Can we conclude that basis, while you have seen execution headwinds because of the West Asia crisis, ordering momentum or process has not seen any derailment or postponement from customers because of the ongoing inflationary trends or the West Asia crisis. Is that right? Or there is some impact?
See, you have looked at our order growth, right. So that itself very clearly reflects the way we are in the position now. On electrification side, [inaudible] that shows the kind of robustness in terms of investment in India. And that's where we are also able to get a portion of that pie. And that's the reason why we are showing that.
First is, do you think this is going to be a year where we will have a lot of lumpy orders, which is basically going to be part of the intake? And more importantly, and you can specify if this is going to be a strong high-double-digit growth year for orders? And second is on profitability. If I look at the parent commentary, obviously, EL was a very, very strong indicator. Do you think the profitability this year can be significantly better than last year?
There is limited knowledge of how the parents are profitable, if you understand, they have the balancing power of -- for again in countries, which are exporting, right? To economies which has weaker depreciation in currency and that's an compensating upside, right? So now coming to India performance as such. I mean going ahead, we have in backlog of INR11,000 crores, I think we'll have to execute. So what is probably, which we will have the lever is around the capacity absorptions, which will really help us going forward. That means the velocity of revenue conversion has to increase depending upon what the customer off take is, right? But whereas if you look at the pricing, the support to get more probability is something which is now saturated compared to the previous. Right? So now you have a lever of volume, which could pull up the margins, but you have the other impacts of the forex and the commodity, which is not in our control, which is basically more than offsetting what you can also do on a volume basis.
Do you think this is a year where your base business can grow top line by 15% and large order, I can already see last 2 quarters are very, very strong, and we have a good pipeline. So collectively, the intake for it to move towards a different run rate, do you think this is too early for us to comment or in next 2, 3 quarters, we can see base orders shifting because there is a restocking cycle for last 2 years.
So I think Amit base business, we grew at 9%, not the 15% of, right? So that means we definitely see the channel partners. I don't know whom you have spoken wih, I think what we see is that there is a market velocity which is there. It's not that the market is bad, but I think it's more about the timing of it, right? So it could be a bit of a, as you rightly said, choppy bit of situation. But the good part is that there are opportunities, and we are confident these will convert into orders for ABB.
Can you quantify how much is the percentage increase in price hikes?
So that's something which is very sensitive for us to disclose. I don't think it's an answer which we could give, please.
In the month of April and May, have you noticed any incremental weakness over the month of March for your short cycle orders because of the customer sentiment around war and fuel prices?
So let we do 90% of our business is in India and 10% is exports. Quite frankly, last year there was a weakness in the market for different reasons, but those two or three quarters we saw it. But starting last two quarters, we are fairly experiencing robust demand at the moment. So quite frankly, it is not adding to our concern directly what's happening in the West Asia at the moment. If there is a lag effect that comes up in the quarters later on, of course will share with you.
Can you give some more color on how should one think about the $75 million capex in terms of phasing and when do you expect it to capitalize?
It is about expanding our capacities, both in the development as well as certain businesses, which we had they were small, but now they have grown to size that they require larger places to produce more. And also, we have introduced some new product pipelines, which are localized and they also have not only mandate for India, but they also have mandate for exports. So those are the places in these expansionary investments have been carried out. And this is a continuous process, and we will see that in future, there's always a run rate for it.
We have seen a sharp decline in margin over the last 2 years. And we understand this is a combination of QCO, Forex and now the Gulf war being the latest variable. Now based on your assessment and on the back of the price hike that you have taken, when do you think we can see ABB going back to 18%, 19% or when do we see the company going back to 16%, 17% margin?
Okay. So I think, Rahul, I think we need to deal with the problems one at a time, but unfortunately the problems keep coming it doesn't seem to be ending. But having said that, I think there are continuous efforts to mitigate this particular risk and go to market. It is a combination of both volume and pricing and also the inflation being available to take the inflation of commodities and it's a very bit of a I would say, not a simple game, but have work to do, right? So, I think all efforts are on. We also aspire to be in the so-called once we had reached 15% and we have been that and we will be there at 12% is what we ended up last year. So that is actually a good range to be in and what we see with the current challenges, what is ongoing in the market.
Do you see the entire year will be subdued in terms of profitability based on the backlog that you'll have, having the limited price hike that you have been able to take?
So normally, we don't give any guidance about what could be the future. They are short cycle orders. The price hike which we take today is not valid next quarter because of the commodity and the forex rates move faster than the price hikes what we have. Because I think there is always a lag between what the inflation in the market is behaving on the input cost vis-a-vis the pricing which you could take. We are taking into account the competition intensity and the market dynamics.
We've seen the impact over the last 4 quarters also because of the QCO impact. My understanding was that the QCO impact should probably taper off over the next 1, 2 quarters. With the price hike that's already been taken and hopefully, with the QC impact going away probably over the next 2 months, can we see some recovery in margins going on?
So yes, I think your answer is yes, and that's why we come every morning to our office to make sure that, that happens. But what our observation over a period of time is that whenever the markets are disturbed, whether it is because of the COVID reasons or some QCO reasons, these are not very good things because what you require is you require certain amount of certainty and linearity for businesses to operate based on how the business models have been constructed. But yes, last year, because of tariffs, uncertainties, then QCO and this year now whatever is going on to West Asia, there is some kind of a disturbance that comes to the linearity. The moment things stabilize. I think given our equation with the gross margins we get out of the market and we do it on top of the stable supply chain, I think you have seen that whenever that happens, we have a good margin availability into our business. We had to allow a little bit of a sustained period of stability, not so much variations every few quarters.
My first question is on the private sector investment revival that you were expecting sometime around early this calendar year. So do you see the customer sentiments getting materially impacted on decision-making and closure beyond the process automation within the core business segments. And also any likely budgetary impact on cash flows? Can that derail or postpone the infra spend which is in the moderate growth category? And second would be on the recent capex that you've announced. How do we see the export portfolio ramping up and our exposure to data centers in terms of local product footprint expanding with the recent localization of plans that we've announced on the new capex?
What we are looking at is quite a robust scenario in terms of investments. I was talking about data centers as well. I was also talking hyperscale and colocation both getting into investments, and we are in some very good investments coming in at the same time, orders for us as well. I was also talking about railways and renewables. Rail, we are talking about both in terms of rolling stocks at the same, we're also talking about the station development and innovation projects, extremely good inflow of capex there. We are also looking at renewables, specifically, I was talking about the best systems, which is extremely promising for us, and we are able to get great orders in the first quarter. The last point I wanted to make is on the building side, it's quite mixed scenario at this point of time. On the [inaudible] are seeing a very good numbers, but at the same time, residential side, while the mid and the lower end is a bit of a challenge, but at the premium segments, we see a very good opportunity.
What kind of inflationary pricing actions we have taken across businesses to mitigate the impact of inflation, if can quantify the price you have taken to mitigate this across these businesses?
At the end of the day, there any price increase in the we have done -- so go for a price increase. We have already gone for two price increases is public anyway. And that's the way. And as Sridhar said, there is a lag between the prices which are impacting the costs which are impacting and the price increase in the market. And that's what we need to manage, and that's what we have done. We already have taken two price increases now.
On data centers, we are going from 2 gigawatt to maybe 10 gigawatt in 4, 5 years. And there would be a significant ramp-up from the hyperscaler side. So just wanted to understand how is the TAM increasing as hyperscalers gain market share. And also if you can help understand what are you doing on the substation side?
Yes. See, as you very rightly said quite a lot investment, which is happening on the data center, not only in the Hyperscale, but even the Colocation and the Edge Data Center. And our portfolio is very well positioned across the electrification as well as all other products to really take on into this particular job; and we are also actually matching the capacities as per the requirement because many of these hyperscalers has already signed right contracts with us. and we are very well positioned to capture this particular market. In fact, we are building up the capacity to meet their demand.
Percentage of current order book in data center at total order book?
Data center orders would be up to 12% to 13%.
When you are taking the price hike, are those hikes acceptable to customer and despite the price hike, are you able to broadly maintain market share for the expected product?
So we have had quite a good experience during COVID period. We're in a lot of supply chain disruptions came and we had to pass on some cost to the market and which we did. And now one thing, one phenomena we have understood and clients have understood pre-COVID and post-COVID is that post-COVID the customers have become more kind of more aligned with the thought process that when the market disturbances take place. They have to participate in the market with the suppliers to get the high-quality products. So one is that the demand for the high-quality products like ours is quite high and the customers appreciate it. But whenever there is an inflationary issue or where the displacement of the supply chain takes place. Whenever we go with the better price in the market wise, I think customer responds positively.
Do you have escalation clauses in long-cycle orders like Metro rail, which you've signed in this quarter?
Yes. Mohit, I think it's a very good question. Thanks for that. So I think there are escalation classes. There are price variation classes in all contracts which we do on a long-term basis. But we should understand these price escalation process may also come with a ceiling, up to which it is there. So it's basically about risk mitigation and how fast we execute this particular contracts. But the answer to your question, yes, we do have price escalation clauses in our contracts.
Are we seeing the conversation happening for very, very large data centers of 100, 200-megawatt quantum or do we think those conversations will start in maybe CY27 and CY28?
No, it has already been started because whatever hyperscalers has placed in the previous years, those executions are ongoing and even whatever contracts now, which we are signing or discussing there is already delivery schedules, which has been given for the '26, '27 and even up to '28. So conversation is already going on. So I don't see any delay into that.
In the beginning of the conversation, you talked about 1% impact from competition intensity. Can you give some more colour on what are you seeing in the market and in what segments?
So we have 16 distinct businesses. And if you pick up each and every business, they have a very different profile of competitors. So if I collage it for the whole company it was a very large kind of a country. So I would say, yes, you're right, there is a competition intensity as the size of the market grows. You have participation coming from Japanese. You have a participation coming on Korea, some Chinese. So you naturally have non-traditional players which they're increasing in the marketplace. So it's not the majority of our market segment. It's on the certain market segments wherein it is more [inaudible] capacity increasing on the competition side.