Hitachi Energy India Ltd
NSE:POWERINDIA
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
4 373.85
16 118.45
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Hitachi Energy India Ltd
Earnings Call Analysis
Q3-2024 Analysis
Hitachi Energy India Ltd
The company maintained a consistent order intake with INR 1,235 crores, matching the previous year's level, indicating stability in their order book. More impressively, the solid order execution coupled with easing supply chain constraints spurred a remarkable year-on-year revenue growth of 23%, along with a significant leap in profits. The profit before tax increased by 152% from the previous year, and a staggering 400% rise in profit after tax exemplifies a robust recovery from a previously low base.
The company's strategic focus on exports and services has paid off with export orders surging by 61% year-on-year, driven by high demand in transformers and high voltage products. Key wins across diverse geographical markets from Europe to Central America emphasize the company's global competitiveness. Additionally, service orders grew by 70%, underpinned by utilities industries across various regions, showcasing the company's capacity to diversify and expand its offerings.
Margin improvements have been consistently climbing over the past quarters, reaching an operational EBITDA margin of 6.3%. The company's backlog of orders, amounting to INR 7,552 crores, provides a clear revenue visibility for almost 22 months ahead, which is reflective of the company's future earning capacity and its ability to sustain and improve profit margins over time.
A point of strategic interest is the anticipated material-related transaction with Hitachi Energy Sweden AB, valued up to INR 700 crores, which lies within the company's ordinary course of business and at arm's length. Moreover, the company envisions nurturing high-growth sectors while capitalizing on services, exports, and digital capabilities to strengthen its core business. Operational excellence and the upcoming REIWA project—aimed at upgrading the core ERP systems—will further bolster the company's agility, quality, and productivity.
Looking forward, the company has forecasted a strong, robust pipeline with diverse sectors teeming with opportunities, particularly in transmission. The company anticipates a multitude of tariff-based bidding projects, including those related to STATCOM and HVDC, as well as large-scale 765 kV bids. This suggests steady prospects for growth in the coming quarters and reaffirms the company's competitive stance in the market.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Hitachi Energy India Limited Q3 FY '24 Earnings 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 of Hitachi Energy India Limited. Thank you, and over to you, sir.
Thank you, [ Darwin ], and good afternoon, ladies and gentlemen, and thank you for joining our quarterly earnings call. And let me -- we have uploaded the presentation to the stock exchange. I'm sure you have seen that. And yesterday, we announced our results for the third quarter of the financial year 2023-'24. And in the next 20, 25 minutes, together with my colleagues, Ajay Singh, CFO; and the Company Secretary, Poovanna; and Manashwi Banerjee, Investor Relations, we will take you through the quarter numbers. And for ease of reference, I'll read out the slide numbers in case you are following via phones or so.
So this quarter, easing supply chains and better order execution helped continue the growth momentum. The prevailing positive economic environment that the country has, India's energy transition phase, which will open up more opportunities in the coming quarters. With this, we remain committed to exploring new opportunities stemming from energy transition across geographies and creating a robust, sustainable, clean energy system.
I go to Slide #3, which is our license to operate. As we review the quarter, I want to recognize our most valuable asset that's our employees. Our commitment to their safety has been unwavering from offices to factories and on-site locations, and they return this with their ownership on safety matters. This quarter, we had several employee engagement programs across locations, factories, offices, focusing on employee well-being, shop floor demonstration and life support trainings for all employee groups.
At Hitachi Energy, safety is our license to operate. We never look the other way. We reiterated this tenet, as we observed HSE Week in November 2023, with theme, To Do The Right Thing. All teams were reached using multiple platforms and formats, both virtual, physical workshop, the focus was on celebrating best practices and promoting HSE behaviors and drive us to world-class performance.
We continue to receive recognition and appreciation letters from our discerning customers for driving HSE culture across the energy value chain. Sustainable safety practices and quality are always being paramount to us. We thank our clients, customers for their constant encouragement and continued support in enhancing the safety across all the locations.
Moving to the Slide #4. This is also another very important for us, sustainability. The journey to -- carbon-neutral journey by 2030 requires all teams within Hitachi Energy to be involved, contribute through innovative ideas and take the initiative. In the period under review, the company focus was on improving waste flow management across 5 locations, to reduce water and air pollution, which directly affect many ecosystems and species.
All the projects follow in a very standard approach in creating a framework, which can be scalable, repeatable at many of our locations. Along with this, the focus remained on the timely implementation of various ongoing sustainability projects across locations, like water conservation projects in Maneja, rainwater harvesting and recharge pits at Halol, installation of rooftop solar at Doddaballapur to mention a few.
Furthermore, there are -- several sustainability projects are in the pipeline for the coming quarters, like setting up EV charging points, battery energy storage system, electrification of equipment, such as forklifts, et cetera. The whole idea is that we have been working in decarbonizing our operations in all our factories, project sites, and also in offices, et cetera.
Moving to the next slide, that is Slide #5. I think this, you all know better than me, the Indian economy continues its growth momentum. As per the government reports, the country's GDP is expected to grow 7.3% for FY '23-'24. The RBI has kept the rate of interest unchanged at 6.5%, but there is a slight rise in inflation as it touches 5.6% in November 2023 because of rise in food prices.
On the power demand front, electricity demand in India is expected to touch 277-gigawatt and 360-gigawatt (sic) [ 366-gigawatt ] by 2027 and 2032, respectively, up from 239-gigawatt in September 2023. Whereas industry growth IIP shows rise in India's factory output, we are 16-month high in October. Also study by India's largest nationalized banks suggest that individual average weighted main income has risen 3.7x during FY '14 to FY '21 from INR 3.1 lakhs to INR 11.6 lakhs.
And all this means that growth drivers for Hitachi Energy remain intact and tracking upwards. As you would be aware, we need to add 30 gigawatts of capacity annually to reach 290-gigawatt solar target by 2030.
In wind, the first offshore tenders have been announced, 7-gigawatt to be auctioned by FY '24. In the Transmission segment, already 35, the TBCB, tariff-based competitive bidding projects were declared in current financial year and 2 HVDC projects is expected to be awarded in the next 6 to 12 months.
Similarly, for industry, the revival of private CapEx is likely driven by government, various schemes, including production-linked incentive schemes. And on the consumption standpoint and the rail -- and on the electrification standpoint, rail, metro, high-speed rail, rail electrification, rolling stock upgrade fueling the growth of Transport segment and so on in that.
So moving to slide -- next slide, that is Slide #6. In our pursuit of advancing the sustainable future for all, we continue to lead industry discussions across the entire value chain of the energy industry in India and also in the region at multiple forums and platforms. We are happy to inform you that the production for the Mumbai HVDC link valves has commenced in our HVDC and power quality factory in Chennai. And the work we do continue to be recognized by customers and industry peers.
Hitachi EnergyTEC, training and experience center, in Maneja was recognized by Central Electricity Authority as a category 1 for imparting training in operation and maintenance of the Transmission and Distribution segment of power sector. Customers recognized us as a valuable partner, and we continue to translate excellence along the value chain with the channel partner needs that focused on the role of technology in the energy transition.
India has been championing the transition through its people, innovation and policy. It is what makes the country a key market in the Hitachi Energy and Hitachi Group universe, reflected in the recent leadership meetings held in the country with the key stakeholders of Hitachi Energy Global Board.
Moving to the next slide, Slide #7. During this quarter, we have commissioned several projects, just to name a few, grid connection projects for the 300-megawatt hybrid renewable in Pavagada, Karnataka; transmission project for energy-intensive steel industry in Korba, Chhattisgarh. We also successfully commissioned a major data center project, 230 kV substation in Chennai. And as a broad spectrum of society recognized the urgency of energy transition, our continued efforts have further cemented our reputation as a reliable partner and a pioneer in power technologies.
Moving to the next slide, Slide #8. In the quarter, ending December 31, 2023, we received orders worth INR 1,235 crores, flat year-on-year. Solid order execution coupled with easing in supply chains resulted year-on-year growth revenue of 23%. And normalizing of supply chains also spurred year-on-year profit recovery. And profit before tax stood at INR 33.8 crores, up 152% year-on-year. And profit after tax was INR 23 crores, clocking a recovery of 400% year-on-year on a low base.
As of December 31, 2023, the order backlog stood at INR 7,552 crores providing revenue visibility for almost 22 months. Some of the key order wins, as you can see here, it's a broad-based, right from the renewable to industry and the data centers and the rail, et cetera, and also the exports have contributed in that.
Moving to the slide -- next slide, Slide #9, to provide some more color on the orders received on the segmentation, on the channel mix. Demand for solar and wind energy, especially from utilities, continued its momentum in this quarter. We are actively partnering on various renewable developers projects and have made significant addition this quarter as a renewable, witnessed a 54% growth in this quarter compared to the last quarter.
The data centers remain a high-growth segment, thanks to the push for 5G data localization regulations, et cetera, and data center policies. Data centers are the high-growth segment in the Hitachi Energy strategy. And while the segment is massive, we reported a very high 92% growth in orders in Q3 FY '24.
With the sheer potential of the market, we see this trend to continue in the future as well. While the orders for our transmission remained stable, there was a slight decline in the order -- for the rail segment. And reflecting the nature of customer orders this quarter in the large projects, and services take the lead while sector-wise utilities saw a rise, and on the channel side, EPC leads in orders.
Moving to the next slide, that is Slide #10. These are our levers for the long-term -- our long-term growth lever that is service and exports. Order mix reflects our diversified portfolio across our installed base and our focus on leveraging our key growth markets and capitalizing on market opportunities.
We successfully secured key market wins in services and exports in line with our 2030 strategy. Export orders were up 61% year-on-year during the quarter driven by transformers and high voltage products and also feeder factories, reaffirming our strategy of Make in India for India and the world.
Orders for transformers came from Europe and African markets, while demand for power quality solutions were from South and Central America, Africa, the U.S. and Europe. Some of the key orders include order from Azerbaijan for the high-voltage equipment like LTBs, disconnectors, et cetera, and transformers from France and GIS orders from Spain and Portugal are a couple of examples.
Service orders, a growth of 70% year-on-year during the quarter, driven by utilities industry. Some of the key orders for the quarter is 400 kV RIP bushing replacement order, 11 kV busbar retrofit order and repair of some transformers, et cetera. We also received orders from across the border, which include training order from Maldives and commissioning of 8 units from Qatar. So these are just examples to talk about how our long-term growth levers, both service and exports are playing in that.
So with this, I hand over to our CFO, Ajay Singh, to walk us through the next slides on the financial performance. Over to you, Ajay.
Thank you, Venu, and good afternoon to all. And hope you are all doing well at your end. Let me give a quick insight on the financial performance for this quarter. Excellent order execution and streamlining supply chain challenges have helped us to improve our revenue and bottom line in this quarter. The focus and the proactive approach has helped us to achieve better revenue vis-a-vis quarter-on-quarter and Y-on-Y.
During this quarter, the company booked orders worth INR 1,235 crores, stable year-on-year, while declining quarter-on-quarter, mainly due to an exceptional order that we booked in the previous quarter. Whereas order execution resulted in Y-o-Y and quarter-on-quarter revenue growth of 23% and 3.9%, respectively. Our revenue stood at INR 1,276 crores in this quarter.
Easing of the supply chain constraints has further strengthened the quarter earnings and improve the bottom line. The same is spurred Y-on-Y profits recovery in quarter 3 FY '24. Profit before tax stood INR 33.8 crores, up 152% Y-on-Y on a lower base. Profit after tax was INR 23 crores, again, clocking a recovery of 400% Y-on-Y on a lower base.
Operational EBITDA stood at INR 81 crores in the quarter with Y-on-Y and quarter-on-quarter growth of 62% and 24%, respectively. Margin has been improving sequentially over the past 3 quarters. And if you recollect that from quarter 1, we were at the 3% operational EBITDA level; last quarter, we flipped 5.3%; and in the current quarter, 6.3% operational EBITDA. Our order backlog stood at INR 7,552 crores, providing a very good revenue visibility for the next 22 months.
If I go to the next slide, Slide -- next slide, let me speak more in details on this slide, so we have been discussing the ongoing macroeconomic issues over the past several quarters. And I would like to share and update on how the numbers we are doing this last 3 months. And basically, if you see the table, it gives a more clear picture on our relentless pursuit for improving the bottom line and progressive margin recovery.
You see that the margin -- the revenue improvement of 23% Y-on-Y to INR 1,276 crores in the quarter basically was mainly due to the good order execution. And if you see the other margin -- gross margins, clearly, it is seen as a consistent, the expenses also in this current quarter are consistent compared to the previous quarter, and that is how, at the overall level, we could reach PBT at 2.6% for this quarter.
With this, I hand over to Venu.
Thank you, Ajay. And moving to the next slide, that is Slide 13. As you know, India is becoming a leader in clean tech and our investments are made as a node for exports. And we have been also talking about how our export strategy has been. And exports are a growth lever for the company, including through its related party entities, and the company procures and sells products, component systems, renders and receives services from related party entities.
In this slide, we anticipate a few transactions with Hitachi Energy Sweden AB, a related party entity wherein the transaction amount is likely to exceed the materiality threshold of INR 448 crores as it provides to our company as prescribed Section 188 of the Companies Act 2013 and Regulation 23 of SEBI LODR.
Based on the recommendation of the Audit Committee, the Board of Directors have considered and approved issuance of Postal Ballot Notice for approval of material-related party transaction with Hitachi Energy Sweden AB entered -- to be entered for an aggregate value of up to INR 700 crores in FY '23-'24.
Transaction with this entity has not exceeded the materiality threshold as of now and is likely to exceed marginally. Shareholders' approval will be sought to remain in compliance with the statutory requirement. The nature of transactions include sale or purchase of product, component, system, rendering and receiving of services to and from Hitachi Energy Sweden AB, Västerås, Sweden. All transactions are in the ordinary course of business of the company and at arms length basis. The company will be commencing a postal ballot exercise to secure the approval of shareholders.
And moving to the next slide, which is my last slide before I open for the questions and answers. As we move ahead, priorities for 2024, because we are entering into the last quarter of this financial year. As we move ahead, our growth levers remain intact. While maintaining leadership in our core segments, we will nurture high-growth segments that cater to the evolving needs of the sector, harnessing new segments and markets, expanding at the edge of the grids.
We are seeing the fruits of focusing on our capabilities in services, exports and digital verticals, and we will continue to strengthen the same. In our operations, we will continue to seek to maximize the efficiencies in converting our significant order backlog to revenue accretion -- revenue and revenue accretion, while in the short term, staying agile regarding the evolving situation under trade routes, logistics, et cetera.
Nevertheless, such execution when coupled with the operational excellence across manufacturing and functional processes will result in margin accretion going forward. Our teams will reinforce their efforts so the last leg of transition in the coming quarter as we enter the implementation phase of REIWA, a multiyear project to upgrade our core ERP systems, thereby integrating core businesses, functions and processes in a single platform, thus helping enhance operational agility, quality and productivity.
Our purpose remains to advance a sustainable energy future for all, and we can deliver sustainably -- delivery this -- if our teams are consistently safe, healthy, strong and agile. People remain, as always, at the heart of our operations, and we will continue to build and deliver sustainable stakeholders' value.
So with this, I close my presentation and open the channel for the questions. Thank you.
[Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities.
My first question is on order inflow. Order inflow is related to [indiscernible] momentum. We are expecting that given the strong bidding activity for transmission projects in last 9 months, especially in the domestic market, my question is, how has been inquiry from bidders for the transmission equipment? And can we expect a slightly higher order inflow as we enter calendar year '25 -- calendar year '24?
So thank you, Mohit. As I talked about in my opening comments, I think we have a very strong, robust pipeline across the sectors -- the segments where we are operating, for example, the transmission is one segment where we talked about. As I said, there are a lot of tariff-based bidding projects out there, including some of the STATCOM projects. And there are -- HVDC projects are under pipeline, and there are also large 765 kV projects also coming up for bidding in that. And I would say that there is a very robust pipeline, there's a very strong pipeline in the coming quarters.
My second question is, sir, have we completed the study and submitted the report for Leh-Ladakh for technical feasibility to power create? And can we expect this project to progress in the next fiscal or this calendar year?
So again, this is a very interesting question. So we have -- as part of our agreement with our customers we are supposed to complete by 31st of March. So we are on track. So progressively, we have to submit various reports. So we are already submitting a couple of reports on that. So we are on track. So we will be submitting our study report in line with that.
How is your experience, sir? Can you give some color?
Which one? .
How has been the experience? Do you think that was feasible, technically feasible and this can be done at a reasonable cost?
Yes. I think our customers will talk about more on that. But from our standpoint is that we do have technical solutions for that, and that's what is -- we have not completed the study yet. There are a couple of studies we have done, but there are many more studies to be completed, and we still have a couple of weeks before we complete and conclude our study report in that. But we do believe this is -- we expect there are technical solutions available.
The next question is from the line of Renu Baid from IIFL Securities.
Sir, my first question is on the bullet train or the high-speed project. We were expecting finalization of few packages this last year end. L&T was announced bidder for INR 10,000 crore-plus of orders. So what is now the opportunity size for us? Are we still in discussion with the EPC contractors, partners? And what could be the timeline when -- of receipt of such orders?
I think the question -- you all know that the electrical package has been finalized on the EPC, so we have also submitted our bids to EPCs, including the winning bidder. So we are in touch with them. And we normally do not mention the size of the thing until we know we concluded it. It's various things, including all our products are there. So it depends upon what kind of customer takes, how -- what's the business model, how -- packaging, those things will differ the size of the projects, right? As we speak, we have done our submission.
The pipeline of these awarded to us if we are competitive -- yes, what are the timelines of award of these electrical equipment by contractor?
Maybe in 1 to 2 quarters is what we expect, 1 to 2 quarters.
Got it. Perfect. Secondly, if you look in the broad basis, given the way domestic market has bounced back with respect to high-voltage transmission equipment, clearly, supplies are in short and it seems that prices in general have improved. So by when do we expect those better margin orders will start reflecting in our execution and our numbers? So how far are we? Is it just a couple of quarters away?
Probably our timelines and lead cycle of orders are different from the ones which are getting finalized because while we have been consistent, in the last couple of quarters on gross margins and cost structures, it still seems to be suboptimal when we compare it with the rest of the key large domestic players.
So how far are we in terms of getting these better-margin orders in our backlog? And also, any view in terms of -- because we also had a target to improve the operating margins to near double-digit levels by next year. So are we broadly on track? Or there could be some additional hiccups on the way?
Yes. So I think -- again, it's a very interesting question, Renu. And we have been very consistent with what we have been saying on this. And we do have -- I think our portfolio, our order backlog is very robust. It's, again, a broad-based, and both our exports and the service, which is also part of our portfolio, will definitely add to the bottom line in that. So there are -- while we talk, there are -- also, there are a lot of challenges, geopolitical and also the transport, logistics.
As we are more improving on our exports, it's also important that our logistics on the exports is also -- extremely need to be robust. And any kind of external thing like a Red Sea and other thing do have a challenge over a period of time. And it's important that we need to navigate those things and get into that.
But having said that, if you really look at what we have been talking about, we said we have been sequentially improving, and we continue to -- performing a sequential improvement in the last 3 quarters, so operational EBITDA, you take from a 3% in quarter 1 and 5.8% and now we came to 6.3%. So sequentially, we are improving it, and we also have a clear strategy to bring the double-digit operational EBITDA by end of financial year is what we said in that.
So, again, look at our strategy. We said that exports when we start about, we are looking at in the 20%, 25% range, and then, we have stabilized 25%. And if you really look at the 9 months' exports, and we are already 30-plus percentage. So the strategy has to be -- fall in place and then become a little more stable, and that's how we are doing it. And on the margins, we'll definitely -- will flow in once we execute the order backlog, which includes the export, which include the service, which includes others in that.
Sure. And then lastly, if I can, what would be the status of the Mumbai HVDC? You did mention valves getting manufactured at Chennai plant. So in terms of execution timelines of this backlog, how should we look at end of this fiscal and next fiscal specifically?
So as part of our contract with our customers, we should complete anywhere between the March '25 to June '25, between that. I think we are on track both on the execution on the ground and as well as on the manufacturing of those various components, not only in India, but also in other places. So it's -- we are very much on track on that.
We have the next question from the line of Parikshit Kandpal from HDFC Securities.
Congratulations on a decent quarter. Sir, my question is, again, on margins. So we had done 6.3% of operating EBITDA margins this quarter. So we have a journey of 10%, I think, towards the end of FY '25. So every quarter, do you expect some improvement to bridge that gap of almost 400 basis points, at least to start with at least 10% by FY '25 end?
Yes. As we just now spoke, Parikshit, so that is the endeavor. Our endeavor is to make sequential improvement while navigating the various challenges, et cetera, in that.
Okay. My second question is on other expenses. So when I compare with your other peers, I mean it was almost half your size, and when I see your other expenses, gross margin is largely in line, but other expense figured substantially higher. So is there any component there? I mean, earlier, we had this IT support from ABB India, so where we were incurring expenses. So has that come down? Are we now on our own IT network? So if you can -- what could be the component that it can reduce and help improve our margins?
Maybe, Ajay, our CFO, would add to this, Parikshit.
If you see our other expenses, you can see the current year results also. We are fairly consistent compared to the earlier quarter. So if you see Y-on-Y, our other expenses were 21.7%. Now, we are hovering around 19.4%. Having said that, on the IT cost, yes, the IT cost, currently, we are not yet totally out of the ABB support. We are still running at [ DSA ], and we are expecting that we'll be out of this support mostly by the mid next year.
So -- but even if you are out of this support, we'll have our own infrastructure where the costs will come. But overall, if I see the mix, I don't see any additional cost over them this -- that is popping up in the quarter. So definitely, going forward, as the external impact comes down, we will be improving on the margins as such.
Okay. So just the last if I may, sir. So this margin improvement. So will it come from better pricing? Do we still have some under-absorptions of inflation on the pricing side? Because once -- on one side, we are talking about a very, very strong opportunity on the demand side, other players are talking about underinvestment in capacity. So it definitely builds a scenario for increasing prices. So have you already taken some price hike for the last 6 months? If you can give some color on the improvement in margin trajectory, so which will be the factors which should be driving this?
Yes. Our margin improvement, Parikshit, is basically the factor of our improving revenue accretion because we have a strong backlog and that will get into the revenue accretion for a period of time. And then we also said our 2 levers, which are service and exports, will contribute that as export revenue kick in and also service revenue kicked in, then that also will do that.
And in addition to that, we -- as you know, that we have invested heavily in the last 2, 3 years and set up new green factories, and those factories are also filling up now. One example is this -- the Chennai power system and HVDC factory, where we started now producing valves on that. We also are now filled with orders from other things. So those things, we are able to leverage those assets, and that also will add both revenue accretion as well as the margin accretion.
What about the price hike, sir? Anything on -- any color on the price hikes have you taken in the last 6 months?
You should understand that India is a very competitive market, and we are getting a price increase, but also, you should understand that the commodity prices also are equally increasing in that. So we are -- whatever the increase is coming, basically is able to do that. Then, yes, we are also looking at very quality orders. So we have initiated pricing excellence as a strategy to look at bringing more quality orders as part of the portfolio, and that should also help us to realize those things.
The next question is from the line of Mahesh Bendre from LIC Mutual Fund.
Sir, in these 2 quarters, we were mentioning about the chip shortages that was actually limiting your production and deliveries. So has that probably been solved or still there is some issues on that?
Thank you, Mahesh. I think there I would say that it has now become better now. So we are able to predict and able to upfront order those components. So we are -- partly, I would say that we have mitigated and then -- but with a better forecasting things and upfront ordering, so we are able to manage at this point in time.
Sure. And sir, if I look at the last 5 to 6 quarters, apart from the HVDC orders, our order inflow has been almost constant for every quarter. I mean, when we look at the peers or other players in the industry, there is a growth -- significant growth we are witnessing on order inflow side. But in our side it's remaining almost stagnant. So what could be the reason for this, sir?
I don't think our orders are stagnant. If you really look at our orders on a quarter-on-quarter, we are having a very good growth. And on top of that, if you really look at 9 months put together, and if you take the last HVDC project we have -- take the HVDC project out and then you look at the 9 months cumulative, so we have a very strong growth, right? So look at our numbers on a cumulative basis, and then, I think we have a strong growth even if we remove the HVDC project. Because the HVDC project is there in the last year, which is not comparable for the same reason in there.
No, I was mentioning about the export orders that we are getting very high traction. So if you strip them aside, so domestic side, we are still given the position we are in to, and transmission CapEx that is coming up, that seems to be low on the CapEx.
Yes. I'm not sure from where -- what the number you're looking at it. Even if you remove the exports, also on the domestic demand, we still have a growth removing HVDC project, Mahesh. On the base orders -- if I can add to you, base orders, there's a 16% growth Y-on-Y.
The next question is from the line of Umesh Raut from Nomura India.
Thank you, sir, for the opportunity. Sir, first of all on the export side...
Can you please come close to the mic, Mr. Umesh?
This is fine, sir?
Yes, this is better.
So the first question is more of on the export side. So when you are seeing strong demand on the export from various markets, I just wanted to know how much of these orders are coming in from parent entities? And how much beyond parent entities?
You're talking about the exports?
Yes, exports with the Hitachi Group and exports with the non-Hitachi. group.
Yes. It's a ballpark if I say -- yes, it's a ballpark in the range of anywhere between 50% to 60% coming from our internal companies and the rest are coming from direct exports.
Okay. And sir, now this new proposal, which is under consideration where you're talking about...
Again, here, you need to understand, just as a comment, we've got to understand, for example, internal means we supply GIS in Europe, for example, okay, we supply GIS. So since we do not have any sales offices there, the GIS will be booked by the local Hitachi Energy office, for example, the one which we booked. And that will be given an order there. So that's also we consider as an internal order even though we send as a full-fledged thing in that.
Okay. Okay. And just wanted to harp up on the profitability side as well. So how is profitability different between these 2 segments?
So we will not be able to give -- no, when you say these 2 segments means all the export orders, whether it is internal or external, it's arms length only.
Got it. And, sir, regarding this proposal, which is under consideration regarding RPT transactions now going up to about INR 700 crores full-year '24, so how much of that has been booked in first 9-month FY '24?
Yes. Maybe, Poovanna, you'd like to add? Poovanna?
Yes, sure. Umesh, thanks for that. As of December, we've had invoice level transaction of 68%.
Yes -- close to 68% has been booked.
Got it. Sir, second question is more of on the -- your comments on the presentation where you are referring that private CapEx or the demand from industry side is also kind of looking up. But if I look at order inflow for third quarter, this is more of down, especially from the industry side. So where exactly you are saying is and where exactly there is still downturn, which is kind of visible in the market?
Yes. So when I talked about industrial CapEx is reviving is basically, I'm talking about the broad base. In 1 quarter, we may have a large order booked in that, so which is not comparable in that. But what we see is that we see a lot of traction on the industrial thing, expansions of that, and the service standpoint, digital, et cetera. So digital products, they're buying. They like to -- decarbonizing of the industries. So these are the ones what I'm talking about in our thing, whether you talk about the steel, cement, industries and data center. Anyway, we have a huge growth in that. So those are the things I'm talking about, Umesh.
Got it. Sir, last bit is more of clarification. So, again, referring to Slide #9, where contribution from EPC channel has significantly went up. So was it fair to assume that this will add further pressure on profitability side, assuming that EPC channel would have relatively lower margins than the direct end-user?
So when we talk about -- on the EPC, we have a -- our strategy is that we will not be able to sell everything to direct end-users. So we need these channels, and that's how we've been doing it, whether EPCs, OEMs, distributors are part and parcel of our go-to-market strategy in that. And having said that, just because our EPCs have gone up, that we -- it's not that we compromise our quality off of the order. So we have a clear strategy on those things, and then, we are maintaining those things.
And as I said previously, we started the pricing excellence. The whole idea of the pricing excellence is to look at what is the value add, we'll get it, whether we are selling to EPCs, we are selling to direct end-customers. We do not see any of those compromises taking place or we do not see any kind of dilution of our margins just because we sell it to different channels.
The next question is from the line of Priyank Chheda from Vallum Capital.
So I want to -- I would request you to get more -- give us more insights on the levers to the margin expansion, which you spoke. First lever is service and exports, if you can help us with the data on how much is the service and exports revenue as on date?
The second lever was revenue recognitions picking up. So if you can help us with what would be the revenue recognition that you are looking towards FY '25, would Mumbai HVDC project revenue recognition itself lead to a strong operating leverage?
And the third lever that you clearly mentioned was utilizations. So what are the current utilization levels? And what is the kind of a level that you're looking towards in the coming years?
I think we do not give any details on a project level. And also we will not give any forward-looking information on that, what will be the revenue coming in this quarter. So all I'd say that, we had a very strong -- we have a still strong order backlog. And that order backlog is getting converted into the revenue, and that's where the revenue accretion is coming in that.
So on the levers about margin accretion, I have already talked about. I think I have nothing more to add to what I've already talked about in that. So revenue recognition is revenue accretion -- revenue accretion in the revenue growth is a function of what backlog we have and what is the -- what are the existing book-to-bill orders. So that is what we're going to do that.
And having said that, let me also give you a couple of data points for you to understand in that exports we were talking about in the range of 25%, right? So we see export revenue, depending on the quarter, 20% to 23%, 24% in that. And the service is high-single digit, which is moving towards a double-digit -- slowly entering into the double-digit. So that's how the thing what we are looking at in the margin accretion standpoint.
What are the current utilization levels?
Yes. Current utilization level is depending upon which factory. It's varying anywhere between 75%, upwards close to 90% -- 85%, 90%. And some new factories, as you know, it will not get into that. So new factories, which we have inaugurated definitely has a low utilization ratio, but they are also filling up fastly in that.
Perfect. And just a data-keeping question that I have on the operating -- operational EBITDA, which Hitachi reports, is at around INR 81 crores while the actual reported EBITDA is at around INR 65 crores. So what's the -- INR 68 crores, so what's the INR 13 crores difference with respect to it, may be related to FX or some other expenses, which -- if you can -- if you would like to call out?
Maybe our CFO, Ajay Singh, will...
Thank you for the question. And you're right, it is mainly on the FX part, the delta is there.
So we have reported FX loss on -- to the tune of INR 13 crores?
Yes. If you see our results, you can see that in this current quarter, we have reported an FX loss of INR 9.8 crores. That is there.
Okay. So if you can help us, what is the nature of this? Why do we -- why are we able to report the losses? Would it -- it's just an accounting entry, which will get reversed in the current -- in the coming quarters?
Yes, it is basically a restatement of these payables.
Accounting entry.
Yes.
It's the accounting entry.
Got it. Got it. And just to, again, clarify, Mumbai HVDC project was not recognized in the current quarter, right? You would be starting it from Q4, which is in the coming quarter. And also if you can help us, the STATCOM order that we had received in the last quarter, by when would -- what's the timeline for execution of that, the starting period and the end period?
Yes. Mumbai HVDC, the project has started. As the project gets started, the revenue also starts getting recognition based on the milestones being done, right, both at the project sides and also some of the things in that, but it is a slow start now. So in the coming quarters, we'll see a lot of material, and big, big items will be coming in. So that will have a much better -- higher revenue from that -- from the HVDC Mumbai project.
So STATCOM, we are supposed to complete in 24 months, and we have already started, and first 2 quarters will be a lot of engineering approvals, et cetera, design engineering approvals, and thereafter, we see the project is starting with that margin -- project is starting with a revenue.
The next question is from the line of Dhavan Shah from AlfAccurate Advisors.
So my question is on the order book breakup. So right now, the order book is roughly INR 7,500-odd crores. And if we exclude this INR 2,000 crores HVDC, so what would be the order book breakup between service, exports and then the other industries, like the data center and the other emerging one? Can you share the breakup of that? And what would be the execution timing?
Yes, roughly, you can take 25% of that is exports and close to 9% to 10% is the service orders, and that's what is our ballpark figures.
In the other industries, data centers and the other industries?
We don't split that industry-wise, utilities, industries and data centers at this point in time, so -- but we have not been giving that. It's not that we don't split, we have not been giving figures so far.
Okay, okay. And as you said, that the value-added segment, like the exports and the service revenue would go up in the coming quarters, which will help you to improve the overall EBITDA margin. So what kind of gross margins do we do? And right now, it is roughly 40-odd percent. So what would be your endeavor, maybe by FY '25 end? What can be the gross margin? Because in the earlier years, we did roughly 45%, 50% also. So is this achievable, like 45-odd percent gross margins?
So, again, we will not talk about what's the gross margin. What we are talking is that we are sticking to that, that we are sequentially improving on the bottom line, which includes our better order gross margins and also on the cost sides and also various other measures. So it's a combination of all that. We'll get into the 10% operational EBITDA by end of FY '25, assuming that the -- all the headwinds normalizes. So that's where -- that's what we are saying.
Since we have very few minutes, can we please restrict to 2 questions because we also have a couple of others in the queue, please? Operator, can you please insist on 2 questions, please?
[Operator Instructions] We have the next question from the line of Nikhil Abhyankar from ICICI Securities.
Sir, there are multiple projects already announced under the RDSS scheme, so what kind of pipeline do we have remaining going forward? And are we selling it directly to the DISCOMs? Or are we going through the EPC player?
Yes. So we have -- again, this particular projects are combination of various things, which includes the engineering, procurement, and also not only the SCADA and other things, but also in many other aspects of the digital infrastructure. And we would like to play in line with our strategy. We will restrict ourselves into the SCADA, automation, DMS, EMS, and those are the things in there.
So we are working with the partners. We are working with some of the EPCs, and some of the projects we have received orders from PGCIL and also other places. In some places, wherever it is meeting our strategy, so we are also bidding directly on that. So it's a combination of various things, but we are very actively pursuing all these projects to position our portfolio there.
Sir, what can be the pipeline, say, in the next 12 months?
So again, we don't quantify the pipeline for any of these segments, but the pipeline is very robust, Nikhil.
The next question is from the line of [ Bhalchandra Shinde ] from Kotak Life.
We would like to know on the longer-term perspective, like since we have started with the facility in HVDC, how the localization content versus our peers? And cost advantages wise, how we are placed, means like there are lined-up HVDC orders? And do we see that competitive edge for us as compared to peers?
Yes. So, I think, again, this is a very interesting question. As you know, HVDC -- so we have pioneered this technology, and we will be completing 70 years of this technology globally as an invention, inventor and the pioneer technology by Hitachi Energy and our predecessors, right?
So we have -- as we speak, we have globally as well as in India, almost 50% of our existing installers and HVDC links runs through Hitachi Energy technology. So we do have quite a robust end-to-end offerings. In India, for example, we manufacture the converter transformer. We do the valves. We have the switchgear, and we do also end-to-end engineering. That's also quite a big cost element in HVDC kind of projects. So with that, I think we should be in a better position to offer our competitive solutions to our customers.
Ordering wise, as we mentioned that every year 1 HVDC ordering is expected. But this year, we have not seen that kind of -- means, though tendering has happened, but still anything end result we have not seen. Are we expecting anything in next 6 months or in this calendar year? Which orders we should expect?
You probably know that Badla is already tendered and which is due now 1st of February. And if there's no extension, the tender will be submitted as per the due date, right, which is already there in the REC website. So you can also look at the schedule of ordering, et cetera. They have already published in their website.
Maybe 1 last question, Darwin.
The next question is from the line of Teena Virmani from Motilal Oswal Financial Services.
I just have 1 question regarding this INR 700 crore cost with the related parties. Just wanted to understand, is it possible to localize these products which you are right now thinking about preparing from the parent entity over a period of time? Or just wanted to understand whether this cost will remain in future, too, for the company or over a period of time, we can think of manufacturing these?
So maybe I think we may have to clarify. This is not a cost on this. This is a related party transaction, both the products we sell it to, our thing, and also some of them we buy there. So it is not -- entirely we are not buying there. It is both purchase and sale.
Those 2 put together is around INR 700 crores.
Yes. Yes, exactly.
And whatever you are procuring from the entity, is it possible to localize those products or those products will continue to be procured from them only?
Some of the products we continue to procure. It's not that we -- the localization, we have been doing to the extent possible today. For example, almost 85% of what we produce globally, we do it locally here. So we already reached a very, very substantial level of localization and local manufacturing in that. So bulk of this, what you are talking about is the sale what we do there.
Okay. So this will not come in your path to achieve that double-digit margin trajectory, which you have highlighted by end of FY '25?
No, no, no. This is -- no, it is not. This is not a cost, as I said. This is basically, we are selling our products from here to our Sweden factory. And the bulk of that is our products we are selling to them and some we are also receiving it because, for example, some of our HVDC, we have to get some components from there. So that is how it goes like that. So it is for both sale and purchase.
So...
Yes, sure. Ajay, go ahead.
Let me a little bit more give 1 clarification. So this is just a regulatory requirement that we have to comply with that this is the related party transactions with our entity Sweden, where the overall transaction is going to hit the threshold, and threshold is 10% of our last year's revenue.
And since it is crossing the threshold, as a good governance, it is required that we have to take a prior approval from the majority shareholders, and that is why we are going ahead with this ballot paper where we seek approvals from the majority shareholders in order to be compliant with the related party regulations.
I would now like to hand the conference over to Mr. N. Venu for closing comments. Over to you, sir.
So thank you very much, ladies and gentlemen, for attending to this conference call and asking very interesting questions. And as we navigate all the challenges and then continue to grow our strong pipeline, both on the orders and also converting them into margin. And then finally, we are able to reach our goal on the margin.
And we are also enabling sustainable energy future -- advancing sustainable energy future for all of our customers. And this is a journey, and we would like to continue this journey together.
And thank you very much once again for taking time from your busy schedule and attending to that. Please take care and stay safe. Thank you.
Thank you. On behalf of Hitachi Energy India Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.