Hitachi Energy India Ltd

NSE:POWERINDIA

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Hitachi Energy India Limited Q2 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. Thank you. And over to you, sir.

[Venu Nuguri, executive]

Yes. Thank you, operator. Good evening, ladies and gentlemen. Thank you for joining us for the call, and I hope you're all doing well, taking care of yourself and your families. Last year around this time, if you recall, we unveiled our new identity, rebranding ourself as Hitachi Energy. This name reflects the breadth of opportunities where we can contribute our competency, expertise and solutions, portfolio and support the actualization towards sustainable energy future and societies.

So our first year as Hitachi Energy, we invested in capabilities to capture the evolving energy landscape, strengthening our foundation of talent, expanding our manufacturing footprint and building a brand that we all know today. As Hitachi Energy turns 1, we will continue and deliver results with strategic expansion to drive high-growth segments. We have uploaded this presentation, which I'm going to refer in -- already in BSE and NSE. For your benefit, I'm going to refer the slide numbers. In the next 20,30 minutes, I will take you through our performance during the quarter ended September.

So let me move to the Slide #3. Consistent performance on a strong order pipeline is the slide. In this quarter ending 30th September, we received orders worth INR 1,278 crores, up 30.6% year-on-year. The continued order growth momentum was driven by key wins in renewable industries and rail segments. As you know that these are our high-growth segments. We have been driving this continuously consistently for the last several quarters. The revenue stood at INR 1,115 crore, up from 31% year-on-year, while PAT was up 8.3% year-on-year.

Consistent focus on execution, close customer connect and various mitigation efforts are tempering the impact of tight supply chain on earnings. Some of the notable order win during the quarter were NTPC Renewable Energy order for the transformers and the rail segment from the BLW and BNC Power, mining and data centers, and some of the industrial orders, aluminum smelter, and steel orders, et cetera.

I would like to take a moment to talk about the order from NTPC Renewable Energy Limited to supply power transformers for their upcoming 4.75-gigawatt renewable energy park in Gujarat. And once it's completed, it's going to be one of the largest renewable power anywhere in the world. The solar park, as I told, the largest park, we will be providing transformer manufacturer at our factory in Vadodara, and this will be the single -- this will be the largest rating of transformers used for solar power evacuation in the country so far. These orders validate how we continue to gain traction from customers in the high growth segments such as renewable, railways, data center and substation and industries.

Moving to the next slide, Slide #4. As Hitachi Energy, we have followed the 3 pillars namely safety, integrity and quality, which are our licenses to operate. We have been continuously investing in our employees, including contract staff, to ensure they understand and inculcate the fundamentals and live by these principles and examples. We continued organizing regular training sessions, training camps for our employees.

While these have focused on physical health and safety aspects, we have been steadily increasing our focus on sustainability. This has been visible to customers who have acknowledged and appreciated our word with the reward and recognition. While [ inviting ] these in our operations and business processes, we are also taking the message forward promoting importance of safety and quality with our outreach efforts. During the quarter, we organized a road safety program in association with well-renowned 2-wheeler company, Hero Motor Corporation, and this includes 43 road safety program sessions with more than 2,000 participants across locations.

Moving to the Slide #5. As the pioneering technology leader, we collaborate with customers, partners and stakeholders to enable a sustainable energy. We strive to be customer-centric and we work to build and maintain trust for the long-term partnerships with our stakeholders across the sector. One of the orders bagged during the quarter included the first order of 100 MVA scott transformer. This is the first for Hitachi Energy globally, and I'm proud to share that from the product design to product engineering, our engineering team in Vadodara will be driving this project from design to manufacturing and commissioning.

These projects are examples of how we are accelerating the evolution of world's energy system by collaborating with customers and bringing newer solutions on the fore. And efforts to do so with transparency and integrity were recognized for Excellence in Corporate Governance 2022 Award, a reaffirmation of our confidence. We are also driving the conversation on energy transition as industry thought leadership products, taking the message to our customers across India and also nearby countries like Nepal, Bhutan, Bangladesh, et cetera.

With industry leaders, we're also readying talent equipped to tackle this transition. We are committed to supporting all of our customers addressing the needs of industries and societies as a part of our continued outreach to the communities around us. We supported the Pediatric ICU in Mysore District Hospital under our CSR initiatives, providing infrastructure that will enable the hospital to provide care that was not possible until now.

Moving to the Slide #6. Hitachi Energy is making timely progress with its portfolio that is strengthening, expanding and evolving power system. The business is focusing on continued localization of its global portfolio, building indigenous capabilities and products as well as creating new jobs. We are continuously evaluating the energy and demand landscape and necessary steps we must take to keep ourselves relevant to deliver cutting-edge solutions to our customers in India and around the world.

In August, our greenfield manufacturing facility for high-voltage power quality products was inaugurated by the honorable Chief Minister of Karnataka, Shri. Bommai. This facility doubles the existing production capacity of advanced capacitor units, tanks and other products which are very critical for the power quality. These products find application in power utilities, industries, renewable, transportation, rail segments to improve efficiency and reduce energy waste. Along with power quality products, we also initiated manufacturing of next-generation switchgear operating mechanisms and expanded dry bushings for transformers. These factories have lower environmental impact production principles and are reiterating on technologies that improve reliability and flexibility of the grid. We are participating in the country's growth story, continue to bring industry-leading experience, deep domain knowledge and pioneering technologies that support our stakeholders with accelerating the global energy transition.

Moving to the next slide, Slide #7. Hitachi Energy in India has placed sustainability at the heart of our purpose, focused on advancing the sustainability future for all. The most significant impact that we are making is accelerating the energy transition in India. As you know, last year, we adopted an ambitious target under Sustainability 2030 program to become carbon-neutral in our own operations by 2030. After reaching our first milestone in December 2021, that is switching to 100% fossil-to-electricity in our operations, we looked at innovative ways to optimize energy generation and consumption. As stated last quarter, we are targeting 60% reduction in CO2 emissions within financial year '23 and have reduced operational carbon footprint in this quarter by 40% compared to the last year same period.

We also implemented greenhouse gas standards and are in the process to adapting smart metering across our 18 and 19 sales touch points and other facilities. From the top leadership to location heads and business unit leaders, everyone in the organization is committed to these goals, and they have the target on monitoring on a month-on-month and quarter-on-quarter basis.

Moving to the next slide, I think this slide, you all know better than me, Slide #8. And during this quarter, inflation climbed 7.4% against the 7% inflation in the previous quarter. And then, the rupee depreciated at a record low of INR 82.3 per USD dollar and the lowest -- which is the lowest in the history. The threat of recession looms large on the U.S. economy and its impact on other economies such as India is yet to be seen fully. The shortage of semiconductors, chips, et cetera, continue to worry the industry even though the supplies have improved slightly, but overall basis still challenging system -- challenging shortage systems.

There have been a gradual improvement across indices such as the Index of Industrial Production and Core Industries, et cetera. The overall economic indicators are starting to look better, and India appears to be slowly getting back on track. And the Indian economy remains one of the fastest-growing economies in the world as of now.

And moving to the next slide, #9. As you see, we continue to gain traction from customers in our high-growth segments. And we have been driving these high-growth segments since several quarters now, and these are renewable industries, transport, data centers, HVDC, et cetera, are some of the high-growth segments. And the total orders with the efforts of various activities, the total orders are up by 40.6% year-on-year, and orders such as the one from NTPC Renewable Energy Limited to supply power transformers are resulting from the nation's target to have 50% electricity generation from renewable resources by 2030.

So, these are the commitment and offshoot of those commitments or some of these projects getting finalized in that. Orders were heavier on products from end users and evenly split between utilities and transport followed by industries. In the sectors, transport and infra was stronger this quarter with the push towards data localization, regulations and data center policies. We expect healthy growth. In railways, for example, we are looking at opportunities such as 2x25 KV electrification of high-density corridor and upcoming 8 to 10 metro projects, which are expected to be awarded in the fiscal year.

Moving to the next slide, Slide #10. With 25% of the order book, exports remained healthy, and do you recall our strategy from the last more than 1 year to bring the exports to that 25% corridor, which we are happy to share that. We almost reached our targeted corridor. And with 25% of order book, the orders from established export markets, our nearby countries such as Nepal, Bhutan and Middle East, and also the Americas. Understanding the market requirements, Hitachi Energy has been proactively augmenting its manufacturing facilities to meet changing demand. Today, more than 80% of Hitachi Energy's portfolio is locally manufactured in India, and the manufacturing base in India also caters to the global requirements of byproducts. And you have seen successively for last several quarters, we are opening up the new factories or expanding the new factories in this direction.

Service orders remained strong from a healthy mix of base orders for retrofit and space from utilities, including some breakthrough orders for GIS bay extension and Substation Automation Systems. As a partner across customers' plan-build-operate lifecycle, Hitachi Energy in India continued to provide technical expertise services such as renewable studies for utilities and engineering advisory for mining industries, et cetera. And the annual potential market for service averages around INR 2,000 crores for Hitachi Energy in India. We are leveraging our installed base to expand in exports and service. I will talk more about this in the upcoming slide.

Moving to the Slide #11, our financial performance. As you can see from the table, the company's efforts towards mitigating the impact of macroeconomic factors have been yielding benefits by softening the impact of external challenges. We continue to face semiconductor shortages, which is very critical thing in our grid automation business. Commodity and freight prices increase and foreign -- ForEx volatility. This was reflected in company's performance in the short-term. The company booked orders worth around INR 1,278 crores, up from 30.6% in comparison to the same quarter last year. And the profit before tax stood at INR 50.2 crores and the profit after tax is INR 37.2 crores.

I would like to bring your attention to the last column. If you see, the year-on-year comparison of the company performance between the first half of fiscal year 2022 and the first half of previous year. The growth has been more than 150% in orders, an indication of the consistent growth performance and a strong order pipeline. With the large orders of HVDC Mumbai, which has been booked, our order backlog crossed INR 7,000 crore mark and provides us a revenue visibility of more than 20 months.

And moving to the next slide, Slide #12. As you all probably seen the news, that Hitachi announced acquisition of remaining shares from ABB ahead of a schedule, further supporting Hitachi Energy's 2030 plan. The joint venture company was launched and began operations as Hitachi ABB Power Grids on July 1, 2020 and then announced the change of company name and brand to Hitachi Energy on July 1, 2021. The progress in the company has been possible, bringing together the passionate global team of 40,000 Hitachi Energy employees and 2,500 employees in Hitachi Energy in India.

This acquisition will provide opportunities for accelerating the synergies between businesses and functions, especially in R&D, IT transformation programs, common shared services and various synergy businesses such as rail, smart grids, et cetera. It has also helped us move forward and continue with the trusted partnership and collaboration with customers, partners, which is essential to finding the solution our world needs.

Moving to the next slide, Slide #13, which is a very important slide to give you a little more information, where is going to we have the high-growth segment focus going forward in that. The growth momentum in market and economy is helping us stay cautiously optimistic about our high-growth segments. We are making strong inroads in high-growth segments such as solar, wind, data center, and grid and HVDC. The renewable market, with present installed capacity of solar at 60.8 gigawatt and wind energy at 41 gigawatt is poised for 5x and 3x growth, respectively, to meet -- we have to meet the commitment of the government in a 2030 scenario.

We are offering for the renewable market such as electrical balance system and grid connected substation, evacuation substation, energy and grid management automation, and various type transformers, including dry-type transformers and so on and so forth in that. To efficiently transfer clean energy across the vast geography of the country, government is discussing projects to make the national grid more flexible and secure. Over the next 8 to 10 years, we anticipate HVDC connections for utility scale solar generator at Badla, Leh, Kargil, et cetera.

The data center market in India is expected to add 45 data centers spanning about 13 million square feet and more than 1,000 megawatt of IT capacity over the next 3 years. And this is our growth segment, focus segment, we have a very high market share as of now in this. We provide substation, GIS automation, dry-type transformer solutions, data centers and also planning studies, et cetera.

Let me dive deeper into 1 of the growth drivers for us, the Indian Railways. World's fourth largest railway network, you all know that, is undergoing a massive upgradation and expansion led by electrification of rail and adoption of energy-efficient system. They have already announced various sizeable tenders for high-density corridor or Mission Raftaar, and also the 12,000 HP horsepower loco projects and 9,000 HP horsepower loco projects. Hitachi Energy has been a long-term partner of Indian Railways. And we see a huge opportunity here for our products and services directly as well as through the OEMs of this particular project. We have a large installed base in the country when it comes to service and we have been here more than 6 decades, and this gives us a good market for leveraging service portfolio.

Like I mentioned before, the annual potential market for service is in the range of INR 2,000 crores for us. And with our portfolio of digitalized classic services, advanced services and more of [ targetized ] solutions, those are the things where we got to focus on that. We expect services to account for 10% to 15% of our orders. Similarly, for exports, with our manufacturing expansion of our footprint, we have been clocking a quarter of our orders from exports over the last few quarters and expect to build on this trend going forward. We believe that the company is also well positioned to support the growing electrification of the transportation industry and building segment with a purpose-driven growth plan.

Moving to my last slide, Slide #14. We are supporting customers across the value chain throughout the full life cycle, along vendor value chain right from the planning stage of an asset through the building phase of an asset until operation and maintenance phase of it. Advancing a systems energy future is not achieved purely by making best-in-class and pioneering technology products, it takes the relationship and collaboration delivered through committed experts and support to ensure the right solution with the best flexibility, efficiency, reliability and availability through their entire lifecycle.

We know this because today we are such a partner with responsibility for existing assets commissioned over 100-plus years of technology leadership globally. And we try to take an integrated view on the plan, build, operate and maintain phases to design and provide sustainable solutions to our customers, partners helping to advance the world's energy transition.

As we move forward with our Hitachi Energy 2030 purpose-driven growth, we will continue to focus on strengthening our power grid core business. The core business is our transformer business, our switchgear business, our HVDC business, our grid automation business, they are our core business as we are doing. Doubling up on digital and services, as we talked about, and expanding the edge of the energy system, it could be battery energy storage, data centers, et cetera, and lastly exploring opportunity of innovation synergies and partnership to accelerate the growth.

On this note, I will close the presentation to open the hall for questions. But I wanted to share another positive announcement that we would -- I'm happy to announce that we are planning to organize the in-person Analyst Meet in our state-of-the-art facilities in Baroda, where we have an Experience Center, where we have energy, tech energy technology center, both digital and other technology centers out there where we would like to announce that planning to organize the in-person Analyst Meet in the next year, that is the year beginning in 2023.

And we shall share those further details soon once we have completed our planning stage. This will enable you to understand how the digitalization is shaping up in a very big way in this industry and how our new products, new portfolio can enable even faster acceleration of customers' energy transitions in that.

So with that, ladies and gentlemen, I really thank you for joining us today. And I would now request the operator to open the channel for your questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of [ Dinesh Mahajan ], an individual investor.

[Unknown Attendee]

Yes. As per recent media reports, there have been reports of transformer shortages in the North American market, like utilities are facing transformer shortages because of increase in electric vehicle charging infrastructure. Do you see similar trends in world over or in the Indian market? And second question is pertaining to, are we into high-speed rail transformer business, like the bullet train business, like -- is Hitachi Energy catering to that business?

[Venu Nuguri, executive]

Yes. So thank you for your question. I think, if you really look at the North American markets, I think you rightly said, you [ heard in ] the media, so same is the case. And there is a huge amount of demand arising out of energy transition there, okay. One is that and also strengthening the grids and the resilience of the grids, all those things are creating a huge amount of demand for lots of products. And in addition to that, as you rightly said, the electrical vehicles is also another growth segments. So, some of the components, which go into the multiple segments since the demand has come up in the same time, so naturally there is always a challenge from the supply and demand standpoint in that. And we expect a similar kind of trend to continue in other countries, including India, even though we have a very robust capacity for the transformers.

So, the question is that the ability, depending upon the thing is that how fast we plan early, the early our customers plan, so we are in a better position to plan and then delivering that. So in this regard, we are engaging with our customers to make them aware about the need to plan early on to their requirements so that they will not get into these challenges of supply and demand gaps in that.

Yes. And the second question on the high speed, I think our Hitachi Energy portfolio goes into high-speed rails, whether it is a traction transformer, whether it is the trackside transformer, whether it's a car transformer, as I talked about is the new transformer, which we have actually designed and built for the railways in that. So, as you know that we are in touch with this project, high-speed rail project, and then as and when it gets materialized, we will be happy to share the information -- more information with you.

[Operator]

[Operator Instructions] The next question is from the line of Amit Anwani from Prabhudas Lilladher.

[Amit Anwani, analyst]

My first question, sir, is on the data center. As we mentioned that there is a potential of 1,000 megawatt [ data center ] built up. How much is our addressable market and kind of product which we will be supplying out of the total CapEx?

[Venu Nuguri, executive]

Yes. So as you know -- first of all, thank you for the question. We have been also telling you this. Our portfolio goes into grid connection and then power evacuation and the strengthening of that particular things and automation, and then high-voltage and then dry-type transformers, et cetera in that. So, all these things put into depending upon the size of the data center, whether it's hyperscale or not, so it's in the range of 15% to 20% is our addressable market.

[Amit Anwani, analyst]

Okay. With respect to exports, as you mentioned, you're targeting in the range of around 25% of orders in coming year also. So, could you elaborate more which geographies, what export mix is kind of look like in next, let's say, 1 to 2 years, and which kind of products we are targeting in exports?

[Venu Nuguri, executive]

Yes. As we have discussed in the beginning of 2021, wherein we have kept ourselves a target of reaching 25% by 2023 -- 25% of the total order by 2023. And we are happy to tell you that we have reached that target much ahead of our own ambition in that. So, we have a 3-prone strategy when it comes to the exports. The first one is, we have some global feeder factories such as our 63 KV circuit breaker, and then COMBIFLEX, et cetera, where we will be supplying to globally because that is -- those 5 products are going into manufactured only in India. That's number one.

And the second one is, we have some allocated markets for some -- most of our products. And those allocated markets where we are having a strategy go-to-market strategy, we are also deploying our sales resources. We are working with our country sales organization and then start selling those things directly to our customers. That's the second strategy.

And the third one is, we also have a feeder factory where we will be supplying some of the components to our factories around the world, whether it is in mechanism -- operating mechanism, whether it is poles, et cetera in that. So, the combination of these 3 strategies will get us into 25%, which we have already achieved. Then we will -- once again, we will review it and then see where we need to go upper band of that.

[Amit Anwani, analyst]

So my last question on the margins. So, as you already explained it in your initial remark, so now with respect to semiconductor shortage, when are we expecting this to [ some view ] on normalizing at least specific to Hitachi? And what would be the normalized margin in the, let's say, coming quarter if things normalize?

[Venu Nuguri, executive]

Yes. So, the semiconductor is a global challenge and we have been continuously working with that and taking a lot of mitigation actions, as you have seen, compared to last quarter and this quarter. Our various mitigation actions have come in play, and then we have softened the impact due to that. So, when it comes to normalizing the supply chain, in our view, it will take at least couple of more quarters and we have a lot of mitigation actions. For example, we are focusing on the product lines which do not depend heavily on the semiconductors.

And like we have a COMBIFLEX, RPV, et cetera in that. And we also have a collaboration approach on stock sharing with some of our Hitachi Energy factories around the world. And also, we are giving early forecast to our suppliers to secure this material. We are placing the early orders in anticipation of that. So, this is basically an industry-wide situation with all -- in my view, all players facing similar challenges when it comes to semiconductor impacting their suppliers in that.

[Operator]

[Operator Instructions] The next question is from the line of [ Mahesh Bendre ] from LIC Mutual Fund.

[Unknown Analyst]

Sorry, if I missed your opening remarks. But I just wanted to know what is the outlook on...

[Operator]

[ Mr. Bendre ], the audio is -- the audio from your line, there’s a disturbance coming.

[Technical Difficulty]

[Unknown Analyst]

Yes. So I just wanted to know what is the sustainable margin going forward over next 2, 3 years, what kind of synergies we will get into because we are [ coherently ] scaling up our business, so what could be sustainable margin over the next 2, 3 years we would like to achieve?

[Venu Nuguri, executive]

Yes. I think we have clarified this and we have also talked previously on this. So we have various levers. For example, we have taken several initiatives upfront, and then our go-to-market strategy is very solid. We have a focus on the various high-growth segments. All those things are enabling us to grow higher than the market. And in addition to that, we also have exports. We have exports as well as service strategies to take us where we would like to do that. So, basis which, we have also told last time that our mid-term strategy is to bring the EBITDA margin to a 10% level by 2025 is what we have said that, and we are still committed to that. And we believe that, that is the sustainable margin going forward.

[Unknown Analyst]

And sir, export side, I think we all seems to be doing well. So, what is the outlook for that and which are the countries we are exporting currently? And what is the outlook for that over next 2, 3 years?.

[Venu Nuguri, executive]

Yes. We said we have actually in the last year -- beginning of last year, we set ourselves a goal because that time it was under 15% to 17% of our exports. We said we will take this exports to 25% of our total order value by 2023. We have achieved at least ahead of the curve, at least more than 1 year ahead of the curve. And right now, we would like to stabilize this and then we take a call on that. We have also announced opening up new factories. All these factories would enable us to take further exposure into exports, but we want this to be stabilized before we take our next jump on that.

[Unknown Analyst]

And sir, the last question, just a broader question. Compared to thermal power plant for renewables, how much the investments in T&D goes up? Was the high T&D required for renewable plants, solar and wind compared to thermal?

[Venu Nuguri, executive]

I think there has been a lot of similar questions previously also, but we have also informed that when it comes to thermal, you have only point-to-point connection of T&D requirements. Like, you bring power from the pit head to the load centers. In terms of renewables, it's a highly intermittent decentralized, it needs more of T&D required grids. You need to bring, you need to evacuate, and also ensure that the grid resiliency is extremely important, because we don't know when the sun shines, we don't know when the wind blows. In this kind of situation, how do we ensure that the grid resilience? There is also a lot of T&D equipment like power quality, like automation, those equivalents will go into this one.

In my view, I think it's the thermal to renewable. It's not about going down on the T&D expenditure, but rather it should increase more, make the grid more resilient, enable the grids to penetrate more and more renewables going forward in that. So that's what the visible. In fact if you really look at, previously I was also saying, we used to have 1 HVDC project for every 5 years or so. Today, the outlook is that every 1 HVDC project per year is not per year at least for 1.5 to 2 years. That's kind of requirement is coming. And more on more, this technology is reliable. For example, we have received -- in the last quarter, we announced, that is quarter 1, the HVDC project for Mumbai from Adani. This is a 1 example for a different application to make city in-feed more robust. So this connection, when it is ready, it'll bring some more power to the city of Mumbai to make it more resilient and more secure when it comes to the energy standpoint.

[Unknown Analyst]

No, sir. I was asking from the angle is that, if more T&D required for solar and wind?

[Venu Nuguri, executive]

That's what I'm saying. Compared with the thermal, it's more T&D is required for solar and thermal.

[Unknown Analyst]

So there'll be more growth opportunity for us?

[Venu Nuguri, executive]

Absolutely. Absolutely.

[Unknown Analyst]

And sir, last question is, what kind of, I mean, e-mobility side, what kind of opportunity we see in terms of setting up charging stations and so on?

[Venu Nuguri, executive]

So, in terms of the e-mobility, I think we have a technology, what we call as Grid-eMotion Flash and free charging. And this technology enables buses to get a boost-up charge in less than 20 seconds. And we have been working on this. As you know that these kind of technologies, to really want to make it work in India, it needs to be affordable and that's the reason we are right now focusing on localizing these technologies. We are also running, I'll be speaking, running a pilot in IIT Madras with other reputed bus manufacturers on that. So, we are doing all that to make that this technology is localized, indigenized so that we are able to reach the required price, plant and make this technology more affordable in this country.

[Operator]

We'll take the next question from the line of [ Mohan Krishnaswamy ], an individual investor.

[Unknown Attendee]

I'm referring to the Slide #13, which you have just shared. On the service income, where we have mentioned the annual potential market of INR 2,000 crores, now is this with the target annual revenue, which we are looking at for Hitachi Energy? Because right now we are clocking about 10% to 15% of our revenues from services, which could be a good order of INR 400 crores to INR 500 crores. So, is the understanding correct that we are looking at a significant increase over time next 3 to 5 years?

[Venu Nuguri, executive]

Yes. Thank you, Mr. Mohan, for your question. So, what we are saying is that with more and more digitalizing of our networks of the power systems, so the service potential is going to grow based on our installed base calculation, because all the installed base we have in our system, we estimate that INR 2,000 crores will be annual potential in that.

So it won't happen overnight to reach that level in there. So definitely it will take couple of more years, but we are estimating that with so much of digitalization, so much of advanced services like your asset management, asset performance, and also workforce management, enterprise affairs, all those things -- and vegetation management. All those things will enable us to get you there and we have not given any target as of now when do we reach there. But right now, our immediate target is to reach 10% to 12%. And once we reach the 10% to 12% service, then we do that. But right now, we are saying that that's the kind of potential based on our installed base can be achieved over a period of time.

[Unknown Attendee]

And sir, the next question is on the Lumada offering of Hitachi, which is for the digital side, how are we leveraging that in India because clearly that holds potential as well, and we are using Hitachi's strength here. So can you just throw some color on that?

[Venu Nuguri, executive]

Yes. So, as now we have become globally 100% owned by Hitachi once the deal completes by this December, so the very purpose Hitachi has advanced this taking a balanced stake from the global organization is to bring the synergies between Hitachi and Hitachi Energy. Lumada is 1 of the well-known IoT platform, and we would like to leverage that platform to offer Hitachi Energy's enterprise software. Talked about asset performance, enterprise performance and workforce management and vegetation management, and all those things we will be in a portion to offer in this Lumada platforms going forward, basically you're talking about this IoT and the cloud.

As we speak, we are running a lot of pointers with the various -- both private customers, and many of the government customers are coming on this in a very big way and they are working what all the things we talked and what all the things they need to do that. Because with so much of renewable, it's extremely important that the entire fleet, entire network needs to be digitalized. They need to have a more real-time basis information to take care of the required actions basis of the generation mix, et cetera, in that.

[Operator]

The next question is from the line of Alisha Mahawla from Envision Capital.

[Alisha Mahawla, analyst]

Just a clarification. What is the current [ evolving ] technology in -- that we're making to the parent?

[Venu Nuguri, executive]

Sorry, yes, I think -- can you just speak, I think, with echo?

[Alisha Mahawla, analyst]

Am I audible now?

[Venu Nuguri, executive]

Yes.

[Alisha Mahawla, analyst]

I wanted to know what is the royalty and technology fee payout that we’re doing to the parent?

[Venu Nuguri, executive]

Royalty, Ajay, can you please talk about that?

[Ajay Singh, executive]

Thank you for this question. As you are aware that as a group company and we're very much dependent upon the technical know-how of the group company, so currently the royalty that is going out is approx around 3.5% that we're doing at the moment.

[Venu Nuguri, executive]

But also we need to understand that this is extremely important for us because the whole energy systems are undergoing a tremendous transformation. This needs lot of investments from the R&D standpoint to modernize your fleet, modernize your technology, providing the best-in-class technology. For example, everyone is talking about sustainability net-zero scenarios and carbon-neutral strategies, many of the customers. In that scenario, whatever the product they buy, that also need to meet those kind of requirements.

For example, we use SF6 gas in our GIS substations or in our air insulated breakers, et cetera, in there. You all know that SF6 is 23,000 more potent than CO2 when it comes to the greenhouse emissions thing in that. So this will not be sustainable, we need lot of investment to come out for alternative that. And we are very happy to leverage our global technology, global scale, we already announced economic portfolio, which is more sustainable than CO2 in that. So these are all extremely important, whilst the energy transition is undergoing a tremendous transition. And these are the technologies absolutely essential for us.

[Alisha Mahawla, analyst]

Understood. Just a clarification. Is there any payout that is going to ABB?

[Venu Nuguri, executive]

No, no, no. There is nothing, no payout goes to ABB as part of the royalty or technology.

[Alisha Mahawla, analyst]

Is there any other kind of payout going to ABB?

[Venu Nuguri, executive]

Yes. We are having a TSA, that we call Technical Service Agreement, on the usage of the [ IS ] infrastructure. So, as you know that we have the operating norms standalone basis, and the IS separation requires a lot of infrastructure and resources and capability and skill set. So that needed a bit of time. So we are having a TSA agreement with ABB for which we are using their services at the moment. And that is why those payments are going to basically ABB at the moment, mostly on the IS-related support.

[Alisha Mahawla, analyst]

And is it possible to quantify what percentage of revenue is going under this THS agreement?

[Ajay Singh, executive]

No, if you see it here, it will be difficult to quantify because it depends upon the services that we're taking. So actually if you ask me, we are trying to come out of the services. So every month, every quarter we are coming down. It's coming down, we are adopting our technology, our infrastructure and gradually it is coming down. So, as a percentage, it would be very difficult.

[Venu Nuguri, executive]

But we expect this to come in next 6 months or so, right?

[Ajay Singh, executive]

2023 end we are expecting it to come down.

[Operator]

The next question is from the line of Harshit Patel from Equirus Securities.

[Harshit Patel, analyst]

We are localizing heavily in the country. On top of that, we are also introducing new products from time to time. So, could you throw some light on what are our CapEx plans for the rest of the year, which is the second half of FY '23, and for the full year FY '24?

[Venu Nuguri, executive]

Yes. So, I think, we have been discussing this in the last 2 years. We have been investing here because we believe that we need to bring a lot of products to meet the local requirements, we need to locally manufacture, not only for the local market but also for the market outside of that, because we have a huge footprint here. We have a huge opportunity to leverage the existing talent, existing engineering base, existing manufacturing base to do that. So we have been continuously upgrading both greenfield power quality facility.

For example, I talked about, we have doubled our capacity of existing power quality factory from 10,000 MVAR to 20,000 MVAR in Bangalore, Doddaballapur. And then we also had a brownfield additions of next-generation operating mechanism of high voltage switchgear. And we also inaugurated our state-of-the-art bushing -- dry bushing factory, which is the first time we are bringing this technology for 765 KV to India in that. So, between facility upgrades and greenfield investments, we anticipate an annual CapEx run rate of INR 100 crores to ensure we continue to deliver to the needs of evolving energy landscape.

[Harshit Patel, analyst]

Understood, sir. Sir, secondly, on the HVDC project that we had won in the last quarter, so have we already commenced the execution? And by when you plan to complete the execution?

[Venu Nuguri, executive]

Which HVDC you said?

[Harshit Patel, analyst]

The Adani HVDC project that we won in the last quarter?

[Venu Nuguri, executive]

Right, right. So, Adani HVDC, we have already commenced execution. As you know, these kinds of projects when you say commenced execution means, first we'll start the engineering and the load flow analysis, system study analysis will start. And then we will slowly getting into the site activities, and after that the manufacturing of the various equipments start coming to the site in that. So we have around close to 36 months to complete from the date of the booking of that. I think that is on track as on today now.

[Harshit Patel, analyst]

Could you comment on what would be the quantum of revenues that we would have booked in this particular quarter from that project?

[Venu Nuguri, executive]

No. We will not able to tell you about the project. But right now, that project is the very initial phase. Engineering, we'll not get much, okay. So generally, the revenues will pick up after 3 to 4 quarters of that, but we will not be able to give you project-wise revenues, yes.

[Harshit Patel, analyst]

No problem, sir. Just one detailed follow-up on this. So, could you comment on the margin that we will make from this project, whether that will be higher than the present company level average or be lower than the present company level average?

[Venu Nuguri, executive]

So, I'm afraid I will not be able to share the project-level margins on that. What I told you, our guidance for the margin for our mid-term strategy up to 2025 is to reach a double-digit EBITDA level. So, all these things will add up to that.

[Operator]

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. N. Venu for closing comments.

[Venu Nuguri, executive]

Yes. Thank you once again for your interest and active participation. And I'm really looking forward to host you physically in our state-of-the-art world-class Hitachi Energy Experience Center in Baroda and also our world-class factories in Baroda. And I hope that we will work out a suitable date and you all of you can join us there.

So with that, once again, thank you. Please take care. And if you need any more information, do not hesitate to reach out to us, and we are happy to provide whatever information you are looking forward. Please take care and stay safe. Thank you.

[Operator]

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