Hitachi Energy India Limited analyst Q&A

Thank you. We will now begin with the question-and-answer session. The first question comes from the line of Mohit Kumar with ICICI Securities.

Good afternoon sir, Congratulations on a very strong order book and a great set of results. My first question is, sir, is it possible to share the HVDC order book at the end of FY '25?

11/23

Sorry, what was the question?

Is it possible to share the HVDC order book at the end of FY '25?

So normally, we don't give you that. We had only booked one HVDC project last year in our order backlog. So, we have booked one HVDC project. The second HVDC project, which we announced will come in first quarter of FY25-26, because we have concluded the contracts in the first week of April 2025.

Understood. My second question is, sir, have we expensed QIP-related expenses in the quarter? Or will it impact Q1 FY '26?

Thanks for the question. So QIP-related expenses are carved out separately, from gross QIP proceeds which will be paid separately. So that will not impact operational profit.

It will not come through, not pass through P&L. Is that right understanding?

Yes.

My last question, sir, in the cash flow, there is a decrease in other financial assets. And there is a decrease in loans and advances, right? And there is an increase in other liabilities. This increase in other liability, is it related to mobilization advances? And what is the reason for decrease in loans and advances?

Maybe Ajay, you take this question, Ajay?

So, increase in other liabilities, basically, it is from the advanced collections that we have got. So that is what is mostly because of the advanced collections that we are getting.

And sir decrease in loans and advances?

Decrease in loans - earlier, we are adding a short-term borrowings, as I told you in the beginning, so we are not having any short-term borrowings right now.

We are debt-free since last quarter.

Thank you

Next question comes from the line of Umesh Raut with Nomura India.

12/23

Sir, my first question is pertaining to incremental opportunities on HVDC side. As we are hearing, there are 3 packages which are lined up and especially one is on the VSC-based technology, which is Khavda bi-pole part. So, any update over here, any indicative timeline by when you expect finalization of these orders? And subsequently, I also want to know how your execution would look like from the projects that you have won on the HVDC side in the last 2 quarters?

So on the timeline, as we are saying that in our view, one, if not second one, we may get finalized by the second half of this fiscal year. So, when it comes to technology-wise, Hitachi Energy invented the HVDC technology 70 years back, starting with the LCC and thereafter, introducing VSC technology. Throughout the world, we have close to 150 gigawatts worth of installations, both combined LCC and VSC technology. So, we are agnostic of technology. And just for information, the project, which we are almost in the final stage of completion, in Mumbai, is a VSC technology. So, whatever the customers want, we have the technology and the capabilities and we have also done a lot of localization. So, we will do that as and when it gets mature. When it comes to the execution of the first two projects, one project is in our portfolio at the end of March. And as I said, second project, which we have already announced to all of you that has come into our books in the first quarter(of FY 2025-26), so which will reflect in our first quarter results. So, these projects are a completion period of 48 and 54 months, 48 is a bipole-I, 54 months is a bipole-II. And normally, the revenue for this will be very slow in the beginning with a low single digit and then it will move up to the second year, third year in a big way.

Okay. So, is it fair to assume that initial two years, you will have about 1/3rd of execution and maybe subsequently the later two years will have about 2/3rd of execution coming in?

We will not be able to share the same. As I said, initially, the first year is a low single digit.

13/23

Okay. From a capability point of view, I just wanted to understand how many projects on the HVDC side you can execute simultaneously in a similar timeframe?

If you ask about our HVDC project portfolio, we have three projects by the end of 31st March. We have a Marinus Link project, for which we will start supplying shortly, then we have Mumbai project and then other projects which we got recently. So, it is not about how much we can do it. We are flexible & agile and are gearing up the expansions in anticipation of the same. And as and when we see more opportunities, we'll also expand our factories and enhance our execution capabilities. But having said that, we look at every project as a new project and evaluate it in a risk-reward basis and then we take a decision based on each project.

Got it, sir. Sir, I have one basic doubt when you mentioned that certain technology is getting fully absorbed in particular year. So, what do you mean by this?

Sorry.

So when I refer to your annual report, there are mentions about various components or technologies getting fully absorbed in terms of technology transfer?

I don't know which you are referring, which report you are referring it to?

When I refer to annual reports of your company, you mentioned that certain components or technologies got absorbed during that particular period. So, for example, in FY '24 annual report, you mentioned that VSC-based volt technology got fully absorbed in India. So, does this mean that you can manufacture these volts locally?

Yes. Any new technology comes, so we always bring those technology and localize the technology here so that's what we meant in that.

Okay. So based on current capability, how much of indigenized or localized value addition we can do in case of HVDC project execution?

14/23

Today, not restricted to HVDC, but for all the portfolio put together, whatever we're producing globally, more than 80% we produce locally here. The value add is a different then what we produce. For example, transformer, we don't have a CRGO here and so we import it. If you take the value add locally, it doesn't come into picture in this context. But we have end-to-end manufacturing of the transformers.

Thank you. Next question comes from the line of Bhalchandra Shinde with Motilal Oswal AMC. Please go ahead.

Hi, sir. There is one concern in most of the investors, like if we are getting so many HVDC orders. But after that, relatively order inflow growth may taper out. If you can provide insight that what kind of order inflow growth one should see over the next / in a longer period of time, especially when the kind of HVDC capex is happening globally and within India?

So, our whole strategy for our portfolio, be it the product system, services or software is a bridge between with the generation and the consumption. So HVDC is one part of our portfolio. We have four business units, HVDC is one of them. It's not the only one. So, we are not building the strategy only based on the HVDC, but for sure, the same is coming in a big way. So, we have the full-fledged transformer portfolio. We have a high-voltage portfolio. We have grid automation and then the grid integration, which includes the STATCOMs and HVDC, etc. in that. We have been saying very clearly for the energy transition's requirements, especially on the targets set by the government. It needs a lot of technology has to come in, technological product systems need to come in. For example, you need to have more HVDC projects, more energy storage and more 765 kV transmission and also some 1,200 kV transmission line also will come in. All of them are an enabler for us and our portfolio will go into that. That's one aspect. And then we come to the edge of the grid expansion, for example, data center, energy storage. Here again, we have the complete portfolio. So I'm not saying that it's just because HVDCs will clutter after some time and then our order flows. We are not seeing that scenario at this point in time. And we are looking at short-term to medium-term basis, and we see that market is very robust. The tailwinds are supporting. That's the reason we are

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expanding it, we are expanding our manufacturing capabilities, capacities in all the four business units.

Got it. And in the margin trajectory-wise, sir, like we showed relatively thinner margins in first half and we improved on margins in the second half. Similar kind of a trend one should see in FY '26 or overall execution front will be uniform?

On an overall basis, quarter-on-quarter, the mix can differ, things can differ. So, we generally, we see a slow start in the first quarter of the financial year and which will pick up because many of our customers are also working towards their budgets, etc., in that. But what we said last time that we will reach a double-digit margin in this quarter, but our thing is that overall year-wise, we will maintain the double-digit EBITDA.

Got it. Thanks for answering that.

Thank you. Next question comes from the line of Nikhil Bhandari with Goldman Sachs. Please go ahead.

Congratulations on the great set of results. Can I ask the margins profile typically for the HVDC projects versus your base business? If you can provide any kind of color or range, that will be pretty helpful?

Thank you, Nikhil. But unfortunately, we don't give a margin profile of a project level. As I said, HVDC is also one-off projects only. It's like any other project. So, we don't share the same. All I can tell you that the risk profile of these projects are better than what we used to see previously. Like, for example, we used to have a complete turnkey, the civil construction, etc. in such project. So here, our things are mainly engineering and supply of the products and commissioning of the products and ensuring that the system works.

Understood. And just a follow-up question to your capacity or bandwidth constraints for taking more HVDC projects. You mentioned that's quite dynamic and you can probably operate multiple projects. But what could be bottlenecks or constraints if you were to think as a risk in terms of taking multiple more projects from here on the HVDC line? Any thoughts on what could be the potential constraints for you to take, let's say, another two or three projects in the next one to two years?

16/23

Again, depends upon how these projects will be stacked up together in a particular timeline, etc., those things will be there. But as I said, we are a global company and our supply chain is global. So, depending upon the need, we can always see that if our factory in one particular component manufacturing is full, we can always look at where else we can source it. So those are the flexible options available for us. And with that, we will really look at taking or exploring take more projects, whether it is HVDC, whether it is supplying our transformer or many other aspects of that.

Got it. Thank you very much.

Thank you. Next question comes from the line of Mahesh Bendre with LIC Mutual Funds. Please go ahead.

Hi, sir. Thank you so much for the opportunity. Sir we have an order book of Rs.19,000 crores. So when the execution will pick up, I mean, when execution will peak, is it in FY '26 or FY '27 out of the current order book?

No. Our order book is ongoing, right? Like, for example, last year, based on our order backlog, we have improved the revenue of almost 22% to 23%. So the 23% higher has come from the existing order backlog in that. So we see that most of the thing, I would say, orders most of the revenue will come from our existing order backlog this year and some of the things will spill over into the next years on that.

So, my question was out of Rs.19,000 crores, whether the majority of this will get booked in the current year, that is FY '26 or is it in FY '27?

Let’s address your question differently. Other than the HVDC, the rest of the order to the revenue cycle, depending upon the their size hover anywhere between 3 to 6 months and goes up to 18 months, if it is a large transformer or large GIS etc. If you have an order and then you can say that from 3 months to 18 months is what it takes to convert the same into revenue. But for HVDC, it takes a long time, and it has a 48 months completion period and one part of the project and 54 months is the remaining part of the project. So it will take a longer time and will not happen in the same way as I described for the rest of the portfolio.

17/23

Sure. And last question from my end. Sir, globally also there is a shortage of transmission and distribution equipment. So, given the strong demand in domestic market, is there any limitations on us in terms of taking export orders in the near term?

We do not have any limitations on that. As I told you, our exports last year, whole of fiscal year, if I remove the HVDC is in the 37% and exports have grown year- on-year from last year in absolute value, it has grown and the percentage-wise also. But having said, our pipeline in the domestic market is very strong. Our pipeline from the renewable, pipeline from the transmission, pipeline from data centers, pipeline from many other sectors where we are working on that is quite strong. And our focus always, I've been saying this and I continue to say, our focus is to address our domestic market first and then we go to the exports.

Sure. Thank you so much, sir.

Thank you. Next question comes from the line of Harshit Patel with Equirus Securities. Please go ahead.

Thank you very much for the opportunity. Sir my first question is on our capex. You have talked about investing close to Rs.2,000 crores over next four to five years. When I see our FY '25 capex, that number is close to Rs.130 crores. So from here on, will we step up our capex to maybe Rs.400 crores, Rs.500 crores per year kind of a level?

Yes. I think -- go ahead, Ajay.

Yes. So, thank you for the question. Right so in this year, we have done our QIP and we have already declared that we'll be spending approx. Rs.2,000 crores in a span of 4 to 5 years. That was our say. So what we have done in this year, obviously, in the next few years, it will be, let's say, 4x to 5x kind of thing. So that is what we see at the moment and our drive will be in that direction only.

So, could you share what kind of product groups or solution groups that we will see? I think one clear area would be investing towards this incremental HVDC- related factories. Apart from that, what kind of investments we would see towards maybe STATCOM, the higher range of AIS, GIS transformers? Anything that you can share on that front will be very helpful?

18/23

We have already spoken about the same earlier as well. It is a widespread investment. It will be in all our business lines, expansion of the business line transformers, high voltage, grid automation, so on and so forth.

Understood, sir. Sir, my second question is on exports. As you have explained our exports and even the share of exports has grown very sharply in FY '25. Are there any more geographies or product groups that have been allocated to us by the parent? Are there any more products where we have become or we will become a global feeder factory for the group? So, any outlook, if you can share on that front, that will be very helpful?

Our export strategy, as I was explaining to you also, you know very well that it is a three-pronged strategy. First one, we have some of the products with the global feeder factories, and that is the same. We have not added any new products into that. And the second one is we have been allocated certain markets, and those things are dynamic as and when we getting new markets, so we will be doing it. And the third one is we do have feeder factories and then based on the feeder factories, we are supplying our components into that. So, this is how the three- pronged strategy. And there is a scope. As I said, our exports are not at the cost of the domestic market. So, if we have more slots, we will definitely have opportunity for us to grow in exports.

Sure. Thank you.

Thank you. Next question comes from the line of Renu with IIFL Capital. Please go ahead.

Yes. Hi, good afternoon and thank you for the opportunity. I have a few questions. First, just trying to understand that in the last two quarters, while we have seen margins coming to double-digit levels, even if you add back the effect of commodity gains, it's still in 13% levels, which is significantly lagging other peers who are in terms of their performance, mid-teens to 20% range. Just trying to understand what is pulling down the margin mix for Hitachi versus the other peers in the current business environment despite the execution of high-margin HVDC VSC that we've done, that's the first question?

19/23

Yes. So, thank you for your question, Renu. We have also done our own analysis of the same, so I don't want to make a comparison with the competition. But our margins are coming in line with our strategy and it's coming out. And we have been saying last two years, it's not that we take a dip in one year and then start doing that. That's not our strategy. Our strategy is growing continuously sustainably. That's exactly what we said. We have said 2 years back that we'll reach the double digit and we have reached the double digit. And we said on a year-on-year basis, we sustain this. And it will also probably will improve going forward.

Okay. So even if the market is giving opportunity, we may not be very excited to grab better profitability or profiteer?

We will also at the same time invest in our future. So, whenever we are looking at it, we are not looking for a short-term gains. We are looking for a long term. So as I said, our focus is the domestic market. We continue to serve our domestic markets and that's where is our thinking.

Got it. The second is, do we have any updates, probably I might have missed it out, but do we have any updates on the electrical packages related to the bullet train. Are we still expecting something from it or probably we are out of the race for those orders?

No, I think it's getting delayed. That's what I understand. It’s getting delayed right at this point in time.

Sir, any particular timeline for fiscal '26 or probably it's difficult to put anything on paper right now?

I think it should happen in this fiscal year. So, we are not sure when and how it will happen.

Got it. A last bookkeeping question. On Slide 11 of the presentation, the segment mix numbers for the quarter seems to be backdated for fiscal '24 and '23 and not updated for '25. So can we have the updated revenue mix between utilities, mobility and industry?

Sure. So we'll send that. The numbers are correct. The year is wrong.

20/23

That's not updated. Got it. Thank you and best wishes to you.

Thank you. Next question comes from the line of Ashwani Sharma with Emkay Global Financial Services Limited. Please go ahead.

Hi, sir. Good afternoon. Thanks for the opportunity. So, the first question, if you can give us some idea on current tender pipeline ex of HVDC, how is that shaping up?

No, we don't normally give the value of the pipeline, but our pipeline is quite robust compared to what it was one year ago and one year now. And excluding HVDC, the pipeline is very robust.

Okay. And sir, the second question is that as we move towards execution of these HVDC orders, just wanted some idea on the working capital requirement. Is it different from the base orders or any inputs on that?

Maybe our CFO, Ajay will also join. But as you know, these are quite a large HVDC large projects. We need to be ready to manage the working capital whenever is required in any particular part of the project cycle. That's where we are looking at it. Ajay?

Yes, it is right, sir. Being a big project, initially, when we start, it will start with the low working capital requirement. But once we pick up maybe in the year 2, the working capital requirement will be more for sure. But for that, already we are equipped, and we are having a plan in place.

Sure, sir. Thank you. Those were my questions.

Thank you. Next question comes from the line of Bharat Shah with ASK Investment Managers Limited. Please go ahead.

Yes. Congratulations on good outcomes. But don't regard my question as a bit of a spoil sport. I see, of course, the performance is robust in financial terms. But I would say the size of the order book, the strength of the opportunity, all are more in the external segment. It is external opportunity, which is propelling us. But when I look at internals of the firm, the innards of the firm, some of those questions came from the earlier participants about the margins. In a business

21/23

where demand is robust, we believe that we are technologically in terms of quality of engineering, we have superior solutions. We also have a large business size. Therefore, in a business where gross margins are still at a very healthy 40% level, our operating profit margins at just over 6.5% in the year of '23-'24 and just a little over 9% in the fiscal year '25. I'm unable to understand why these are so poor. That means our internal costs are too high or maybe our methods, processes, reengineering something, but prima facie, it doesn't add up?

Thank you for your question. Maybe I'll ask our CFO, Ajay, to talk.

Thank you for the question. So, as you see, if you see our cost structure, cost structure, if you see, you rightly mentioned, our gross margins are hovering around 38% to 40%. But the expenses also, if you see compared to the last year, just compared to the last year, our personnel expenses, for example, compared to the last year came 9.6% to 8.5%. The other expenses also are hovering in the same line. The depreciation, finance cost to us, it is all consistent. It is only with the kind of product mix and the future revenue growth that we are having, coupled with export and service whatever we are committing and whatever we are delivering, we'll be moving in that direction.

No. But I would say, Mr. Venu, this is not a finance question. I would say this is a business question. He answered about depreciation and finance costs, but they sit after the operating margins, not before?

When I told you, Ajay will add and then I'm also going to top it up on that. So, Mr. Shah, what we are looking at it, I've been also telling you consistently, we are not looking like -- I don't want to make any comparison here. There are other companies who compare, they are also making losses in the two-three years. We are a consistent company. We wanted to build a company in a very long-term sustainable growth, both growth in terms of top line goes into the bottom line. Some of the projects we look forward in big projects, we need to start working on those things much at other things, which may also probably incur the cost. All

22/23

those things will be also required in addition to the technology, which is very important. ` One of the reasons why we are here, we are able to compete and beat others and get the orders is because we are doing a lot of localization and bringing the technology and localization. All those things will pay at one point in time. But right now, as I said, we are in line with our strategy. We are not moving. We are told two years back, we enter double-digit margin. We grow higher than the market and we expand our things into geographical thing as well as high-growth segment. We are here, say the ratio, you see here, what we are saying, we are doing it.

Thank you. Next question comes from the line of Amit Agicha with HG Hawa. Please go ahead.

Thank you for the opportunity. Sir, what is the growth outlook in data center and how are you positioned versus peers?

Data center is one of our key growth segments and we call it the high-growth segment and we are very well positioned. We have a strategic approach on that. We do a lot of long-term deals with some of the hyperscale’s, both global hyperscale, local hyperscale. We have a multiyear project in that. So one out of the three data centers today is powered through our grid integration solutions in that. So, we are well established. We are establishing. We are driving even more to offer our products and portfolio in the segment.

Question was like what is the addressable market size for services in India and how is the new business unit expected to scale in '26-'27?

So, this is also we have been telling previously, our addressable market, we have an Rs.60,000 crores worth of installed base in India since last 75 years, we have been doing it. And we saw that our addressable market, our potential orders, not addressable market. This whole Rs. 60,000 crores is the addressable market, but everything will come in the market. We said we have a potential of future addressable market is in the range of Rs.2,000 crores per year.

23/23

Our orders are in the ballpark in the plus/minus in that range. And that's what we are looking at it in that. Right now, we are around Rs.500 crores- Rs.600 crores of our orders. So, our plan is to take it over a period of time, Rs.2,000 crores orders. It will not happen overnight, but it will take 3 to 4 years. So we are productization. We are offering digital offerings to our customers. Both IT/OT combinations also we are looking at. As we speak, we are doing a lot of pilots with many of our industrial customers, data center customers. Some of the data center customers are looking forward for providing the life cycle things. All those things will come into that. It won't happen again overnight. It is a 3 to 5 year journey.

Sir, my last question is like how will be using the QIP proceeds of Rs.2,500 crores plus, like are there any inorganic opportunities in sight?

About QIP proceeds, we talked about very clearly and two-thirds of that we used in our expansion capex. And then the rest 25% is our capex corporate usage and 10% is working capital. But having said that, we are actively looking at some of the things and not in areas of a transformer, etc., but mainly in our value-add or complementary things like our new segments, those are the things.

Thank you for the answer and all the best for the future.

So, operator, since we already reached our time and I know that there is a queue for other questions. So please reach out to us. We have back-to-back calls for some other things. I really want to thank you for your interest and listening to us. So, if you need any further information, please reach out to us any time, happy to engage and provide answers to you. Thank you very much and looking forward to talking to you soon. Thank you.

Thank you.

Thank you. On behalf of Hitachi Energy India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.