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ABB’s wind and solar energy business in India grew 300% last year

According to reports, ABB India Ltd’s stock has surged 36% post December quarter results which were declared in mid February. While the stock market has remained bullish the overall performance and outlook of capital goods companies in India has been tepid. ABB India too has faced the impact of downturn. Large scale orders have been far and few with infrastructure and power projects getting stuck due to regulatory issues and funding problems.

But the Indian arm of the Swiss-Swedish engineering major is looking to tide over the rough weather focusing on low risk short cycle orders, product indigenisation and increasing its exports. ABB India’s net profit rose over three times to Rs 59 crore for quarter ended December and Rs 179 crore for FY 2013, which is 30% rise over full year profit of previous year. (It follows a Jan-December financial calendar).

However order inflow in FY 2013 declined 3.5% and revenue showed a 2% growth over the previous year. Power systems and power products contribute about 60% to company’s revenue and the segment showed a modest growth last fiscal while process automation revenue declined nearly 8%. The company has been able to hold steady its revenue and order book by focusing on short cycle orders.

ABB India’s managing director Bazmi Husain explained that short cycle orders have lesser risk of cancellation “From a customer perspective; customers are more likely to go ahead with smaller projects. So I think base orders growing, clearly has been a result of intense focus,” he told equity analysts in a recent interaction. Husain said the stress on short cycle orders, which can be executed within a year, also reflected market situation. “Whatever orders we take we have to execute them and 70% of our cost is what we buy (material costs). So we do not want to take a lot of orders in bad times and have to execute them when the market turns around,” he added.

The company did not respond to an email query from Business Standard. On February 28 the company issued a clarification to the BSE stating it had no information or announcement which could impact stock price and volume. Stock market speculation is that ABB Swiss-Swedish promoters plan to delist the Indian arm but this buzz has been around last year too. Another focus area has been exports, product indigenisation and renewable energy. Exports make up about 15% of the company’s revenue and grew 30% in last fiscal.

Wind and solar energy business grew 300% last year, the company management told analysts. .”India is a key market for us. We have a fully-dedicated team, a manufacturing capacity and a solid services set up in India. We want to leverage on the infrastructure that we already have in India,” Maxine Ghavi, ABB’s head of solar business had said an interview with a business publication last year. ABB’s thrust on renewable energy is in contrast with its peers.

Siemens Ltd, the Indian arm of German MNC, shut its wind turbine manufacturing facility in Baroda last year. Siemens however says that green energy continues to contribute significantly to its global revenues; even in India, the market demand is addressed on a case-to-case basis.

ABB is also hopeful of cutting down its import bill currently pegged at 30-32% of its expenditure by carrying out an indigenisation programme, Husain said. It covers not just local sourcing or local manufacturing but also looks at the design aspect of the products. In the initial phase the focus of indigenisation has been power products and it has also helped in boosting competitiveness and exports. “ABB over the last three years has indigenised low voltage products and railway product portfolio. This will help the company once industry recovers,” said a research note prepared by Edelweiss Securities.

J P Morgan in its research note said ABB has managed to improve gross margins ; it has down-sized the employee work force (down 5.6% in CY13. ABB terms it “right sizing”) and reigned in other expenses. All these actions were taken when average capacity utilization was 80%-90% across ABB India’s factories. So in the event of a capex cycle turnaround there is significant scope for improving profitability and margins.

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