Hitachi Energy India Ltd

NSE:POWERINDIA

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Hitachi Energy India Limited's Q4 FY '24 Analyst Conference Call.

[Operator Instructions] Please note that this conference is being recorded.

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

[Venu Nuguri, executive]

Thank you very much. Good afternoon, everybody, and thank you for joining us for the analyst conference call today. And I hope you're all well and doing extremely well. Yesterday, we announced our results for the fourth quarter and also full financial year '23, '24. And over the next 20, 25 minutes, I will take you through our performance during the period ending March 31, 2024. And for each of your convenience, I've also read out the slide numbers. We have just uploaded also in the [ PSC ] on that. And today, with me in the room I have our CFO, Ajay Singh; and Manashwi Banerjee, Head of Investor Relations.

So when we entered the fiscal year in April 2023, our core objective was to remain focused on balancing operational complexity and efficiency amid prevailing market uncertainties. In doing so, we have not only navigated the complexities of the evolving energy landscape, but in my view, also successfully preserved the Hitachi Energy India's growth momentum at other quarters. In Q4, we have grown in terms of orders and revenues and created a value for our customers, stakeholders and also society.

I'm moving to the Slide #3. As we review the quarter, I want to begin with safety. As you all know, for safety, we call it our license to operate. Our commitment to safety has been unlevering from offices to factories and on-site locations. Maintaining the momentum of our efforts, we had varied training programs for employees across locations like emergency preparedness, a critical on-site job training, maneuvering on mobile platforms, excavations, defense driving, et cetera, on this quarter.

As Hitachi has the safety entrenched in our DNA, which we implement in all the phases of our work, we call this, as I said in the beginning, the license to operate, and we will not look the other way. And the same as multiple recognition and appreciation from our [ defending ] customers for ensuring sustainable safety practices and quality at our project sites. We thank for our clients for their constant [ and current ] encouragement.

I move to our next slide, Slide #4, sustainability performance. Throughout the year, we expedited our journey to net zero by 2030 for various sustainable projects across our factories and offices. I'm quite happy to inform that we have reduced more than 80% carbon emission under Sustainability 2030 program. The sustainability projects in FY '23-'24 primarily focused on energy and emissions, conservation of water and robust waste management. These projects helped us keep the track on our greenhouse gas emissions, energy consumption, usage of freshwater and risk management.

Through suitable resource measures, we have been able to bring down our water consumption by [ 25 ]% and recycling 96% of our waste in our factories. It is noteworthy to mention about 600 kilowatt solar rooftop project at our Doddaballapur facility. So this ongoing project, this will be able to reduce almost close to 20 tonnes of CO2 equivalent of greenhouse gas. Furthermore, through this project, we aim to power 40% of our factory's energy needs for this solar plant. This project is scheduled to be completed in this month. As you all know, Doddaballapur is a newly inaugurated factory where we produce our core quality equipments in that.

If I move to the next slide, Slide 5. And this slide, I'm sure all of you are more familiar than me. But still, I would like to take you through that. And growth momentum continues in the Indian economy. According to government reports, India's GDP is expected to be in the range of 7.3% for FY '23-'24, whereas GDP grew 8.4% year-on-year for the fourth quarter. The Indian Central Bank is the bank has kept the rate of interest unchanged at 6.5% of the seventh consecutive time. In March 2024, country's retail inflation is to 4.8% from 5.6%, that's in normal 2023. Also, the India industrial growth IIT got value of 153.5, highest for the financial year of '23-'24, in January 2024.

So India installed power capacity is expected to reach 616 gigawatt by 2027 and 900 gigawatt by 2032, up from 442 gigawatt in March 2024. Good drivers for Hitachi remain intact and tracking upwards, as you can see on the left-hand side of my slide. In FY '23, '24, our renewable power grew at 11%, including large hydro grew from 173 gigawatt to 191 gigawatt. As for national energy policy, an ambitious plan is set for the growth of renewables in the country at [ NEP posted ] CAGR, to scale it from 191 gigawatts to 648 gigawatts within FY '25 to FY '32 at about 3.5x speed. So this is what we have been saying to reach that kind of level, so we need to do more than 3 to 4x what we have been doing it as a country as a whole, or industry as a whole.

In the transmission segment, National Committee on Transmission issued green signal for 4 new ISTS projects and similarly for industry, the result of private capital likely to offer opportunities of over INR 4000 crores in the market for the financial year '24-'25. And on the transportation side, metro, high-speed rail, rail electrification, rolling stock upgrade, [ drilling ]the growth of transports [indiscernible] and so on and so forth, which is clearly showing that all these segments as we have been calling within Hitachi are indeed in high-growth segment. They're all trending in the right direction.

So moving to Slide 6. Again, I'm sure this is -- you all know very well. So this has picked up on the National Energy Policy '23-'24. And as NEP '23-'24 has laid out a robust expansion plan for transmission circuit and network. Additionally, according to the industry estimate, an investment of close to INR 2.4 lakh crore at a rate of INR 1.07 crore per megawatt is expected for renewable-related transmission by March 2027. Some of the key takeaways of the plan are interdigital transmission capacity is expected to reach almost 143,000 plus megawatts by '27 from a current capacity of 116,000-plus megawatts. And HVDC circuit planned to increase by 4,300 circuit kilometer during March '22 to '27 and grow to almost 23,000 circuit kilometer, with a carrying capacity of 12,000 megawatts by 2027.

More than 30 STATCOM projects are lined up or bidding along with the transmission network, with a total outlay of more than INR 1.1 lakh crore for the active circuits by 2027. So these are just a couple of more examples to talk about in our concrete plan as part of the [ CES ] government's NEP policy, which can create a lot of tailwinds for our portfolio in [indiscernible] units.

So moving to the next slide, #7. Multiple stakeholders in the growth energy transition at Hitachi Energy. Our constant endeavor is toward accelerating the pace of energy transition to achieve a bigger goal of net zero. We propagate this agency for advancing a [indiscernible] energy future. So thought leadership across thought pods. Our leaders highlighted and spoke on topics ranging from solar grid integration to Make in India. As an organization, we have invested in Make in India for India and the rest of the world. An offshoot of such effort is the recognition of our employees at the [ first hill ] of manufacturing for their contribution towards manufacturing development.

Also noteworthy to mention is that our HVDC team has successfully completed HVDC directory for Adani Mumbai HVDC project, which is completely manufactured at our newly inaugurated factory at [ Somai ]. Our employees are our biggest brand ambassadors and real agent of change taking forward plans, ethos and values. It is their commitment and passion which has helped achieve many milestones over the last 75 years. The market mega milestone, in March, we kickstarted our year-long celebration for completing 35 years in India across offices and facilities that actually being central to our existence. So in March, we conducted several community outreach initiatives, including reaching out to 1,000-plus students from government schools, with focus on [ girl ] students at multiple locations.

Moving to the Slide #8, which is customer connect. As a leading technology innovator, Hitachi Energy works closely with customers and partners to co-create a custom energy future for present and future generations. And we have organized a technical session for our customers in Jammu and Kashmir region and next generation [indiscernible] products like hybrid switchgear, disconnectors, digital portfolio, EconiQ brand of switchgear. We are going to talk about site, [indiscernible] utilities and industries to share technology prescriptives on core technologies and digitalization. Furthermore, talks to plot out our multicity customer event series, Energy & Digital World 2024 in Hyderabad.

The Energy & Digital World touches upon the latest advancement in grid modernization, renewable energy integration and digital transformation. On top of that, this is also a forum where IT and OT integration-related topics can also be discussed. It also includes a concession on tailored industry solutions for power quality data center, rail offshore veins in addition to many other topics in that.

Moving to the Slide #9. During this quarter, the quarter ended 31 March, we have commissioned several projects across segments, renewables, EPC and industries. This includes installing 420kV GIS bays at Sembcorp, Nellore, and GRP for 40 x 100-megawatt hydro GRP for thermal and hydro purchase, respectively. Furthermore, we undertook an end-to-end solar project at Jaisalmer Rajasthan, starting from designing, engineering, manufacturing and execution of the substation grid connections. Also undertook testing and commissioning of 220kV GI certificated GI subscription for our oil and gas major in Barauni. Partnering with customers for the plan, build and operating phases helps shape the energy transition for industries and utilities in a sustainable manner.

Moving to the next slide, the Slide #10, performance in this quarter has demonstrated our focused strategy to diversify portfolio and relentless pursuit for improving the bottom line. We have seen consistent order growth and progressive margin recovery, resulting in 10.2% operational EBITDA in quarter 4 financial year '24. In the quarter ended March 31, 2023 (sic) [ 2024 ], we received orders worth INR 1,406 crores, which is up by 13.9% quarter-on-quarter and 11.5% year-on-year. This quarter, the company delivered a strong revenue performance of INR 1,699.2 crores, up 33.1% quarter-on-quarter and 27.2% year-on-year. A better renewed mix and mitigation of external supply chain product mix, supported margin and profit recovery in Q4 FY '24.

Profit before tax stood at INR 152 crores, up 350% quarter-on-quarter and 133.7% year-on-year. And profit after tax was INR 113 crores, up by 394% quarter-on-quarter, 123% year-on-year.

Some key order wins for the quarter were some tariff-based competed biddings for 765kV ICT & reactors, Karera 765kV MDA reactor, Rajasthan and 10 x 50 and 130kV transformer in Madhya Pradesh. We also booked orders for [indiscernible] for a multi project, semiconductor manufacturing plant and 3 phase the technology, locomotive transformers for the rail manufacturers, and 12 units of 33kV CVD and 10 units of 33kV UT for Jamnagar, to mention a few. We remained a focus towards increasing operational efficiency while expanding our portfolio in the high-growth markets.

Moving to the next slide, Slide 11, to provide some more color on the orders received this quarter. The data center remain a high-growth segment, thanks to the push for 5G data localization, regulation and data center policies. Data centers are also an integral part of Hitachi Energy strategy. This quarter, we reported a year-on-year over 700% growth in orders for the data center. With the sheer potential of the market, we see this trend to continue in the future as well.

Industries-backed PLI scheme electrification, digitalization, energy networks, semiconductors across sectors from steel to silicon have led to a year-on-year growth of 42% in this quarter, while the orders of the transmission and railways have declined to 32% and 29%, respectively, basically due to the timing effect of some of the orders. Reflecting the nature of customer orders this quarter, in the segments, products this quarter took the lead, while sector-wise, utilities remained the front, and on the channel side, the direct end users.

Moving to the Slide 12. Long-term growth levers, service and export for Q4, FY '24, both service and export orders were up by 43% year-on-year each, maintaining their strong contribution to the overall order book. Our 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 driven by transformer, core quality technologies and other key fortes. The bulk of the orders came from the markets of Middle East, Southeast Asia and neighboring countries in South Asia. Some of the key orders include related orders from Sweden, transmission projects out of from Switzerland and Mexico, and 400kV GIS module and 420kV GIS for CFB, respectively.

So these orders during the quarter, driven by annual maintenance contracts, upgrades and innovative solutions like well care, real [ scan ] for remote condition marketing and maintenance. Some of the key orders for the quarter of supply installation, testing and commissioning of 6 x 132kV GIS for restoration of big 2 hydroelectric power station, Ultratech demand, setting up the 765kV reactors and transformers at SEUPPTCL, just to name a few of that.

So with that, when I move to the next slide, I'll also hand over to Ajay Singh, our CFO, Hitachi Energy Limited, to walk us through the next few slides. Over to you, Ajay.

[Ajay Singh, executive]

Thank you, Venu, and good afternoon, everyone. Hope everyone are doing well and you are fine at your end. Our strong Hitachi revenue performance along with the favorable external environment helped us to improve our revenue and bottom line. The focus on the proactive approach has helped us to achieve better revenue result in a quarter-on-quarter and year-on-year. If you see during the quarter, the company booked orders worth INR 1,406.7 crores, which is basically up by 13.9% quarter-on-quarter and 11.5% year-on-year. The solid order execution results in quarter-on-quarter and year-on-year revenue growth of 33.1% and 27.2%, respectively, and the revenue showed for the quarter INR 1,699.2 crores in this quarter at the end of the March 31, 2024.

The focus and the corrective approach has further strengthened the quarter earnings and improve the bottom line. Mitigation of the standard supply chain challenges helped the profit recovery in this quarter as the profit before tax, which reached INR 152.2 crores, which is up by 350% quarter-on-quarter and 133.8% year-on-year. And the profit after tax is INR 113.7 crores, which is up by 395% approximately and 124% approximately quarter-on-quarter and year-on-year, respectively. If you see our operational EBITDA, we have reached INR 172.6 crores, which is 10.2% for the quarter and in the double digits and as a result of the favorable revenue mix operational excellence, which has given this quarter the improvement.

If you see the overall rise in operational EBITDA compared to the last quarter, it is 113%. And compared to year-on-year, it is 77%. Our order backlog is very robust at the moment, is INR 7,229 crores. And we have a revenue visibility for approximate, let's say, 20 months.

If I go to the next slide, Slide 9, let me -- we have been focused a little bit more detail on the numbers. So we have been discussing on the macroeconomic issues over the past several quarters. As highlighted in the previous quarter, I would like to share an update on how the numbers here during these last 3 months. Let me take a moment to walk through the specific slides in further detail.

If you see the table, it shows a clear picture of our relentless pursuit for improving the bottom line and the productive margin recovery. You can see the relative improvement compared to Y-on-Y of 27.2% in this quarter, INR 1699.2 crores, and this is due to the solid order execution. Further, you see the overall detail, the material cost is 67.4%, personal expenses, 8.3%. The other expenses are more or less consistent. Depreciation is consistent. Interest compared to the last quarter has come down. And in this particular quarter, we had an exchange gain of INR 9.8 crores. With this, we are able to reach profit before tax of INR 152 crores and profit after tax of INR [ 103 crores ]. So these are the overall updates from the quarterly performance point of view, which is, I hand it back to Venu for the closing slide.

[Venu Nuguri, executive]

Thank you, Ajay. And if I move to the last slide before we open it up for Q&A. So our priorities for the coming quarter and the year are the same as before the major [indiscernible] market, business and functions. As we enter the new fiscal year, our focus and growth objectives for the year remain intact. Our efforts will continue towards maintaining leadership in the core segment with additional emphasis to augment our service digital portfolio along with scaling of export. Furthermore, it is not a high-growth segment. As you have seen high growth, in our view, is the [indiscernible] goal is transmission, HVDC data center, rail, cetera, but catering the evolving needs of the sector, harnessing new segments and markets. On the business side, our focus will be on accentuating our operational experience to improve productivity and quality. We'll continue to push for optimal efficiency to convert our order backlog to the revenue, increase profit and more cash in hand, which will result in margin accretion. As we speak, we have hired 2 new ERP system, SAP S/4HANA, or as we call it, our internal [ reliever ]. It's a single asset being [indiscernible] for entire Hitachi Energy group.

Post stabilization, it will help improve operational processes, provide improved visibility as part of our system, help with the line items like inventories, net working capital, et cetera. The constant endeavor of advancing a [ personalized ] future for all, safety remains the core pillar of all of our processes. Focused efforts will continue to strengthen our human capital capabilities to upscale and cross field talent for agile energy transition and for future growth. With this, I will -- I'd like to close the presentation and request the operator to open the channel for questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Renu Baid from IIFL Securities.

[Renu Baid, analyst]

And congratulations for the strong performance. My first question is on profitability. If you see on an annualized basis, margins now have consolidated at about 30 -- gross margin now is consolidated at about 35% after declining for the last 2 to 3 years. So in your view, when you think now given that the mix of orders are improving, including pricing in the domestic market, do you perceive the gross margins have bottomed out and should start improving from here on? Or there could be other agreements at play including changes in the revenue mix between products, projects, et cetera?

[Ajay Singh, executive]

So allow me, Venu, to take this question. Thank you, Renu, for this question. So the gross margin, if you see, is largely what we see right now, it's mostly dependent on the product mix that we are going through. So last 2 quarters, we have been going through some headwinds. Now that we have stabilized, and we see there is [ an even out ] on the headwinds, mostly depending upon the product mix, the gross margin should be fairly consistent.

[Renu Baid, analyst]

Okay. And aligned with this, have you started booking revenues for the Adani HVDC? If so YTD fiscal '24, what percentage of the contract has been executed?

[Venu Nuguri, executive]

Yes. As you know, this contract is marked for execution. On the revenue side, we don't -- but it's -- I would say it's a very low percentage of revenues are coming.

[Renu Baid, analyst]

Got it. Secondly, in terms of the broad mix, while you have mentioned export services growing at about 43% for the quarter, how is the broad mix on an annualized basis as a percentage of revenues? And given that global supply chains are stretched, can we expect expansion in the export portfolio fresh mandate for new markets for our offering.

[Venu Nuguri, executive]

Yes. So if you take the last year, the entire year FY '23, our export orders, for example, orders have touched close to 30%, slightly below 30%. But [ that's the regular ] things. So we expect that export as a percentage of our total orders, our total revenue going forward will be in the range from between 25% to 50%.

[Renu Baid, analyst]

Got you. And any scope with respect to expansion of export portfolio in terms of product offerings as well as the market?

[Venu Nuguri, executive]

So we are looking at it actually because we also see very strong demand in the domestic market. So our main purpose also to serve that -- the domestic market, right? While serving the domestic market, we are also very open to look at our opportunities outside of it.

[Operator]

The next question is from the line of Parikshit Kandpal from HDFC Securities.

[Parikshit Kandpal, analyst]

Venu, congratulations on a great quarter, sir. And I think you have achieved a double-digit margin guidance in this quarter, 1 year ahead of schedule. I remember you mentioning that FY '25 and you will be touching that. So my first question is, again, on the EBITDA margins. So in this quarter, we have seen the volume going up, the revenues have improved significantly and a large part of the savings in other operating expenses passing on to the margins. So I just wanted to understand the nature of savings and the other expenses. I mean they have not grown in line with the business models, so is it the sustainable level at the current levels of other expenses? And will now the worst is behind us and we'll be able to maintain these double-digit margins?

[Venu Nuguri, executive]

So let me just give you an overview of that, and maybe I'll ask Ajay to talk about a little bit more on the other expenses [indiscernible]. Yes, we have entered a double-digit margin in this quarter, even though our guidance is far away from this particular quarter. But if you really look at an annualized basis because our business is what we call as a date and long-cycle business, right? Even though it's -- we'd like to compare our quarter-on-quarter, but depending upon on lumpy revenues as the whole thing can be started in that. So we always look at it a medium-term to long-term view, which is fairly a 1 year comparison.

So if we look at the last year's rollout last year, our EBITDA margin became to 6.7%. So basically, we have improved 100 basis points on a year-to-year basis. So this is where we are selling. Directionally, we are looking at improving where we are, where we go at. So same, our endeavor from now or also look at the same way to improve directionally to move the EBITDA margins at a higher level and a fairly midterm basis with that. So that's what was though in our endeavor, and we are looking at all the entries that we do that. Maybe Ajay, just talk about on the expenses side.

[Ajay Singh, executive]

On the expenses side, just to give you a broader perspective, if you see our cost structure generally. So we have personal expenses hovering around between 9% to 10%, and other expenses, including depreciation and interest, it will be hovering around like say 22%. So this is the structure we've seen that will be moving in this direction as we progress in the coming quarters. So actually, these are the areas where we see the expenses will be there. Overall, will be remaining, [ even just past it ].

[Parikshit Kandpal, analyst]

Okay. Sure, sir. So my second question is on the long cycle orders now. I mean -- so we have on high-speed rail package, I think last time, we mentioned that we are talking with the EPC player was when the entire INR 10,000 crore project. So that was one thing. And secondly, on this HVDC orders. So if you can give some more sense on how is the order pipeline looking at on both these segments over the next 1 year? So how do you see the ordering panning out?

[Venu Nuguri, executive]

No, the order pipeline is very robust, I would say, it's -- right now, as you all know, that we do see tenders come for bidding and the stock count tender out count for bidding. So we are submitting our bids to the capable customers, and we are working on that. So on that, I think we have seen a very strong. And on top of that, we also see a very strong pipeline of our export projects like that.

So export projects, we are saying we're also looking at out some of our other products than what we used to export it. Although also we are seeing a traction of projects in a very strong way in growth in the markets where we are active now.

[Operator]

The next question is from the line of Apoorva Bahadur from Goldman Sachs.

[Apoorva Bahadur, analyst]

Sir, you mentioned STATCOM opportunity of almost INR 1.1 trillion. I wanted to check if this is incremental to the INR 2.4 trillion NEP opportunity? Or is that a part of this?

[Venu Nuguri, executive]

But this is very much part of it.

[Apoorva Bahadur, analyst]

Okay. Understood. Secondly, I think globally, the parent has announced a CapEx of almost $1.5 billion for transformer manufacturing capacity addition. Would be great if you can give some color of how much of this will be deployed in India?

[Venu Nuguri, executive]

So thank you for your question, Apoorva. So as you know that we have been continuing to expand in India since last, say, 3 years, much ahead of the class. I would say we have expanded our 2DC factory, our global technology services and also we've added new -- our acquisition factories, [ tuck ] with power quality factory in Bangalore. So all these things still are a part of our strategy and fully supported by the global application. The transformer also, as we speak, we have already done a couple of expansions in the last 2, 3 years, and then we are also looking at very actively now. So I'm not able to tell you the exact details because we are familiar at this point in time. And maybe in a couple of months or a couple of quarters from now, I think we will be the person to do that, exactly what kind of scale.

[Apoorva Bahadur, analyst]

Sure, sure, understood. Last question, sir, again, on the manufacturing capacity, not just STATCOM but otherwise as well. I believe we are at 70% utilization with the type of pipeline that you see in hand. Do you think our manufacturing capacity is adequate or will we have to ramp it up significantly?

[Venu Nuguri, executive]

No, I think we have a view that what we have -- as I said, we have been continuously ramping up ahead of the call, right, adding a new product line, bringing the new technology, localizing the technology. So that's the reason. For example, our power quality factory, for example, in Bangalore was a greenfield factory where we ramped up the capacity from 10,000 and we have 20,000 NDR and from 20,000 NDR, we are now looking at taking it up to 30,000 NDR. So it's a continuous process. And some of our product lines are much higher than the 70% included in what you talked about. Some of the product lines where we do have some room where we can still take the [indiscernible]. So it's an overall basis, I would say we have quite a good utilization across the factories. We have [ 19 nonfactory ] factories, just for you to know that we have a fairly good amount of utilization at this point in time.

[Apoorva Bahadur, analyst]

Understood, sir. So we'll probably have to incur more CapEx and expanding those if the demand persists?

[Venu Nuguri, executive]

Yes.

[Operator]

The next question is from the line of Mahesh Bendre from LIC Mutual Funds.

[Mahesh Bendre, analyst]

Sir, in the presentation, you mentioned that the total investment required for the transmission of the renewable is around INR 2,44,000 crores. And in the morning, one of the media interview mentioned that the addressable market opportunity for us is around 40%. So INR 1 lakh crore is the opportunity for us over the next 3 years? Is it the right way to look at?

[Venu Nuguri, executive]

So what I said was I mean -- let me repeat. So this INR 2.44 lakh crore is the government plan to reach 500 gigawatts of transmission tick. This is one example I've given. this is the [ IFDF ], so I call it the [ IFDF ]. If we want to reach the target of 2030, so this is a investment, right. To reach the 2030 target, I've also said that the government or it needs to complete the ordering in the next 2 to 3 years, right? And that's where I was coming from. So next 2 to 3 years, we see at least 40% of this market is our addressable market.

The question will be that whether all or will happen in the next 2, 3 years because some of them is still over to fourth year is that we want or need to wait and see on that. But if we really want to -- in our view, is that the we really want to reach the target of 500 gigawatt of transmission network very by 2030. So the ordering has to happen.

[Mahesh Bendre, analyst]

So if this INR 1 lakh crore ordering has to happen over the next 3, 4 years,I think there are only 2, 3 players probably will be addressing this opportunity. I mean we, along with Siemens and maybe GE T&D. So is it fair to assume that 40% market share could belong to us?

[Venu Nuguri, executive]

No, no. I think we are crossing each other. What I was telling you, Mahesh, is that the 2, 3 players are what we are talking only for some of the critical things like HVDC or also [indiscernible]. But this INR 1 lakh crore is also for transformer, one for the GIS is also for the substation, right? So it is a wider network or addressable market. Our portfolio, like a substation automation, so those are Honda portfolio. So that many, many players out there, more than 3 players.

[Mahesh Bendre, analyst]

Sure. Sir, last question from my end. Sir, data center has shown very significant growth. So how much contribution in this quarter from the data center?

[Venu Nuguri, executive]

No. We don't give the numbers with the segment-wise. I think right now we understand it's a high single digit, and we are remaining in the high single digits, is growing in that. As I said, the data center is one of our key high-growth segments. We have been working on this with the data center developers, and we have the technology and we also know how to support exactly how this kind of data centers require energy-efficient systems, and that's where we are very fortunate to be successful in that.

[Operator]

The next question is from the line of Mohit Kumar from ICICI Securities Limited.

[Mohit Kumar, analyst]

Congratulations for a very good quarter. My first question is on the [indiscernible]. The Slide #6 mentions that more than 30 STATCOM devices with a total budget of INR 1.1 lakh crores for reactive circuit back to 2027, the number looks to be slightly off. I think 30 STATCOM, [indiscernible] STATCOM should be around INR 3 billion -- INR 3 billion to INR 4 billion. Isn't that right? Am I missing something?

[Venu Nuguri, executive]

I think that first is something to us, right? With regards to STATCOM, we are talking about the whole STATCOM project there. So it's -- the project includes not only the STATCOM devices, but also includes end-to-end the connections set for STATCOM.

[Mohit Kumar, analyst]

That's a pretty large number, so INR 1.1 lakh crore, is that right?

[Venu Nuguri, executive]

We need to crosscheck that. We can crosscheck that and maybe we'll come back to you on that.

[Mohit Kumar, analyst]

Understood, sir. Understood. Sir, my second question is on the Scott transformers opportunity. I think recently, we supplied one of the Scott transformers with one of the DC companies for the [ Western line, Western airline ]. Is it fair to say that this can be a significantly large opportunity in medium term?

[Venu Nuguri, executive]

Yes. In the medium term, I agree with you that because on the runways standpoint as they are having a huge target to completely exercise the remaining things, and this is quite a big opportunity, in our view.

[Mohit Kumar, analyst]

And sir, how is the competitive intensities Scott transformer opportunity as of now?

[Venu Nuguri, executive]

We don't know how to make them, but there are...

[Mohit Kumar, analyst]

Broadly, as sort of broad answer?

[Venu Nuguri, executive]

Two, three other players. So the key is to do the type test, so we are the first one to complete the entire type test successfully. So there are, I think, 1 or 2 either in the process of that completed impact. So my view is that there will be at least 2, 3, 4 competitors going forward.

[Mohit Kumar, analyst]

And last one, on the HVDC. I think, of course, the bids are happening right now as we speak. Is it fair to say that we have tied up with the EPC, EPC companies and we are bidding it as one package. Is that right? And an added question, if you have the appetite to take 3 or 4 projects at the same time.

[Venu Nuguri, executive]

Yes. So we got our view is that we will be giving our offers very transparently, openly to all the customers, whoever is bidding for it. And then from there, we take it forward. We -- at this point in time, we have not tied up with anybody. And that's also not our strategy because we always have a multi -- multichannel strategy, and we will continue to give our offers very transparently openly to all of the customers. We are already pretty forward.

[Mohit Kumar, analyst]

And do you have the appetite to, sir, take 2 or 3?

[Venu Nuguri, executive]

Yes.

[Operator]

The next question is from the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited.

[Manish Dhariwal, analyst]

Thank you so much for this opportunity, and my compliments to the team for grappling with the tight and the tough situation for more than a couple of quarters, I would say. And finally, like you're seeing the destination of higher margin and higher and better numbers. So I basically want to understand that, see, the one problem that we were facing continuously was about the supply chain problems and semiconductors. Is the semiconductor issue clearly behind us?

[Venu Nuguri, executive]

I would say so. There -- of course, a global geopolitical geoconflicts are ever -- you can always see that nothing has -- everything is -- we can't share that anything is a done deal, now isn't that right? At this point in time, as we say, as we look, the semiconductor supply chain has eased off. So we are able to get the chips signed and those kind of parts. But we are able to project very well at end of the curve and then able to get it in there.

[Manish Dhariwal, analyst]

Fantastic, sir. Fantastic. Yes, absolutely. Yes, the geopolitical situation, as the raters, we are mitigating on that. Yes, so we understand that. Sir, [ DTD ], you spoke about this as the going forward strategy about harnessing new segments and markets. Could you just give us a flavor, I think, of what exactly are we talking about in terms of the new segments?

[Ajay Singh, executive]

Sorry, come again because it's not very clear, your -- Manish.

[Operator]

Sir, your voice is muffled.

The participant has left the queue. We will move on to the next question. We'll move to the next question, and the question is from the line of [ Khadija Mantri ] from Capri Global.

[Unknown Analyst]

My question is regarding the Slide #11, wherein we have given the growth industry-wise. So is it with respect to the company or it is the whole industry has grown in this quarter?

[Venu Nuguri, executive]

No, this is for our company. The orders for that, for the transmission, for example, that is for our company what are the orders in that particular segment.

[Unknown Analyst]

Okay. So the same with respect to the order intake in Q4?

[Venu Nuguri, executive]

[indiscernible] the order intake.

[Unknown Analyst]

Okay, sir. And sir, in data centers, can you please elaborate what would we add offering in terms of products and services? And how do you see this market growing? I understand that you've said high single digit. But in terms of -- for the overall industry, what would be the growth for the next 3 to 4 years?

[Venu Nuguri, executive]

Okay. So the data center, as we told, our offerings are -- because we do a lot of studies on the data center on the power standpoint and then high voltage and also the dry-type transformers and the grid connection stability of the whole network grades -- not networks, I mean the power side. So that's what is our feeling, that roughly, if you really look at the data center CapEx in a range anywhere within 10% to 15%, we take across the size of the thing, whether the hyperscale is higher and medium scaling lower. So hyperscale is [indiscernible] is getting upwards of 15% of CapEx is our addressable market.

[Operator]

The next question is from the line of [ Shivani from PL ].

[Unknown Analyst]

Congratulations on a good set of numbers.

[Operator]

We are not -- unable to hear you clearly. Kindly switch to the handset, please.

[Unknown Analyst]

What is the current capacity for the transformer manufacturing in terms of [ NVA ] Vadodara [indiscernible] plant.

[Venu Nuguri, executive]

Yes. So thank you very much, [ Shivani ], for this question. So normally, we are not giving that information yet. And so we have, as I said, we have built up over a period of time more than 2 details, so expanding the factories not only having a [indiscernible]. Our factories are also in [indiscernible], Halol and Mysore. They're all related with the transformer. Some of them will do the installation kits and some will do the bushings and some will do the [indiscernible] transformer. So it's like that we have built up the factories and several factories with the transformer fabric, like a large power transformer, medium power transformer like [ SBTs ] and then [ a clearly traction ], like the various things are there. If we pick a number, it does not look good, so normally we have not been giving. But all I can say is that we are, by far, one of the biggest manufacturers in terms of the capacity, in terms of the NDA, in terms of the supply [indiscernible] in the country.

[Operator]

The next question is from the line of Teena from Motilal Oswal Financial Services.

[Teena Virmani, analyst]

Congrats on a very good set of numbers for the current quarter. Sir, my question is related to the reduction in other expenses which we have seen in the current quarter. And so I wanted to check, is there any other core cost reduction in other expenses from the current levels, maybe in terms of any kind of reduction that can go to the parent side or maybe any kind of cost saving initiatives that you would have taken? So how do we see this going forward?

[Venu Nuguri, executive]

Okay. Maybe Ajay, you want to take this question?

[Ajay Singh, executive]

Thank you for this question. As I just spoke earlier on this. So overall, you see the reduction in other expenses over the cost structure more would be remaining in the same basket that I spoke earlier. So it will be in the range of [indiscernible] again, my personnel expense is in the range of 9% to 10%, and removing the personnel expenses, all the total expenses should be around 22%, 23%. That is what we see. So it can be some line items can come down, some line items can go up. But overall, we'll be within this percent.

[Teena Virmani, analyst]

So if I exclude the depreciation and interest portion, if I keep that aside, if I look at purely the other expenses which is part of your total expenses, can it come down one better absorption of your cost once the scale-up happens in [ electra ] Adani project or maybe the other projects that you would have received during the current financial year?

[Ajay Singh, executive]

So in this only comment when we see where the expenses which are related to volume, that is where we can see some changes. Hence, I think more we see are consistent.

[Teena Virmani, analyst]

Sure, sir. Got it. And is the execution of Adani project going to ramp up in the coming quarters? What is the time line for completion of your portion in that?

[Venu Nuguri, executive]

This will go to next year.

[Teena Virmani, analyst]

So between FY '25 and '26, we can expect the portion to get completed?

[Venu Nuguri, executive]

Yes. So the agreement goes right up to '25, '26.

[Teena Virmani, analyst]

Got it, sir. And the last question from my side is regarding the HVDC project tendering which is already going on for 1 or 2 projects. What percentage of this, let's say, for an individual project, that percentage of this can be a addressable market for Hitachi?

[Venu Nuguri, executive]

I think these are pretty large projects, so depending upon what kind of projects rating and et cetera. So if the rating can -- the value can be higher, anywhere between in excess of INR 10,000-plus crores depending upon what kind of business model, what kind of things, et cetera, so those are the things. So we'll not be able to tell exactly the thing, what business model. Now there are customers do different [indiscernible] where some means doing is. So we need to also look at the exact ratings and [ stuff like ] that. So it's -- it's different for different thing. We're not able to exactly tell what will be the market for each project. The market will be very huge.

[Operator]

The next question is from the line of [ Pal Chandra ] [indiscernible] from Kotak Life.

[Unknown Analyst]

Sir, I would like to know in the [ 3 DC ] projects, to what level we have received [indiscernible], and like what will be the import content on the Adani, if you order them? The future orders, also, what kind of import content will be required?

[Venu Nuguri, executive]

No, we will not be able to tell exactly what is Adani's [indiscernible]. HVDC technologies are very much technologies a lot of things we depend on vendors outside of India. But having said that, we said that we have done a lot of value addition here. We set up our own manufacturing factory for the [indiscernible]. We have a complete manufacturing for the converter transformer. We have the complete manufacturing for the technologies there. So that's where our domestic component is quite high, in excess of more than 60% -- 50%, 60% of that. So if you add our engineering capabilities, which is very, very rare in that, so our indigenously developed figure is far, far higher. That's what I was telling you.

[Unknown Analyst]

And sir, in the exports market, you said that there also HVDC opportunities are gaining traction. And there, again, the supply constraint is just like in India, like only 3 players are there that are also relatively in the PO players. So in our context, we wait for the parent to get order or we can go for direct export orders?

[Venu Nuguri, executive]

We see all this thing is not that we can go because this is the -- what can I say, the energy transition challenges are huge. It needs a lot of collaboration, co-creation, working not only within the company, within group, but also outside of the group, right? The challenge is so big. So it's not possible for any single company to go and do that because we have to have a collaboration working together in a coordinated manner. It needs to be done because some places understanding the customers' requirement will be better known by some other people who have been tracking that particular customer.

So it cannot be done just like that we go and do that. Because this is a highly technology-intensive projects, it needs a lot of prior working and understanding the system strategies, understanding the [ peer ] network before we do that. But having said that, we do see some opportunities for us at least to supply some of the components in those areas wherever we build up the factories in India in that.

So as and when those opportunities mature, so we will let you know that. But at this point in time, for us, the export strategy is toward the portfolio. So we are actively looking at it in our 3 point strategy. That is the first one. We have a global [indiscernible] factory that some of the products we manufacture only in India and for everywhere.

The second one is that we have some allocated markets where we develop those markets together with the local sales and the marketing teams over in that particular countries and sell our products. And the third one is we have a [indiscernible] factories where we manufacture some of the components of the full product, and those components will be sent to our factories around the world and so that they are able to use these components for complete production. So this is now our strategy of the exports. And with that, we said we got to 25%, and now it's going to be anywhere between 25% and 50%. Thank you very much.

[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. Over to you, sir.

[Venu Nuguri, executive]

Thank you very much. And once again, a big thank you all of you for taking time from your busy schedule and attending to us and listening to us. And we're happy, and due to paucity of time, maybe we could not answer some of your questions, but please reach out to us if you need any more information you want to know from us. Thank you, and please take care and stay safe.

[Operator]

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