Hitachi Energy India Ltd

NSE:POWERINDIA

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Hitachi Energy Limited, India Q1 FY '23 Analyst Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. N. Venu, MD and CEO, Hitachi Energy India Limited. Thank you, and over to you, sir.

[Venu Nuguri, executive]

Thank you. Good evening, everyone. Thank you for joining us for the call. I hope all is well at your end and you continue to take all necessary precautions to save yourselves and your families and your colleagues. While the pandemic seems to have eased recently, we reached a INR 200 crore milestone of simulated growth as administered in the country. However, there are dangers still looming just beyond the horizon.

The economy is on the path of recovery to pre-pandemic levels. There is a healthy momentum with demand and economic activity picking up and business confidence has started to improve the last time we spoke. However, multitude of factors continue to impact the growth numbers. We believe these are short-term challenges, which would flatten out in the long term.

So we have uploaded the presentation that we are going to use in the BSE and NSE. I'm sure you have [ seen it ]. For easier reference, I'm going use the Slide numbers so that you can just follow on that. So going to Slide #3. We restarted the quarter on an optimistic note, but we're also cautioned by supplies that are constrained such as increasing commodity prices, supply-chain constraints, freight and logistics costs, semiconductor crunch, all of which were accelerated by the turmoil, which has impacted economies and industries affecting the entire ecosystem including our profitability as well as that of our customers and partners.

In these challenging times, Hitachi Energy India scored a significant win -- significant order win in the challenging market. In this quarter ended 30th June, we received orders for INR 3,054.6 crores, which is up by 309.7% year-on-year.

As a pioneering technology leader with entrance in the market with a long-standing partnership with the customers, our value driven engagement with customers helps us driving some of the key order wins this quarter.

The order per 1,000 megawatt HVDC link between Kudus to Mumbai reiterates customer confidence in our technology expertise. The case changing 1,000 megawatt HVDC link will increase the supply of power to the city by almost 50% tailing the base for equities in the country to adopt the grid of the future. The order we have received from Adani for 1,000 megawatts HVDC infeed.

And not only this, as you can see, we also received orders from the industries and the Railway India and data center. Our long-term fundamentals appears solid. India continues to be a fast-growth market with a strong potential. And as a market leader, we continue our engagement with the customers to collectively conduct out of this uncertain market situation. As you can see, with this order our order backlog end of 30th June is all time record high INR 6,777 crores.

Moving to Slide #4. Our work is underpinned by safety, integrity and quality. And it's always, we say they are basically our licenses to operate and it continues to resonate with our customers through our high service ethics. We have continued organizing regular training sessions for our employees, contractors and partners. In some cases, even with these customers, to our prospective that COVID reduces [indiscernible] as well and our any issue arising up of it. We conducted special sessions to spread awareness regarding risk management and life saving rules, some already met at sites and so on to ensure our people and adapt to new measures and bring safety and wellbeing into [indiscernible] as a way of life in all of our workplaces, related offices, our factories, our project sites.

Moving to the next slide, Slide #5. As an organization, we take a holistic approach in growth of organization, our employees, our ecosystem, our stakeholders and the communities we serve across the country. We won milestone order, as I talked to you previously, such as Mumbai infeed HVDC, expanded our export footprint by high-voltage operating and executed projects from various industrial and infrastructure segments. We contributed to policy leadership forum such as [ platform, CII, EMA, ] et cetera. And we continue to have a dialogue with the thought leadership programs like Karnataka Energy Conference, Sweden-India dialogue on sustainability and also energy transition as a whole.

To further share our technology expertise, we inaugurated a smart electricity lab in NIT Warangal, which is driving smart electric grid technology education, skill development and research activities. We also reinitiated Hitachi Energy Technology Conference on ground face-to-face events at some of our customer sites. In this case, recently in Lucknow and another held in partnership with the CEA. Market Environment Day, we conducted a sustainability drive at our manufacturing facility in Gujarat. This was an employee-led initiative and they planted over 1,300 saplings at Vadodara premises recently.

Moving to the Slide #6. Last year, we announced our 2030 carbon neutral goals. We have set milestones defining our journey for operations in India as well as around the world. We modeled our strategies to implement this both ground up and top down to meet the urgency and pace of change required to reach a carbon neutral future.

In the last three months, we conducted energy assessment across our manufacturing locations. We have nominated location leads who will undergo BEE Certified

Energy Manager course and started STECOs with location ownership and management by help ensure cadence and continuity in our sustainability plans. As you recall, we are the first among many companies to announce ESG committee at the Board level to see and monitor how as a company we are performing.

As you also recall, our portfolio goes into mission-critical technology and also our portfolio enables our customers change energy transition, and that is also the reason where we want to walk the talk and take ourselves at targets of carbon neutral in our own operations. Achieving the promise means integrating renewable energy by overcoming capacity issues and reducing waste. We continue to maintain 100% fossil-free electricity consumption at all of our locations, factories. Furthermore, the insights from the assessments also helps us identify the potential to reduce close to 60% CO2 emissions by end of this fiscal year.

As a responsible organization, we keep proactively doing our bit towards a sustainable future with the forefront being our business responsibility and sustainability report and nonfinancial disclosure done for the financial year '21 and '22 period. And this is also first among the many companies to send ourselves in the leadership position we have come out of this report, which we have published ahead of our annual report.

Moving to the next slide, Slide #7. I think this you know more than me and more than us. But still, I would like to touch upon a couple of points on this. We are -- as you all know, we are living in a very dynamic market situation. It started with the COVID and then from there, the war and then commodity prices and the [indiscernible], you name anything. In terms of the pandemic, we are still not out of the woods yet, but definitely the case load has decreased from where we were a year ago, but the concern remains on the COVID situation. There has been a gradual improvement across indices, such as Index of Industrial Production and coal industries.

Earlier this quarter, India's power demand touched an all-time high of 210 gigawatts according to an analyst report. Electricity demand in just a few months of this year, exceeding the demand anticipated for the year. Analysts estimate India's GDP in this fiscal year to be in the range of 7% to 8%. While India is mostly a consumption-driven economy, we are not isolated by the global headwinds in terms of the supply chain, geopolitical and macro things.

Inflation remains high about 6% against the global double-digit inflation. And it's projected anywhere between 6.5% and 7% for financial year '22, '23. And our currency depreciated against the dollar just earlier this week, we've touch rupees 80 per dollar, all-time high, the lowest in the history, the shortage of semiconductors continues to worry the industries. So all, COVID [indiscernible] supply chain, semiconductors crunch and also the freight and the fourth [indiscernible] issues in that.

Moving to the next slide, Slide #8, which is -- I just want to update you on the situation of a global semiconductor crunch. And what kind of mitigation actions we are taking as a company there. So you all know, but just want to reiterate, there are multiple factors in play leading to the present semiconductor crunch that we are facing. For one, there is a spiraling growth in the demand for semiconductors with the increasing digitalization and consumption of electronics and automotive. This coupled with the lagging impact of COVID disruptions and geopolitical tensions have reduced semiconductor supplies to [indiscernible]. But we are working through the core plan that we are facing certain strategies that will help us see through the turbulent time in the long term.

One of the first strategies in reducing our dependency on the chips by redesigning products basically [indiscernible] redesigning products and with redesigning the products where the semiconductors for that individual product are easily available or available more. And increasing our focus on product lines that do not depend on heavily on semiconductor. As we have a vast portfolio where we'd like to concentrate on the portfolio where the dependency on the semiconductor is less.

So we are collaborating with our global teams as a global company, we also leverage a global supply chain with this. So we will work in sync with the global teams and business unit operations and supply chain teams on stock sharing and material allocations as and when the case maybe. We are proactively stocking some of the fast moving electronic items to provide temporary hedging from the skyrocketing product prices.

While the global semiconductor manufacturers find the global supply chain organizations are continuously working towards strengthening the balance of demand and supplies, in our view it will take some back to reach ideal scenarios. Analysts are predicting that we are able to raise the upper limit of demand and thus the material cost, especially for semiconductor might further rise in the near term owing to ongoing inflationary pressures.

Moving to the next slide, that is Slide #9. If you look at the breakup of the orders, demand in this quarter was driven by orders across the segments, including transmission, industry, rail, metro and power quality. While the HVDC order base accounted for the large general raise in the order, but without the HVDC order also, our order growth is very robust across the segments.

We saw a very robust growth of orders in the industry segment, as you can see, almost 100% growth compared to the last quarter same year. And this also explains the sharp rise in the number of orders has been to direct sales in that. A considerable portion of our orders pertaining to renewable energy aligns with the central and state priorities for capacitors and reactors, which is basically around quality solutions. Some of will not be orders or [indiscernible] data centers, industry such as a couple of orders for the traction transformer from Indian Railways and [ fiber trial ] equipment manufacturers. All in all, this quarter has been one of the biggest quarter in terms of the order inflows for our company and all this came from transmission sector, industry and Railways, metro and infrastructure.

Moving to the next slide, Slide #10. I do recall, one of our key enablers for the growth and bottom line has been service and exports. Let me talk on the service and exports. Exports was roughly, we have been talking about 22% to 25% of our target corridor where we'll like to reach. Last year, we already reached in the midpoint of the target corridor. And I'm happy to share with you that in this quarter as well, exports were roughly 23% [indiscernible] in this quarter from markets like Uganda, Saudi Arabia and Azerbaijan, et cetera, like that.

We have EBITDA, as I told you, mid-term target, 22% to 25% growth in orders and revenue from exports market, and we have comfortably stayed in this corridor for the last four quarters now. And this is also important for us as the ongoing global supply-chain constraints and the geopolitical issues are compelling global customers to look at alternative supply-chain rules and talk [indiscernible].

In our view, India has the potential to make its mark as a resilient partner offering high-quality products to different markets globally. And moving from exports to service. Our service portfolio continued to deliver a 10% growth year-over-year. We see the scope increase in certain markets, and we're writing new customer names to our portfolio with the service order [indiscernible] used installed base.

Our focus is to penetrate into the -- on installed base and add more customers on that. So we have added new customers like PSTCL, Vardhman, ST Telemedia as part of our service offerings to these customers. And as small steps of leveraging synergies to the Hitachi groups, we booked the first order for a modular switchgear monitoring from Hitachi Japan and for servicing the group companies, U.S. is here as well. So these are the couple of examples to just show that how our service offerings are growing in line with our strategy and also growing together with our new owners at Hitachi [indiscernible] to offer our portfolio to them.

Moving to the next slide, Slide 11. Financial performance. Our long-term strategy put in place to combat the global headings will take us towards the uncertain market conditions. Even against the ongoing tribulations, we have delivered a sustained performance. The company booked orders was 3,054.6 crores, which is up 309% year-on-year. And as I told you, without the HVDC also our orders were up high double digits year-on-year growth. Revenues rose 24.4% year-on-year, reaching INR 991.3 crores for the quarter ended June 30, 2022, supported by world-class project management execution. The company commissioned several substations to [indiscernible] projects for utilities, industries, data center and infrastructure sectors.

In the quarter, profit before tax was INR 2.1 crores and profit after tax was INR 1.3 crores, while operational EBITDA stood at INR 35.7 crores. The quarter which held rising cost of commodities and supply chain bottlenecks, creating a drag on margins. Various measures are being adopted to reduce the impact with a special focus on semiconductor suppliers.

On the order backlog, we have a healthy pipeline that provides around several quarters of the renewed visibility. During the quarter, we received a [indiscernible] that has further [indiscernible] in our work order book, which stands at all-time high of INR 6,777 crores. This helps us now for the future and accordingly as a company.

Moving to my last slide, Slide #12, priorities for the financial year '22, '23. COVID still remains a matter of concern, and we are determined to ensure that we are -- we continue supporting the health care infrastructure for our employees and their family and their community. We continue to cover tried and structured three-pronged strategy that is protecting our people, preserving business continuity and preparing for the new norm.

We will focus on high-growth segments. In addition to our traditional segment as we have been talking about high growth segments, where we have a very good value proposition to offer to our customers. We'll deliver very good results. We continue to focus on that. Building a sustainable operation to guide us through the short-term supply side challenges.

We tried to capture a large share of the market with our localized portfolio, developing indigenous competencies and new business models to our unique partnerships. As you know, our strategy is to grow higher than the market as we are taking several leading initiatives, and that is helping us to grow higher than the market continuously for the last several quarters. We will strengthen our leadership position to grow -- continue to grow fast in the market with a single focus on cash of our delivery.

We believe this is possible with our emphasis on growing the high-growth segments, namely rail transmission, renewables, data center, HVDC, power quality and automation. We will continue leveraging our growth. So digital solutions, traditional service offering and portfolio and exports leveraging our local coverage. As you know, we are today, we are manufacturing more than 80% of our globally manufactured portfolio, we manufacture locally here. We would like to leverage with local manufacturing, not only for the domestic market but also the export markets.

We have and will continue to invest in the planet, people, peace and partnerships with our commitment to making our operations carbon neutral and sustainable. That's the reason we have announced our carbon neutral strategy 2030 and we have also announced all the themes, the teams and the locations are working towards ensuring that we will meet our targets of carbon neutral in our own office by 2030.

We believe diversity and collaboration equals great innovation. And therefore, with a more peaceful and inclusive society for a sustainable development. Last year, in the whole of last year, we have added 30% more female employees in our company. And this is our commitment that Diversity 360 will definitely bring diversity and collaboration to leverage innovation with that. We will be working towards building a more sustainable and profitable company over a period of time.

Thank you, ladies and gentlemen. I would now like to open the channel for your questions.

[Operator]

[Operator Instructions] The first question is from the line of Renjith Sivaram from Mahindra Mutual Fund.

[Renjith Sivaram, analyst]

Congrats on the order win.

[Venu Nuguri, executive]

Thank you, Renjith.

[Renjith Sivaram, analyst]

Yes. If I can -- if you can just throw some more light like how much was the difference between us and the L2?

[Venu Nuguri, executive]

Yes. So thank you, Renjith. As you know, this is a tender where we have submitted, and it is not like -- unlike PGCIL, it is not opened publicly. So we do not have any [indiscernible] the information of L2 and other things. So what we believe is that we are -- when we have submitted our tender, so we are both technically and commercially competitive.

[Renjith Sivaram, analyst]

Okay. So it's more of a negotiated tender?

[Venu Nuguri, executive]

No, it's not a negotiated. It's like international high [indiscernible], it's a complicated bid that we have summited our bid and then they have announced that where we are [indiscernible].

[Renjith Sivaram, analyst]

Okay. And sir, how much is the value of this brand new order because I think you haven't mentioned that.

[Venu Nuguri, executive]

Yes. So as you know, we have -- as part of our request from our customers, so we don't share the exact value as the details were not open publicly. So you still can expect that the HVDC projects are very large projects and turns into several years.

[Renjith Sivaram, analyst]

So what's the time line for this and when will it commence and when do [indiscernible]

[Venu Nuguri, executive]

[indiscernible] our commencement has started, and we have to compete in 38 months.

[Renjith Sivaram, analyst]

28 months from this August 1 or this month?

[Venu Nuguri, executive]

No. 38 months. If we look at the last quarter, so 38 months from June.

[Renjith Sivaram, analyst]

From June. Okay. Sure. And sir, just if I can ask, why the margins were a bit lower this quarter? Is it only to do with commodity prices? Or you feel the competitiveness has been higher? Or it's something to do with the product mix?

[Venu Nuguri, executive]

I think, Renjith, there are multiple reasons in this quarter as this is a quarter one, which is -- basically I would put it in 3, 4 bucket. One is the revenue of product mix. The second one, as I talked about semiconductor shortages because as you know we use a lot of semiconductors with automation and also in the HVDC product lines. And the third one is supply chain disruptions leading to increase in freight and logistic costs and also sometimes not availability, et cetera. And the third one is -- the fourth one is exchange and commodity price fluctuation in that. So these are the primary four reasons due to which the margins were lower.

[Operator]

The next question is from the line of Apoorva Bahadur from Investec.

[Apoorva Bahadur, analyst]

Sir, I believe the next large order that the industry will have its eye on is Powergrid's Leh transmission. So any update on that by when can we expect the ordering? What would be the size? And also do we intend to participate in the storage element of that order as well?

[Venu Nuguri, executive]

Yes. Thank you for your question Apoorva. And yes, Leh-Kaithal is a very key project. And as you know, as we [indiscernible] we thought the energy is [ far new ] in this technology. More than 50% of our installed base, including the new projects around the world, including India, thanks to our technologies. So we are very key. We have been working with our customers on this. And we believe that the tender would come shortly. We'll not be in a position to tell exactly when as we don't have any information, but you know that, that is the next HVDC project being awarded.

As you recall, in some time back we are saying because so much of renewable coming in, so much of energy transition, our forecast has been that every year, one HVDC tender will come up for operating in this country for at least next 3 to 4 years. So we have been great there. We're doing a lot of localization of our equipment. So for this for your information for HVDC Mumbai projects, almost 80% of that particular product will be manufactured in India locally.

[Apoorva Bahadur, analyst]

Sir, on these which components for the Leh project as well, do we have the technology tie up for it?

[Venu Nuguri, executive]

We have. We do the storage, as of that we have enough storage. We do that. But as you know that right now, the plan for our customers, [indiscernible] in our view is that they will go with the HVDC first and later they will come to the storage. So -- but in any case, we have the technology.

[Apoorva Bahadur, analyst]

Fair enough, sir. Very useful. Sir, also...

[Operator]

Sorry to interrupt Mr. Bahadur. Sir, may we request that you return to the question queue.

We'll move on to the next question that is from the line of Amit Mahawar from Edelweiss.

[Amit Mahawar, analyst]

Congratulations for the last project win. Sir I have -- the first question is basically on, in this quarter, how much is the Forex risk we have and if you can comment on also the royalty and technology fees? Generally, is it higher than the last year average as a percentage of sales? Or it's basically -- so some color on that. And generally, on profitability metrics because Q1 was -- there a very sharp impact. And this is despite your gross margins, which are relatively stable, it seems the overhead are basically or multiple points impacting the profitability. So if you can comment on the profitability and the details.

[Venu Nuguri, executive]

Thank you, Amit. I asked our CFO, Ajay, to answer your first [indiscernible], then I'll come back and comment on the first [indiscernible]

[Ajay Singh, executive]

Thank you for the question. So -- the first part, if I understand correctly was more on the profitability side and the royalty fee side. So let me first answer the -- first let me take on the royalty fee. So royalty fee we are hovering around the 4%. So it is the same level. So we do not see any increase compared to the earlier part. That is one. Coming to the Forex for this particular quarter, yes, we have been impacted by exchange and commodity price fluctuation and that is basically -- if I talk about roughly INR 13 crores is the total value that I can attribute to for this particular impact for this particular quarter.

[Venu Nuguri, executive]

So just add to our CFO, royalty fees is extremely important because we are a global company. The whole energy landscape is changing so much, and it needs to be -- all of our portfolio need to be updated. On top of that, we need to bring a new portfolio in that. So it's extremely important that this is like our investment for getting the new technology, new products, new offerings, et cetera, like that, in this changing landscape of the energy transition in that. That's super important.

As I commented, we have -- basically the whole ecosystem is the fact that with the supply-chain constraint, the supply-chain constraint includes some of the semiconductors issues. If you just take the semiconductor issue, how bad it was. Initially in the world the prices were higher, [ Vietnam ], then the delivery issues came out. Today, now it's not availability. So come high prices, unavailability, not committing the deliveries to -- nonavailability of semiconductors.

So I will -- you'll see on my slide also how the global semiconductor industry is facing in that. So that is a reality. So far, we were able to manage from our safety stocks. But while the safety stocks have been exhausted [indiscernible] reduced too. So we have several actions in place to mitigate this particular challenge being faced here. So when we are also engaged with the [indiscernible] levels of these companies at the global level, we're also working with our other companies to have sharing of those things. And we are also redesigning some of our products where the semiconductor -- availability of semiconductor is easier or better is there. So all these actions would not happen over line for sure. It would take some time. And those are the actions, at least from a company standpoint we have taken.

[Amit Mahawar, analyst]

And second and last question is on basically -- do you think high-speed rail ordering now that EPC is largely going to be over in the next couple of months. One can assume that high-speed rail equipment ordering for you will happen in the next 12 months? And also on the upcoming tenders for Vande Bharat and other railway tenders. Generally, your assessment of the offerings, 2, 3 large equipment specs that Hitachi will benefit from?

[Venu Nuguri, executive]

So as we have been talking about, we talked about HVDC, have booked the HVDC in the last quarter. So similarly, the high-speed rail, which is funded by the Japanese government is definitely in our work up. It's our targeted opportunity, and we have been working on that. And our estimate or at least our assessment is that the tendering will go by first quarter of next year -- first quarter -- last quarter of this financial year.

So that is very, very clearly in our radar and we are working because we have a lot of our portfolio, which is locally manufactured can go into this particular segment in that. So similarly, there are many other trade projects, for example, Chennai [ train ] is a such megaproject, Vande Mataram train, all these things we are working very closely with the train manufacturers, and we have a huge portfolio which go into that. And as and when it comes to that, we will inform you, but this is the most targeted segment for us as a company.

[Operator]

We'll move on to the next question that is from the line of [ Varun Basrur ] from Julius Baer Wealth Advisors.

[Unknown Analyst]

So my question is just a continuation of what a previous participant asked on the other expenses. Was the ForEx impact INR 30 crores?

[Venu Nuguri, executive]

It's INR 13 crores.

[Unknown Analyst]

INR 13 crores. And if you can just sort of -- if you could -- are there any other unusual or one-off expenses which you can quantify in the current quarter?

[Venu Nuguri, executive]

No. I think I just add to here, we don't have any other one-off things. I talked about [indiscernible] revenue product mix, semiconductor shortage and supply-chain disruptions, which has also increased our fleet and logistic costs. And finally, the exchange and commodity price fluctuation.

[Unknown Analyst]

Sure, sure. And sir, regarding your order book, what percentage of our contracts allow us to pass through any cost escalations that we encounter?

[Operator]

Hello, members of the management team, we are unable to hear you. Ladies and gentlemen, we seem to have lost the audio phone of the management. Please stay connected while we try to regain the audio.

[Technical Difficulty]

Ladies and gentlemen, thank you for patiently holding. We now have the lines of the management reconnected. Over to you, sir.

[Venu Nuguri, executive]

Sorry. Sorry, Mr. Varun, please go ahead and ask. The line got disconnected.

[Unknown Analyst]

Yes, sure, sir. So my question was what percentage of our contracts allow us to pass through cost escalations? And one more question, if I may is, how would our EBITDA margins look in this financial year?

[Venu Nuguri, executive]

Yes. So let me answer you the first one. That over about 65% of our portfolio has escalation process. But you need to understand that is a provisional escalation clause. [indiscernible] formulas or something like that. But what we are facing right now is unprecedented. For example, we have a fee cost. Those kind of costs are not covered in that, which is usually very high. For example, our overseas trade is huge. It's not a percentage of increase, but it is in terms of X. So those kind of things are very, very difficult to quantify and do that.

So that's the one and we will not be giving you any guidance on the EBITDA margin for the quarter. What I can say is that I can give a little bit of color to you that we have been consistently saying that we have a clear strategy to grow ahead in the market. That growth, as you have already seen, we have a huge order backlog, INR 6,777 crores. With the fixed cost of our thing, when the revenue comes, then naturally, you will have a margin accretion over a period of time. And then we also have a strategy under exports. We are a strategy on our service offering, digital offering. All this would get us into a double-digit EBITDA margin by end of 2025 financial year. So last year, you see we are very close to 9% of EBITDA margin.

[Operator]

We'll move on to the next question that is from the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited.

[Manish Dhariwal, analyst]

My compliments to the team for securing a very good traction on the order inflow. Now given the fact that we are living in turbulent times, higher orders also bring with them some risks as we have seen this quarter's profitability. So I request the management to give us a flavor of what kind of profitability matrix can be expected? And what kind of escalation clauses that have been put so that this continuing volatility in the exchange rates, in the supply disruptions, et cetera, do not cause further impact on the profitability?

[Venu Nuguri, executive]

Thank you, Manish, and appreciate very much. As you know, our strategy not this quarter, but last several quarters, we have taken a strategy that we did not accept any project which has escalation clause or any order which does not have an escalation clause or any order which go into a long gestation period do not have an escalation clause. So with that, all the orders, whatever we are securing, we have a clearly the escalation clause built-in and also there are several [ post-merger ] clause also we are [indiscernible] some of the orders, semiconductors, not availability. Also in some contracts, we have brought in as part of the force majeure, which is a unique way to protect our margin and our contract prices in that.

So as a company, we have seen this coming in. It's not that it's the supply. Only the last quarter the impact [indiscernible] but otherwise, we know these challenges, and we are willing to -- we were taking all the actions to face those challenges in that.

[Manish Dhariwal, analyst]

Right, sir. Right. So also what -- now some of the customers, they are like very highly leveraged. And what kind of debtor cycle that we have on these contracts in the payment terms that we have a read on that? Meaning is it -- are we taking any risk on that?

[Venu Nuguri, executive]

No, sorry, you were not clear. Can you repeat once again?

[Manish Dhariwal, analyst]

So the payment ability of the customers is also to be -- it's also a risk -- so given the fact that the leverage, the position of some of the customers is like very high. So how are our payment terms covering those kind of challenges that may happen?

[Venu Nuguri, executive]

Right, right. I think, again, as you know, this is always a risk here. And that's the reason we also have a clear strategy that we also negotiate the payment terms, which is like, for example, we'll have a large contract. Large orders do have a good level of advance payments and the rest of the thing is covered where they confirm that your credits with that. So we have been doing this. And so far, we have been successful. There could be some percentage of portfolio order book may have a direct credit, but by and large, most of our orders comes in with a clear and committed payment terms in that. Payment security.

[Operator]

The next question is from the line of [ Viraj Bhutani ] from Jupiter.

[Unknown Analyst]

Sir, my question is with continuation of the previous participant. So listening to your comments, is it fair to say that we have fairly learned about in this quarter. So a lot of things will be taken care going forward from here, in terms of escalation clauses, commodity pricing?

[Venu Nuguri, executive]

What I was telling you Viraj is that certain things, even though we have learned, for example, semiconductors we have learned. It's not possible for us to overcome that challenge if the supplies are not coming in, right? So while we are taking a lot of action to redesign the things, that will take time. That will not happen overnight in that. So when it comes to the semiconductors, you have also probably seen this. The best estimate is that it will definitely improve, but to normalize it anywhere, it go into the 2023 also in that. It will improve from quarter-to-quarter, quarter-to-quarter, but really to normalize to the level where we used to see, and that is not going to be before the year 2023.

[indiscernible] what we have done in escalation clause, traditional escalation clauses have been built into that, for example, the [indiscernible]. But the escalation that comes to the feed cost, when it comes to our overseas because we do a lot of exports now, as a strategy, we have built in exports, right? So those will take more time to stabilize.

[Unknown Analyst]

Sir, my [indiscernible] is the orders which you have received are margin accretive or we have been sacrificing some margin to penetrate the market? Like you can give some sense on that.

[Venu Nuguri, executive]

We have, as you know, and in the case of HVDC, we are primary [indiscernible] technology, right? We have -- we've never taken in order to sacrifice our margin to get an order. We don't want to book an order for the sake of getting the order.

So what -- for us, every project, we always look at reward portfolio. What is our risk and what is the reward it will give. And once it fits into our strategy, then only we go for apply. So that is our clear strategy we have it and we adopt for every project we look at it, including this one.

[Unknown Analyst]

Sir, my last question is we supply to the government utilities. So do we take into account the better cycle, the sometimes government state utility in particular takes long time you pay. We take our precautions when we provide to them whatever service or products we provide to them?

[Venu Nuguri, executive]

Viraj, can you please repeat, if you don't mind, because the line is not very good.

[Unknown Analyst]

We supply to a lot of utility companies, the power companies, which is probably the central government, state government. So when we supply to them or offer services to them, do we take care of the things that the payment terms are very clear so that our payment don't get postponed, which is a case with the government?

[Venu Nuguri, executive]

Absolutely. Absolutely. We do not -- at the moment we see any risk, we don't even go for that particular project at all. In term of some electricity boards, where we see a huge amount of delay, then we will always take a decision on that. But most of our contracts, which are the central utilities like PGCIL or Indian Railways, like CLW, BLW, where we see our payments are fairly accurate for the payment schedule.

[Operator]

The next question is from the line of [ Vishal Biraia ] from Max Life Insurance.

[Unknown Analyst]

Something on the export front, we were trying to -- you have [indiscernible] 25% in a few years. So where are we on that track? Have you seen incremental traction because of the chaos that...

[Venu Nuguri, executive]

Vishal, I think your line is very [indiscernible]. Can you speak louder?

[Unknown Analyst]

Yes. So my question was pertaining to Europe, to exports mainly. We had set a target of [ 75% ] exports of revenue in a few years. So where are we on that? By when do you plan to achieve it? And the other is are we seeing any near-term traction on exports because of the chaos that we are seeing in Europe because of the energy crisis and other aspects?

[Venu Nuguri, executive]

Yes. Yes. Yes. I think when it comes to the export, I think we said -- we ourself said a midterm target of between 20% to 25%. And last year, we were in the range of 23% of our revenue and our orders came from exports last year, our orders came from exports last year. And this quarter also I was telling you that we reached exports 23%. So we have a three-pronged strategy on exports. One of the directly, we'll export some of our -- some of the products. We have a global giga factory. Some of the factories we have a global factory like our [indiscernible] everywhere around the world.

And then second strategy is that we also have a global fleet of factories where we will bill the components to some of our factories. And the third one is we do the direct sales to customers like in [ North Africa ], in the Middle East and also in South America, et cetera. And we have a very clear strategy to bring it to the 25%. And we believe that we already reached a mid corridor of our thing, even though we kept 3-year target, but we have reached and we continue to grow on this strategy.

[Unknown Analyst]

Okay. Have you seen any near-term delta in exports or inquiries from Europe or from the feeder factories because of the chaos in Europe where the production has affected?

[Venu Nuguri, executive]

Yes, yes. Yes. There is a -- I don't want to say there is chaos, but there is -- we are going as per our strategy. We have a very clear strategy to bring some of the products to the local manufacturing. And that's the reason we have been expanding. We have been also telling you that we have a clear CapEx to support the exports. We have [indiscernible] factory last quarter, and then we also have several factories lined up as part of that thing. We also -- in one of our conference calls, we have also told what are the factories we are investing and expanding in or coming up with the new greenfield projects for that.

[Operator]

The next question is from the line of Kunal from B&K Securities.

[Unknown Analyst]

Sir, I just wanted to quickly get your view on -- so when I look at some of your end markets like data centers, railways, renewables, they all are quite high growth markets. So I just wanted to get your view on what can be the medium-term or long-term growth number that one should work with in each of these sectors like utilities, industries and transportation, as you classify it. Is it right to assume that all of these are mid-teens kind of a growth sectors? Would like to hear your views on the thing, sir?

[Venu Nuguri, executive]

Kunal, thank you for your question. If you really look at the Indian power sector, it's really going for a huge transformation, right? The growth in the energy or power demand is phenomenal, right? We probably reached the 200 gigawatt. It needs a lot of renewables coming in, and it needs a lot of technology support to the grid and the rest of the industry asset with that. So our growth expectation is definitely the transmission and the renewable, right? So this will be our higher growth. And I say everything will grow, but these are the growth -- they grow higher than the normal market average in that.

So it reduces -- the transmission, for example, as we do see is one example in that. Previously we say, one HVDC project for 3 to 4 years. Now we expect at least every year one HVDC project or every 1.5 year, one HVDC project. So that is the kind of developments that are taking place, and that's the reason we are also localizing a lot of equipment which we used to bring it from outside of -- from our overseas companies.

So we are manufacturing everything in here, in fact. So that's one aspect of it. And the second thing is we see the industrial CapEx -- we have seen industrial CapEx, a lot of industrial CapEx we have already announced it. Maybe due to the current macro situation, there could be some delay in decision-making, but we are seeing our pipeline is very robust at this point. Our pipeline in terms of transmission, in terms of the renewable, in terms of industry CapEx, whether it'll be steel and cement and aluminum, they are really going for expansion and also the data centers. So they are the high-growth segments, they are growing higher than the market average, and we have a clear strategy to grow above the market. And that's the reason we have seen our orders in the last quarters that reflects -- reflecting our strategy.

[Unknown Analyst]

Sure, sir. This was really helpful. Just a quick follow-up on that one, sir, you mentioned about localization. So currently, what would be the level of localization across the company?

[Venu Nuguri, executive]

No, I would call it depends again product to product, things like that. What I was saying is that nobody -- whatever they are manufacturing, if we are manufacturing 100% of our portfolio, 80% of that we are manufacturing locally. Everything is available locally in line with Make in India, bringing the new technology. Last quarter, we have announced opening up a new factory, which is resin cast, resin integrated polymer bushing, which is the first time 700kv transformed that kind of machines what we manufacture here. This is a very high technology intensive products and we got it clear and we are manufacturing it here itself, but this is just to give you a flavor of it.

[Operator]

Thank you. Ladies and gentlemen, due to time constraint, that was our last question. I now hand the conference over to Mr. N. Venu for his closing comments.

[Venu Nuguri, executive]

Thank you, ladies and gentlemen. Thank you for taking your time on attending to our call and appreciate very much. Lack of time, I think we could not answer any more questions, but please reach out to us any time, and we are happy to answer your questions if any. So meanwhile, please take care of yourself, your families and your colleagues and stay safe and stay sound. Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Hitachi Energy India Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.