With the capital goods market yet to recover, the firm is looking at new areas of growth.
The thrust provided by the Narendra Modi-led government to solar power generation in India spells good news for ABB India, which has been manufacturing in the country India long before the Prime Minister’s recent emphasis on ‘Make in India’.
The local arm of the Swiss-Swedish power equipment and automation technology company notched up an important milestone as a part of its recent push into the country’s solar energy industry, in February. It sold solar inverters with a cumulative power generation capacity of 1,000 MW, a third of India’s current installed solar power generation capacity. Having set up a local manufacturing line for the inverters—which convert solar power direct current to alternating current for transmission—in 2012, the company is now eyeing a potentially significant business opportunity, as India aims to ramp up its solar power generation capacity to 1,00,000 MW over the next seven years.
Solar or renewable power equipment isn’t yet a big contributor to ABB India’s turnover. The company’s major business segments at present include turnkey projects for power plants and products ranging from electrical transformers, switchgear and control systems, besides motors and robots for factories. But it is one of the areas that the engineering firm began focusing on in the past few years as India’s capital goods market became more challenging with large infrastructure projects getting delayed and capacity utilisation in key industries declining.
The company—which says it used this period to build new plants, manage the supply chain better, increase efficiency and focus more on exports—is now waiting for a revival in the capital goods market. The company plans to invest $100 million in India this year, a similar amount as in previous years, towards building capability across its sectors. “What we have done in the last several years is to look for efficiencies, make our business more competitive and focus our ability to deliver. So we were able to find new areas of growth; solar is one and there are many other niche areas we have looked at, which are growing and are potentially huge businesses in the future. Many such things have helped us grow despite the market situation,” says Bazmi Husain, managing director of ABB India.
For the year ended December 31, it clocked orders worth R7,908 crore, up 18% compared to the previous year, helped by a mix of base and large orders from domestic and export markets.
But the company isn’t satisfied with that growth level, says Husain. “We are running most of our factories on single shift. The fact that we are improving our profitability despite this reflects our efficiencies,” Husain said. ABB India, which follows a January- December fiscal year, reported a 27% increase in net profit in 2014 at R229 crore. Net sales for the full year at R7,630.65 crore were marginally lower compared to R7,631.62 crore reported in 2013.
Material costs for the company are now below 69% of sales, compared to 75-77% a couple of years ago owing to better supply chain management, orders and higher margin projects. “One thing that we have put to good use in the last few years is that we have used the time to prepare ourselves for a boom. So now we need the boom,” said Husain.
While there is positive sentiment in the capital goods industry at present, industry observers say there has not been any meaningful recovery on the ground. “In terms of the Budget, the government has clearly shown its intent to improve the investment cycle with whatever constraints they have. They are in the right direction and doing the right things. The data points are looking up, but meaningful recovery in order flow probably will be at least two quarters away,” said Kunal Sheth, research analyst (capital goods) at brokerage house Prabhudas Lilladher.
Until such time as growth and orders for capital goods actually revive, ABB has been focusing on exports to neighbouring countries in the past three to five years. Exports account for over 15% of ABB India’s volumes, but Husain adds that it is only an element of the company’s key strategy, which is to sell in the India market. “Up until now, we could make use of the market situation to prepare ourselves for a turnaround. I think we have reached a stage where the market not turning around is not a good scenario,” says Husain.