Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper of ABB India Ltd (ABB India).

 

The ratings continue to reflect the company’s healthy market position, strong support from its ultimate holding company, ABB Ltd (rated ‘A/Stable/A-1’ by S&P Global Ratings), and robust capital structure. These strengths are partially offset by susceptibility to intense competition and exposure to cyclicality in the industry.

 

For the nine months ended September 30, 2024, the company’s operating income grew 14.7% to Rs 8,823 crore supported by growth across all divisions and healthy execution of the order book. The growth is expected to sustain over the medium term, with healthy growth prospects across the company’s diverse business segments, as reflected in orders of Rs 9,995 crore as on September 30, 2024. The operating margin for the period improved to 18.7% compared with 13.4% for the nine months ended September 30, 2023. The improvement was on account of a more favourable revenue mix, better margin orders, capacity utilisation and price revision. The operating profitability is expected to remain healthy over the medium term due to the strong market position of ABB India, healthy margin orders and improving capacity utilisation.

 

In calendar year (CY) 2023, the company’s operating performance improved significantly in terms of total operating income and operating margin. ABB India reported operating income of Rs 10,447 crore (strong on-year growth of 22%). Profit after tax (PAT) was 22% higher at Rs 1,242 crore. Furthermore, the financial risk profile remains strong, as reflected in nil debt obligation and cash balance of ~Rs 5,000 crore as on June 30, 2024.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has notched up the ratings of ABB India for the distress support available from its parent, ABB Ltd.

Key Rating Drivers & Detailed Description

Strengths:

• Healthy market position in the power and automation technology segments: ABB India is the market leader in electrification and automation products. Its order book stood at Rs 9,995 crore as on September 30, 2024, of which electrification and process automation accounted for Rs 3,426 crore and Rs 2,456 crore, respectively. ABB India has healthy presence across end-user sectors including cement, metal, data centre, railways and renewables. The company’s strong market position is supported by access to the latest technologies from ABB Ltd, diverse product portfolio, cost-competitive operations, wide geographical reach and strong market penetration through channel partners.

 

• Strong operational, technological and management support from ABB Ltd: Research and development operations of the ABB group are centralised, and ABB India pays royalty to ABB Ltd for them. ABB Ltd also provides management support through delegates on the board of ABB India. ABB Ltd views emerging markets as a key growth opportunity and plans to expand its manufacturing footprint in India, China, Brazil and the Middle East. ABB Ltd will continue to support ABB India in the long term.

 

• Robust financial risk profile: The financial risk profile is supported by a robust capital structure backed by nil debt. The networth was strong at Rs 5,944 crore as on December 31, 2023. The company repaid all its external debt in CY 2018 and has been debt-free since then. The annual maintenance capital expenditure (capex) of Rs 100-150 crore over the medium term can be funded comfortably through internal accrual. The company also had around Rs 5,000 crore of cash as on June 30, 2024, which it plans to utilise for inorganic and organic growth over the next 3-5 years.

 

Weakness:

• Susceptibility to intense competition: ABB India operates in an increasingly competitive market scenario that has several domestic as well as international players. Most of the orders are procured through competitive bidding, which, along with the macroeconomic slowdown, has resulted in heightened competition and pressure on profitability. To counter this, the company has been focusing on cost optimisation and has increased indigenisation of many products. Although its continued focus on cost efficiency has helped arrest the decline in the operating margin to some extent, the company will remain susceptible to intense competition over the medium term.

Liquidity: Superior

ABB India has ample liquidity, driven by expected cash accrual of more than Rs 1,400 crore per annum and cash and equivalents of around Rs 5,000 crore as on June 30, 2024. Fund-based limits of ABB India remain largely unutilised. The company is debt-free and it has sufficient accrual and cash and equivalents for maintenance capex of Rs 100-150 crore per annum and further expansion capex or any inorganic acquisitions over the next 3-5 years. Its unutilised bank lines are more than adequate to meet the incremental working capital requirement over the medium term.

 

Environment, social and governance (ESG) profile

 

CRISIL Ratings believes that ABB India’s ESG profile supports its already strong credit risk profile. The thermal power sector has a significant on environment impact owing to emission of Green House Gas and high-water consumption. Also, the sector has significant social impact because of its direct bearing on the health and well-being of its workers and customers. ABB India’s focus on addressing these ESG risks support its already strong credit risk profile.

 

ESG highlights

• ABB’s energy consumption increased ~8% this year, reaching 96.8 Terra joules. However, majority of this increased energy demand was met through renewable sources (with share of renewable energy increase to 91% in CY 2023 from 89% in CY 2022).
• The company’s efforts to reduce greenhouse gas (GHG) emissions are aligned with ABB Group’s 2030 sustainability goals, which include a commitment to source 100% renewable electricity by 2030.
• The company has adopted ISO 45001 certified occupational health and safety management system across all factories, ensuring a safer working environment.
• The company’s governance structure is characterised by ~50% of its board comprising independent directors and ~50% woman directors, a dedicated investor grievance redressal system and extensive financial disclosures.

Outlook: Stable

ABB India will maintain its strong market position, supported by its technological superiority. The company will also maintain its robust financial risk profile given its strong capital structure, healthy liquidity and support available from the parent.

Rating sensitivity factors

Downward factors

• Decline in order inflow or sustained fall in the operating margin to less than 5%
• Downward revision in the credit rating or rating outlook of ABB Ltd by S&P Global Ratings
• Change in stance or support philosophy of ABB Ltd towards ABB India

About the Company

ABB India is one of India’s leading global technology and automation company and has been operational for more than seven decades. It has plants in Bengaluru, Faridabad (Haryana), Nashik (Maharashtra) and Vadodara (Gujarat). The company operates in four business areas: electrification, motion, process automation, and robotics and discrete automation. The electrification business offers a wide-ranging portfolio of products, digital solutions and services, from substations to sockets, enabling safe, smart and sustainable electrification. The motion business is the largest supplier of drives and motors. The process automation business offers a broad range of solutions for process and hybrid industries, including industry-specific integrated automation, electrification and digital solutions, control technologies, software and advanced services, as well as measurement and analytics, and marine offerings. The robotics & discrete automation business provides value-added solutions in robotics, machine and factory automation

 

The ABB group holds 75% in ABB India through its subsidiary, ABB Asea Brown Boveri Ltd, Zurich.

Key Financial Indicators

As on/for the period ended Dec 31		2023	2022
Revenue	Rs crore	10,447	8,568
PAT	Rs crore	1,242	1,016
PAT margin	%	11.9	11.9
Adjusted debt/adjusted networth	Times	NA	NA
Interest coverage	Times	NM	NM

Note: The company reported exceptional income of Rs 339 crore on account of sale of turbocharger business in CY2022.

Any other information: Not Applicable