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ABB India keen to enter energy efficiency, renewable business

Earlier this month, ABB India announced that it has won orders worth Rs 16 crore to supply turnkey power and automation solution for three photovoltaic solar power plants with a combined capacity of 11 megawatts (MW) in India.

The orders comprise of two 5 MW photovoltaic (PV) solar power plants and one 1 MW photovoltaic (PV) solar power plant. When completed in October this year, the plants will have an annual generating capacity of up to17.6 Gigawatt-hours of electricity.

According to reports, ABB (India), a subsidiary of Swiss engineering major ABB, has been buying or investing in companies to expand its Indian footprint, says Bazmi Hussain, who recently took over as its managing director. But ABB also wants to get into businesses such as renewable energy, data centres and smart grids — its growth areas of the future, says Husain in an interview with ET.

Are you looking at any more acquisitions or joint ventures in the near term?

We are always looking for growth opportunities, and India is a very crucial part of ABB’s global strategy. ABB spends $1.2 billion every year on R&D for organic growth. We also look at inorganic growth both through acquisitions and investment in other companies by buying minority stake in new areas. Beginning last year, ABB had made a number of significant investments in many companies and is looking at new communication and smart grid companies. ABB also looks at complete buyouts. For instance, we acquired 100% shares of Baldor Electric India, which makes electric motors and power transmission products.

Could you quantify the likely investment in India?

I cannot share numbers but will give you some indication. At the beginning of the year we had no capability to design and build 765 KV transformers. But by July, we had shipped one. In August 2010, we inaugurated a generator factory. About a month ago, we inaugurated a new line for MCBs. So we are continuously investing in upgrading existing facilities and setting up new ones for both the domestic as well as export markets. Apart from BRIC, ABB’s next growth markets are Africa and the Middle East. There competition will be a lot more intense and India has a very crucial role to play in ABB’s strategy for those markets.

How do you plan to tackle the growing competition from Chinese manufacturers?

For ABB, India is the single largest R&D place. We have been ahead of the curve in building local design capability and that is where we are expanding to be able to optimize design, otherwise over a long period, you would be wiped out. We see this as a short-term issue. In the longer term, we see this as an opportunity for us, especially the competition that comes from many other low-cost producers in Asia. In the short term, it is a concern and we did loose a lot of orders. We are now indigenising products quickly and optimising our design so that we will have an advantage on costs.

When will ABB exit from the rural electrification business?

We will be out of the rural electrification (RE) business by 2012. There are no negative surprises that we have seen but as we get closer to the project there might be some changes. The bulk is behind us both in terms of volume and problems. We are slowly getting over those projects and have only Rs 47 crore of backlog from RE, down from over Rs 100 crore at the beginning of 2011. The cost of exit from rural electrification has impacted our performance and volume. Our business model for rural electrification was not entirely suitable and we will no longer go for RE turnkey projects. But will serve the market from the product perspective. Separately, ABB also looked at the areas that were not competitive. For instance, in the high-voltage side, which we are importing and selling, we lost significant market share. In the beginning of this year, we thought about moving on the fast track and indigenising it. Last month, we shipped first locally made 765 KV breaker in six months.

What is your strategy for India and are there any new business ABB is looking to enter?

Going ahead, there will be three things that will be the pillars of ABB’s strategy in India. Firstly, driving operational excellence in our factory and project execution. Secondly, looking at design and engineering and not just at manufacturing. Lastly, we want to address our future profitability. Our focus is on cost and driving internal efficiency and also supply-chain management. We want to be more efficient in our cost structure. Externally, ABB will continue to focus both on product and project business on core traditional businesses. Also, we want to get into business such as renewable, energy efficiency, data centres and smart grids as these are growth areas for us.

The net profit of ABB India for the April-June quarter grew by a mere 1%. What are the reasons?

Yes, the growth was marginal as there was a lag between revenue and orders. The long cycle orders we got in the past two years were very low margin, with many of them being fixed priced. And rising commodity prices added to the pressure. But still ABB was able to grow because we had our focus on costs and our supply chain.


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