After powering its way for most part of the last decade, ABB India suddenly started losing the plot due to some wrong market calls. At this juncture, the global management of ABB took two crucial steps — announced a $900-million buyback plan to the Indian shareholders and appointed ABB veteran Bazmi Husain as India’s country manager and MD. He tells Raghuvir Badrinath that the company was on track for recovery. Edited excerpts:
ABB India was synonymous with profitability and good growth. For the fourth quarter of 2010, your bottomline dropped 94 per cent, aggravating a bad 2010. How is it all stacking up?
I would certainly say that the worst is behind us and we are back in the reckoning. The exit from the rural electrification business is being executed and eventually it will be winded up. During last year, we had around Rs 200 crore worth of projects, which were to be executed. But as of now, we have around Rs 70 crore worth of them. However, it is not a linear relationship and one should not assume that the projects worth Rs 70 crore will be executed in the same scale and speed as the last year. These are multi-year projects and it may take a while to finish.
Meanwhile, we have taken multiple steps to take our main businesses forward. We have a capital expenditure plan of Rs 350 crore for 2011, which will include a major step to indigenise key products which we were importing, thus giving us a step up in taking on the competition. However, it is a moving target. Competition is good in the long run; immaterial of what happens in the short term. We have had a history of innovation and many a time innovation is forced upon you. Our capability to innovate is pretty strong and we will certainly take that step forward in India.
The decision to exit the rural electrification business has been around for a while. Where did you lose the game?
When you are growing your business, you constantly evaluate newer avenues for growth. We too decided to go after new streams. Rural electrification was the new revenue which we embarked upon, which was very high. They did give us growth and it was a big opportunity. We took large multi-year projects and it was the same customers with whom we were doing our traditional business. But for a variety of reasons, we felt our focus did not align with them on how they run the rural electrification business. So we took a decision to exit them, but since we had taken large contracts we had to stay and execute those projects. At the same time, in our traditional business, we got new competition from China and South Korea and frankly we did not prepare ourselves at that point of time. We did lose quite a lot of business because we were winning in other business, which we are exiting. But when we stopped taking orders in the rural electrification business, our competitiveness was eroding, the result of which we lost quite a lot of business.
What are the pain points in the cost and demand side in India?
On the demand side, we see the capacity utilisation in the cement industry going down to below 80 per cent. And historically, you need to run at 85 per cent utilisation, before you think of putting in new investments. But there are delays. But that factor should not be sustainable given the rate at which the Indian economy is growing. There are minor delays and it is just a matter of time before the off-take picks up. The beauty of our business is that we have a good mix of products and systems business which have the inherent capabilities to tide over such blips.
On the cost side, we clearly are seeing a major price reduction in the market with the Chinese and South Korean vendors coming in aggressively. That is clearly a cost pressure. Our efforts to indigenise will come into good effect here. However, I need to highlight here that while we have to be competitive, we always look at life cycle costs rather than putting in a low price in the bids. Our designs are better and we do get contracts based on this with better prices.
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India has been a power deficit country and the 12th Plan has ambitious plans to increase generation by 30 per cent. How do you think ABB will leverage on this opportunity?
This is a market which is getting better for us. I would say we are in a sweet spot – power and automation, giving us a lot of growth opportunities. India is putting in systems for energy generation and also a lot into efficient use of energy. There is only so much you can generate and you got to use, what you have, efficiently. While generation and transmission are two major growth drivers, the efficiency drivers are among the key for our growth. We have been taking proactive steps in increasing efficiency in the grids. And with India getting involved actively in climate change talks, it is only a matter of time before we see heightened activity in sprucing up efficiencies. In addition to this, the renewable energy scenario is also gaining traction and we see solar energy taking off in a big way but not much in the wind generation here in India.
While ABB has been tapping the Indian market, it has also been developing as a key resource base for its global operations. How is this operations shaping up?
Our R&D unit in India is the single largest unit in ABB’s global operations. In the initial stages of a R&D set up, the growth is measured by size and later as it matures, it is measured by responsibilities. The Indian unit is working right through life cycle of design and development of a system which is core and we take lot of pride in that.