The engineering giant ABB finished the year on an impressive note. The company's sales and profits were up by 12.9 per cent and 48.90 per cent respectively in the calendar year 2002. Excluding extraordinary income of Rs 15.80 crore from the sale of its air handling business, net profits were up by 24.70 per cent.
The company kept a tight leash on costs and managed to bring down its working capital by 33 per cent from Rs160 crore to Rs110 crore. Its order book position saw a 20 per cent increase to end the year at Rs 1305 crore.
Earlier in the year, the company bagged its single largest export order worth Rs 168 crore from a Syrian utility company. Ravi Uppal, managing director, ABB India spoke on the company's growth plans and outlook for the business.
What will drive ABB's growth in the coming years?
Our products business is doing very well. We are aggressively marketing our products through our channel partners. We have increased our market presence through wholesalers, system houses and dealers.
The good part about the products business is that the payments are made upfront unlike projects where gestation periods are long. We are also very upbeat about our services business.
Many of our customers are entering into service back-ups, break-down and productive maintenance agreements with us. Given that we have a huge installed base of equipment, the growth in this business is showing a lot of promise.
More business will also come from new product lines that we are going to introduce in 2003. There are some product lines that we don't do in India like distribution transformers, network protection equipment and microdrives, which will be introduced in this year for the first time.
Does that mean there will be a significant change in the revenue mix of the company in future?
Yes, we are working on changing our revenue mix. Currently, the projects business contributes 70 per cent, products business contributes 20 per cent and the services business makes up for the rest.
By 2005, we hope to alter our revenue mix so that 60 per cent of revenues will come from the projects business, 25 per cent will come from the products business and 15 per cent will come from the services business.
The problems with the project business are that the gestation period is long. The margins are also better in the services and products businesses.
While the margins on the projects business are only around 4-5 per cent, margins on the products and services business are higher at 7-10 per cent and 12-15 per cent respectively. In 2003, we are looking at achieving an annual growth of 12-15 per cent.
Export is a thrust area for the company. What is its contribution to the current revenues and what growth targets are you setting?
Currently, exports contribute 13.50 per cent to our total business. We are looking to increase it to 25 per cent by 2005. Exports are mainly done through three avenues. One, we supply components to our parent company. Second, some products that we manufacture globally are routed through our group marketing offices all over the world.
We make the quotations and the customer contact is made by them. By going through our group marketing offices, we save on establishment expenses. The third avenue is where we approach the customer directly and offer our services. For instance, in countries such as Syria and Jordan, we entered the market on our own to offer our project services.
In 2002, we entered 15 new markets and exports are growing faster than we anticipated. I won't be surprised if exports grow by 20 per cent this year. So far, the realisations have been better, but I can't say that going forward things will remain the same.
Can you tell us more about the Syrian project? When will revenues from the project start accruing to the company? The media reports that only a part of the revenue will accrue to ABB India.
The project has a gestation period of 24 months and the clock starts ticking from March 2003. So by March 2005, we should be able to wrap up the project. We have to build six substations during the 24 months period. We have to finish the first two stations in 12 months and the next two in 18 months.
The last two stations have to be finished by 24 months. The payments will made as and when a phase is completed. All benefits from the deal will accrue to ABB India. We may source some components that we don't manufacture from other suppliers in India but all revenues from the project will go to ABB India.
By reducing the working capital and costs, the company has generated surplus cash this year. How do you plan to deploy this surplus funds?
We have lined up some capacity expansions already. Last year, we spent around Rs 50-55 crore on capacity expansion. This year, we are again looking to increase our manufacturing capacity. We will be adding more production lines at our Baroda plant.
We are looking to increase our production capacity at our Faridabad plant by 50 per cent and we are setting up a new plant at Nasik exclusively for China's market.
In ABB, we have an open-ended investment programme. Our objective is to deliver consistent results and we will make all the investments to ensure that our objective is met.
Will the 'asbestos' lawsuits filed against the parent company have an adverse impact on the Indian subsidiary?
We have been in the core sector business for 120 years and our operating results are extremely strong. So given our expertise, we are not going to shut shop in a hurry. The asbestos liability is not because of the company's own doing, but it was an external liability.
The company had promised to fix the problem and it is getting fixed now. Our management has gone in for 'per package' settlement and if that comes through, the liability will be capped.
