes from between the locations will help us, figure out how we could address the, growing market.
Very helpful, Sandeep and Sridhar. And second question is coming from the group. Now, Björn had a very fabulous tenure, which also impacted ABB India materially beyond what the India story ABB management has driven beautifully. The new management seemingly is continuing the, you know, strategies of the last CEO. But anything that you want to highlight in terms of the way ABB operates is very different from peers like Siemens globally, when they think of global factories, division-wise versus segment-wise. Anything that, you know, Sandeep, you want to highlight, you know, new management, message from the new management, which is worth sharing here? Thank you.
So, so as far as the credit for performance, we give it all for India as well as group to Björn. We were just the holder of that strategy and executor of it as, disciplined soldiers here in India. And I, and I think each one of us embraced that, change, and I think India, his team, when Björn used to visit in India, he saw and he commented that India is the best in case example of the philosophy he wants to promote within ABB. And that's the reason he last year, even at the board, ABB Group board, came in to see how ABB India operates in a empowered as well as, you know, focused manner. So Björn was all about, you know, performance, and he had, three-tier thinking towards the businesses. That is all our divisions.
That you should be stable first, you should be profitable second, and when you are stable and profitable, then you can grow. And I think that discipline he kept for last four and a half years, and that's where you can see all the global divisions, their allocations and their focus was getting the stability, not only overall, but also in each location and each business location, you have to have stability, profitability, and that you do either by portfolio, by management or your expansion, or also by taking out certain portfolio within the company, which are not core to us. So all those things were done. Now, given that we have our colleague, you know, Morten Wierod, who is now has taken over as CEO from first of August, and he was, by the way, also Chairman of ABB India.
He frequents India very well. He knows India very well. So we do feel that going forward, we will have a natural support available from the Group CEO. But the Group CEO, as per the chairman's statement, Peter Voser, he has a mandate for growth. So he has been given a mandate that the growth is the focus for him while maintaining the profitability that Group has achieved. And Group enhanced the capital markets today, as you have noted, they have already given the margin corridor, you know, ABB Group wants to maintain, and on top of it, the mandate for the new CEO is growth.
Thank you, Sandeep and Sridhar, and good luck for coming forward.
...Thank you. Before we take the next question, a request to all the participants to kindly limit your questions to one per participant. Thank you. The next question is from the line of Shrinidhi Karlekar from HSBC. Please go ahead.
Yeah, hi. Thank you for the opportunity, and congratulations on good set of numbers. So two questions actually related. What I want to know, sir, is what percentage of your backlog is really a fixed price contract, and how much has a price variation? And the second related question is that, would you say the part of positive surprise you saw in the material margin, is due to commodity stability or commodity deflation from the point of order booking to the point of execution of sales, as well as probably due to the stability of Indian currency, from the point of booking of the order to the execution of the order? Otherwise, you would have built some deflation. So those are related questions. Thank you.
So let me take this question. I think, I again go back to the color which I gave you on the split of the order backlog between long-term orders and short cycle orders. Long cycle orders are definitely, I'd say 40%-45% of the backlog comes from projects and long cycle orders, which as a protection mechanism have the price variation clauses built in because it goes over long period. This is basically normal commercial terms and conditions. But when it comes to the balance, 45%-50% of orders, which comes from short cycle orders, and which gets executed over a period of 6-9 months, I think there in very few cases we have it, but majority of them are fixed price contracts.
Good. So would you say in the base orders that you do, it's still a very large portion, some of the margin benefit that we are seeing on the material margin is partly because of time of booking, the commodity, what were there at the time of booking, and how they have been stable or deflating to the point of execution?
Yeah, I think we had said that in the past as well. I think the current margin expansions also give advantage of price on, you know, higher price at which we book the orders because of the time the material prices are higher, and on basically on the fixed price contracts what we are having. And as they stabilize, you get to have an advantage coming into the P&L account. But I think now that the prices are stabilizing at this point of time, as what we see, so that particular difference between the order booking to the execution time advantages will start to thin down going forward.
Thank you. It's the last one, if I may. So you have a very strong-
I'm sorry to interrupt, but I would request you to kindly join up for follow-ups. Thank you, sir. We'll take the next question. Ladies and gentlemen, this will be the last question from the line of Aditya Mongia from Kotak Securities. Please go ahead.
Good morning, everyone, and thank you for the opportunity. My question was more kind of comparing the amount of value creation that you can do in the motion segment versus the electrification segment. I wanted to get a sense that eventually when things kind of even out on margins, would motion segment, because of its value addition, higher services component, energy efficiency, be having higher margins versus the switchgear-driven electrification segment, or would you have a different view?
We have a different view. Both motion and electrification are nearly same size. Electrification now being largest division and closely followed by motion. Now, you may have heard us saying that they follow the pattern of a fast-moving industrial goods pattern. Just like you are used to FMCG, I think they are more in, following more FMIG model. Wherein, we do certain products which are, we call it as ETO, engineer to order, wherein we use our own products to create a subsystem and supply. But larger portion of it is moved as, you know, as a product into the market. And then you have the value adders, would be our partners, OEMs, machine builders, who create value in the market.
In a market which is growing rapidly and, as India is growing, and you have an expansion taking place geographically and in multiple market segments at the same time, these businesses tend to do quite well. These are high quality products, and most of our customers are not only supplying to high-end, very high quality, high-end supply end users, but also they are exporting a lot. So what happens is that the price point that is realized by us, it is well, there's a willingness to pay for what we supply in the marketplace, right? Which is very different from the retail type of participation you do in certain market segment.
But we are talking about mostly our industrial customers, their appreciation of our quality and reliability, availability locally, as well as our, our ability to service them and maintain their, products. I think that has a, kind of a perceived preference for our portfolio. So as a EL and MO is concerned, we do see they will continue to perform this journey going forward. But we are not alone in the market. We feel, we see the similar trends with the others as well, who are participating in this market segment. And, I would say this is a early size cycle of India. Not many people have a comparative, but I have a comparative in my career wherein I saw China grow, say, right from mid-1990s, so 1995 onwards.
I see India is almost lagging 20-25 years where China was, say, 20-25 years ago. And we still have another 10, 5- 10 years ahead of us, wherein the growth rates and the demand for our products and solutions will expand, and also industry is willing to pay for, pay for the quality of the product, which is world-class. Yeah.
Thank you for the response. That was my only question. Thank you.
Thank you very much.
Thank you, sir. Ladies and gentlemen, that, as that was the last question for today, I would now like to hand the conference over to Mr. T.K. Sridhar for closing comments. Over to you, sir.
Thank you very much, Michelle, and thank you very much, ladies and gentlemen, for participating in this particular call. Very interesting questions, I could say. I think, hopefully, we again meet, the next quarter with an, similar set of results, is what we could see. And, and also, I wish you a very happy, quarter closing, as well as in, good and healthy life. Thank you very much. Right, and I also thank the management who are there with me on this particular call, but whose, without whose support this would not happen. Thank you very much.
Thank you, members of the management. On behalf of ABB India Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.