Hitachi Energy India Limited analyst Q&A

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. We'll take first question from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.

Hi, Venu. Congratulations on a great quarter, sir. So, my first question is about exports. So, we have seen a very robust order inflow from exports, if I do the numbers for some adjustments for HVDC, about Rs. 3,000 Crores plus for this year. So just wanted to understand, I mean, without any related party major orders this year? So how are we able to get these orders? How do you generate inquiries there? Do we compete with the parent entities in these geographies. So how does the allocation come? How do you get the inquiries because it's widespread across U.S., Europe and APAC? So just wanted some more color on this.

Yes. Thank you, Parikshit. First, thank you for your question, and it's very interesting, and we have been consistently saying that our export strategy is a 3-prong strategy. So, the number one is we have certain allocated markets. And in the allocated markets, on a long-term basis, together with the local sales and marketing organizations, we start selling the products. N o 2 Hitachi Energy companies will compete in any market. We develop the market on a long- term basis. That's the first strategy. And the second one is, we do manufacture certain products only in India in the whole Hitachi Energy ecosystem. That's what we call a global feeder factory. Let's give an example of the 66 kV high circuit breakers, and then our COMBIFLEX relays. Those relays -- those components, products we manufacture here, we sell them across the world, some directly to customers, some through our Hitachi Energy offices. So that will become a related party. Thirdly, we manufacture a component which is part of the full product, what we call the feeder factories. This feeder factory manufactures components which are sold to other Hitachi Energy factories around the world. It could be U.S., it could be Germany, it could be Sweden and Switzerland, etc. So, a combination of these 3 things will add to our exports.

Okay. Sir, my second question is about the HVDC mix. I mean we have seen some softness in the margins, for the year. I mean we are somewhere around 14%, 15% EBITDA, but our peers are now in the range of 25% plus. So, our GTM is also low, and other expenses are high because of royalty. Just wanted to understand what HVDC a significant portion of this year’s revenue was, so if you can quantify across all the 3 HVDCs and then you have Marinus, you have Adani, you have the Power Grid and the Mumbai entry. So, was a significant part of your order book? And given that now two-third of our order book is HVDC. So, is there any scope for further margins to improve from here on?

As I said, HVDC is margin-accretive, and it was not very substantial in this quarter or in this year. If you take the whole of this year, our HVDC revenues out of Rs. 8,000 Crores is around Rs. 1,100 Crores or something like that, Ajay?

Yes, roughly. You can say 15%.

Our focus has been our base business, service business, export business and in addition to other things. HVDC is one of our levers, and that's what we are doing it.

Okay. Just the last question, sir, on the order breakup for this quarter, I mean exports have been very high. So just wanted to check the services, which has also been very high in this quarter, is the service order from India, HVDC upgrade or it was a global order? And is it part of the export order book?

No. The service upgrade is from India. It is for our customers in MSETCL, upgrade of control and protection.

T he base orders look very weak for this year. I mean, if I remove services and the export, the base ordering looks to be very weak for FY26. In fact, there could be maybe a decline Y-o-Y. So, what is your commentary on the base ordering?

Yes, we have seen our base orders also had strong growth for the whole of financial year.

Okay. Sure. Thank you.

Thank you. Next question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.

Good afternoon and thanks for the opportunity and congratulations on an excellent quarter and a very, very good year. My first question is on the domestic order inflow ex HVDC. Let's say, domestic order inflow plus exports, ex HVDC, it seems that we were at 90 billion last year. How do you see this developing for FY27? How is the inquiry pipeline ex HVDC in domestic market, especially?

Yes, thank you very much. As you know we don't give any forward-looking numbers going forward. But let me give a little bit of color to that, so that you understand that. HVDC is only one of our growth levers, not the only one, but you leave HVDC out. What we see our pipeline is very strong in the renewable. Our pipeline is very strong in the data center. It's good. And that pipeline is also equally strong on our transmission and other projects. And of course, industries are, it's kind of intermittency is there, but it's coming up. Overall, if you talk about the entire pipeline, leave HVDC, I think, our pipeline for the transformers from our various segments is also very, very strong. So, if you add all those things, I think pipeline compared to the year ago compared to the quarter ago, is very good.

Understood. My second question is the new transformer capacity, which you announced. Does it mean that it will produce HVDC transformers internally?

No. What do you mean by internally?

In a sense, in the other package or the 2 HVDC packages, we tied up with BHEL for supplying the transformers. Does it mean that as this capacity is up, we will take the entire project?

Whatever the projects we have won that will stay there. There's no change in those existing orders. So, considering the new capacities coming up, considering good demand, we are setting up this facility. And we have seen complete 360 view before putting up this capacity, and we believe that we have a very strong business case for this. And in this new facility, we not only manufacture large power transformers, but we will also manufacture the various converted transformers, whether it is for VSC technology, whether it's LCC technology and some of the large power transformers required for the data centers.

Mohit, I request you to join back the queue, please, as we have participants waiting for their turn. Thank you. Next question is from the line of Sumit Kishore from Axis Capital. Please go ahead.

Good afternoon. Thanks for the opportunity. My sincere compliments on creating an Investor Relations cell and welcome to Priyanka in the Hitachi Energy India family. My two questions, the first one is the gross margins contracted on a sequential quarter-on-quarter basis by a significant amount. What was the mix change or factors that drove this outcome? The second question is that overall, your order inflows for the fiscal grew by 1.6%, but excluding HVDC orders from the base for both the years, the non HVDC order inflow, at least the domestic non-HVDC order inflow was falling in FY26 over FY25. What led to this outcome and what is the outlook going forward? Thank you.

On the gross margins, I will ask Ajay, our CFO to talk on that.

Yes. Thank you for the question. So, if you see the gross margin, you are talking about sequential quarters, it is only because of the product mix that is where you see a contraction. But if you see overall basis at the end of the year, we have improved on the gross margin by 200 basis points. So, if you see around last year, our gross margins were around 38%. But this year, we close the year with 40%. So, as we are discussing, we are working on the margin accretion piece and only because of the product mix is where sometimes in the sequential quarters, we see some change.

Yes, so Sumit, what was your second question on the orders?

Yes. The non-HVDC order inflow in FY26 versus the comparable number for FY25. If I exclude exports, there seems to be sort of some weakness in the domestic non-HVDC order inflow. Given the outlook is so strong around multiple growth drivers, what are the underlying dynamics here?

I think when we investigated that, it is not the case with us. But we need to also understand that some of the capacities which are required for that probably will fill in with the HVDC portfolio. And that's also the reason why some orders which are required at the same time may not be possible for us to do that. But otherwise, even if you remove the non-HVDC order, there has been a growth in the domestic as well for us.

Okay. Just one follow-up on this, your Rs. 20 billion capex. What kind of physical capacity for power transformers in GVA terms is this?

We are going to create anywhere between 30 GVA to 40 GVA, exactly close to our existing factory.

Thank you very much. Wish you all the best.

Thank you. Next question is from the line of Amit Anwani from PL Capital. Please go ahead.

Thanks for the opportunity. Just a clarification on 30, 40 GVA, you said after adding the capacity, this will become 30, 40 GVA or?

This is additional capacity. 30 GVA, depending upon the products mix can go to 40, but baseline would be in the range of 30 GVA. Additionally doubling the capacity.

So, sir, a question on the minimum local content. So, the 2 projects which we already have, just wanted to understand, there were recent notifications from the government with respect to minimum local content. So, the status of the 2 projects, how much is the MLC there? And is your capex driven by also the localization drive for the, probably for the upcoming 2 or 3 years, there is a minimum 30% and then this will go up over the next 5 to 7 years in terms of localization requirement for each project? And second, will this also lead to reduction in royalty? Because you'll be localizing more. So, I just wanted to understand these aspects.

Thank you very much. As far as our local content is concerned, we are far ahead of the requirements set out. Even the recent government circular, we are exceeding that. And we have been consistently saying that we have increased our local content. And our new capacity has nothing to do with the local requirements. The new capacity is based on the demand coming in from renewable, transmission, data centers in a big way. When it comes to royalty, your question is that, as I said, we manufacture locally, but we continue to get technology from our principals, right? And I've been saying that we need to pay the royalty because we will come out of new technologies, new products. Some of you are maybe attending today's evening investors meet we would like to explain to you that what are the new products, technology we are launching for some of the new segments, growth drivers, for example, data centers, energy storage and those technologies, we are able to source from our parent company and we need to give royalty to ensure that the technologies are available at the same time it is available around the world.

And I'll like to top up what Venu was telling, if you see, we are not spending anything on the R&D. Our R&D spend is all managed centrally. So that is how we will need the technology for our products.

Thank you.

Thank you. Next question is from the line of Puneet Gulati from HSBC. Please go ahead.

Thank you so much. So will look forward to your evening presentation. But primarily, can you talk about any big gaps that you currently have in your portfolio that you would want to address with Rs. 2,000 Crores of capex?

No, Rs. 2,000 Crores is not about the gaps. For example, the majority of Rs. 2,000 Crores are going into our existing product. One is that we're going to set up a new greenfield large power transformer. We're already manufacturing those things in another facility in Baroda, Maneja. And this is additional capacity because we need to produce a greater number of transformers at the same time. And similarly, we are also setting up two additional lines in our Bangalore factory for power quality and we have 6 lines. We are now adding a 7th and 8th line because we see a lot of demand coming in for power quality products. And it's not any of the product gaps.

Understood. That's very helpful. And how should one think about phasing this capacity over the next 2, 3 years?

But what we are talking about is that demand required for the electrification. More sectors are getting electrification. So, electrification means you need more transmission, you need a more generation, and for that, you need a more transformer. So, we investigated for quite a long period. And we believe that it's not 1- or 2-year, 3-year story we are talking about a multiyear growth story. It's structurally what we need to have. It's not any more spikes that are coming up and down, but we need to know that structurally, for a couple of long years, the growth in demand for these products and solutions is going to be there in our view. And that's why we are investing in it.

A s we speak, out of Rs. 4,000 Crores, out of that Rs. 2,000 Crores, we announced in October 2024. And many of those projects are on the ground. So, they are taking anywhere between 3 to 4 years to complete. But this additional Rs. 2,000 Crores, which we announced, and we are doing the groundbreaking ceremony on 12th of June. And this is an accelerated manufacturing thing as I said, we're going to manufacture the transformer out of this new facility by end of fourth - last quarter of the calendar year of 2028.

2028. Thank you so much and all the best.

Thank you.

Next question is from the line of Subhadip Mitra from Nuvama. Please go ahead. Subhadip Mitra: Good afternoon, sir, and thank you for the opportunity. As you've mentioned on this call as well that the focus areas and the growth triggers seem to be coming more from the renewables and the data center side over and above let's say, HVDC and exports. Just wanted to get an understanding of, let's say, how much of the renewables and the data center piece would be, let's say, part of current revenues and order book? And how do you see the growth trajectory going ahead?

Well, I think, all of them are part of our order book. And by far, the transmission is highest in our order book, followed by the renewable and then industry service exports. Data centers are coming up in India. As you know, India is just less than 2 gigawatts of data center. And this is going to be multifold in going forward. In the next 4-5 years, we will talk about that. So that is even though it's just a small base, but the rate of growth, our growth rate growth percentage is much higher in those things. And the next one is the energy storage, the battery energy storage, especially you're talking about almost 80 gigawatts of battery storage for the next 5, 6 years, that as you can see from the CEA report, and that needs a lot of technologies, and we're going to also look at those segments with that. Subhadip Mitra: Understood. Just as a follow-up, would most of these products that go into, let's say, the data center and the battery energy piece, are these products that you're already manufacturing in India? These solutions already exist within the Indian subsidiary, or these would be products that need to be imported from the parent and then supplied in?

Some of the products are already manufacturing, and we're going to expand our product basket. Some of the products are already available in our parent company. We're going to bring the technology and localize those things. As you know, it's very important to meet up the price point required by our customers in India. So, if we import from there, we will not be able to manage sustainable growth in that. We need to do that, and that's why we are looking into that. It's a combination of all of that. Subhadip Mitra: Understood, sir. Thank you so much.

Sure, sir. Thank you so much for asking my question. That's an excellent set of results. So, my first question just pertains to the...

Can you please come close to the mic, please? It's very feeble.

Yes, hello. Can you hear me now, sir?

Can you use your handset mode, please?

Yes, sure.

That's clear, yes.

Sir, my first question just pertains to the entire year number FY26, the exports order intake and as well as the exports revenue.

I think yes, Ajay, you'd like to?

Yes. So, export revenue, if you see year-end is around 25%, you can take -- and orders also will be basically in the similar line. Currently, we look a little bit lower because we have booked large domestic orders, but our average exports are around 25% to 30%.

Yes. Whenever we're talking about the percentage, please remember, we'll always take out the large lump like HVDC order. When you're talking about that, it is excluding that.

Sure sir. So, would it be possible to give an exact number, sir, for this?

No, we could not share exact numbers, we have been saying as a ballpark percentage.

Sure. And sir, my next question just pertains to the near-term HVDC pipeline for the next 2 years. Just wanted some color on the pipeline. How was it more of LCC projects or VSC projects coming on stream? And, one linked question, since you've already won 2 mega 6-gigawatt projects already, do we have the capacity to take on more for the next couple of years?

The pipeline, in our view, is very robust. One has already come up for bidding for the TBCB customers, and we are working on that. And similarly, there are many other projects, what I understand is also in the pipeline, at least in the next 2 years, we are talking about anywhere between 3 projects, if not, 4. So our capacity will be consistent, and this is a combination of both LCC and VSC. And for us, it doesn't matter. LCC, VSC. And absolutely is fine because we are, by far, the leadership position in both LCC and VSC technology globally. We just commissioned Adani in Mumbai 1,000 megawatt is a VSC technology. So, your next question was about whether we have a capacity or not in that. We have also consistently said that we have been building the capacity. We don't have any limitation as of now to take more HVDC projects now and the next year or year after and we are creating those capacities. As you see, we have been saying this since 2022, where there's no pipeline there, we started our HVDC and control production factory in Chennai. And we are also setting up additional now transformer factory where we are going to manufacture the converter transformer in anticipation of the demand, not only HVDC, but also HVDC.

Sure. Thanks for that, sir. And just one question…

Mr. Jason, I request you to join back the queue, please, as we have participants waiting for their turn. Next question is from the line of Shirom Kapur from Jefferies.

Hi, sir. Thanks for the opportunity Just have a question about your exports. So, I understand your 3-pronged strategy. Just wondering, maybe if you could give some qualitative commentary on what kind of markets where you're getting this export demand? And is it largely third party? Or is it more driven by orders from the parents? And specifically, which segments? Is it data center, are you catering to the data center market in US or other parts globally. Could you just give me some color on that?

Thank you. So, as I said, some of the allocated markets where we have our growth export strategies. There we develop those markets on a long-term sustainable basis. It could be Indian subcontinent, Bangladesh, Sri Lanka, Nepal, Bhutan. It's also some of the Southeast Asian countries and so on and so forth. And there, we sell our products directly to third-party customers. And for example, our GIS, we sell not only in the Southeast Asian countries, but also some of the European customers. So, in some cases, we say we have global feeder factories. Again, we have a combination of that. We sell sometimes directly to customers, sometimes to our organization. So that comes from our Hitachi Energy offices around the world. And the third one is where we have the feeder factory, where we make the components in India. It's like more of a contract manufacturing for our Hitachi Energy factories around the world. So that will be through our parent organizations. So that's how we can do that.

Understood, sir. And secondly, if you could comment a little bit on -- you mentioned that there was a temporary industry slowdown in the fourth quarter that you navigated. And during your commentary, you also highlighted some maybe delays in some transmission projects, and that's why FY26, we saw a small dip in the growth in transmission orders? So, if you could comment a little bit on what these delays are? How long do you anticipate them to go on for? When would it get resolved? Or is it already behind us now?

I think in my view, it's behind us. The transmission projects are in the pipeline. Maybe the industrial capex. So, there is good momentum in the capex on some of the steel and other industries. But if you really look at where the investments are coming in, the transmission, renewable for sure, and some of the fossil power plants are also coming up. And the data center and semiconductor industry, batteries to industries, they all really firing. And we also see some expansions in the automobile industry.

Next question is from the line of Rahul Gajare from Macquarie Capital. Please go ahead.

Hi Venu, just continuing the export bit. Is it fair, I mean you did say that you are catering to the SAARC region and Southeast Asia. So, all of this is necessary with you all only. Is that how one can interpret this?

Sorry, all of this is necessary?

It's necessarily catered by Hitachi India itself? Or you will be…

Yes. Some of the allocated market, it will be catered by Hitachi energy India only.

And is SAARC the totally allocated market or will you compete with other Hitachi entities for Southeast Asia?

O ur Indian subcontinent is Bangladesh, Sri Lanka, Nepal, Bhutan and Southeast Asian countries. In Southeast Asian countries, the entire portfolio in Southeast Asian countries is part of the portfolio.

Got it. Second thing is you did talk about how India is catering to being a feeder factory for some of the products and certain products are completely only manufactured locally. On average, every year, how many of these products are there? How much of these things make up your revenue, these feeder factory and certain products which are manufactured only in India because this is going to be a continuous whether export happens or not, this is something which will continue?

Yes, it's more like a contract with our companies. And it has everything that is a pass-through to our company. So, it's like a low risk and stable margin kind of thing. And it is growing. If you take whole of exports, it's in the range of 30% or something like that.

That's interesting. The last question that I have is with respect to the timeline of supply of transformers, the export market, what is the kind of timeline that you can supply a transformer and whether it is different for a 765 or 400 kV.

We have so much demand for transformers from the domestic market. Our focus continues to maintain our domestic market. Our pipeline is quite robust. And one of the reasons why we are increasing our capacity by adding a new factory is also not only to cater to the domestic demand but also to cater to the new segments arising, like a data center.

So, you can deliver a transformer in what, 15 months, 10 months?

It's not a ballpark since it is evolving. It's highly dynamic, and that's why we always tell our customers to order as early as they can, so that we can plan better. In some we deliver in 15 months, some we do in the 12 months. That's not the issue. Issue is what kind of capacities the customers are looking at it. So that we can plug in those capacities.

Thank you. We'll take our next question from the line of Randy Lau from Goldman Sachs. Please go ahead. Randy, please go ahead with your question.

Sorry, am I audible?

Can you use your handset mode; Audio is not clear.

Am I audible now?

Yes, please go ahead.

Okay. So, for my first question, how should we think about this data center opportunity attributable to Hitachi, particularly with respect to domestic and global competitors over the next 5 years?

Sorry, it was not very clear. How big is the opportunity in data center?

Next 5 years?

Yes. It's 5 years...

Yes, how should we think about the data center opportunity for Hitachi over the next 5 years?

Looking at the data center market in India, which we are primarily catering to is less than 2 gigawatts. And the projections are anywhere between 13 to 18 gigawatts depending upon which data. And what we are talking about anywhere between 6 to 9x of the capacities from here. So, for every data center, 15% of data center capex is Hitachi Energy. And if you look at the addressable market is expanding by anywhere 6 to 8x depending upon the data from the various officials, So it's quite substantial.

Sorry, just a follow-up, you mentioned 13 to 18 gigawatts, and you mentioned a certain capex. For Hitachi, what percentage of this total capex is attributable?

No, we don't take that because for us, every data center is 15% of addressable market.

Okay, I have a second question. So, in the current inflationary commodity price environment, how effective has the price escalation process been in protecting the margins of your HVDC and transformer contracts?

Yes, thank you very much. I think this is a very interesting question. I was expecting this question. I think you all know that the geopolitical challenges being faced across India and many other geographies and which is also having elevated inflation, elevated metal prices, etcetera. And on top of that, elevated transport charges because of the state of Hormuz were getting affected. So, we are navigating it. It's not easy, it's challenging. But most of our portfolio, we have commodity price pass-through. We have a price variation clause built in, in the contracts, and we openly and transparently do that. But some other things where we cannot pass are like inflated freight, we are just looking at how to manage it. And then we have several initiatives to ensure that we mitigate many of those risks. But we are very looking actively on that.

Thank you. Ladies and gentlemen, we'll take that as the last question for today. I now hand over the call to the MD and CEO, Mr. N. Venu, for closing comments. Over to you, sir.

Thank you very much, ladies and gentlemen, for listening to us. And I know that some of you still have a question. So please reach out to Priyanka, and we will be happy to connect with you offline or online, and to provide all the necessary things. Thank you for showing interest in our Company. And we are looking at very exciting times for Hitachi Energy. Everything is getting electrified whether it is transport sector, industry sector, data centers, energy storage and the industry and the domestic and we are super excited about our role and supporting our customers, our industries and working very closely with all of you. Thank you very much. Have a nice day.

Thank you, sir. On behalf of Hitachi Energy India Limited, I would like to conclude this conference. Thank you for joining us. You may now disconnect your lines.