Hitachi Energy India Limited (POWERINDIA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Hitachi Energy India Limited Q4 Analyst 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.

Thank you, Aman. Good evening, everyone, and thank you for joining us for the call. I hope all is well at your end and hope all of you are keeping safe during these unprecedented times and taking all necessary precautions to keep yourself and your family safe. We have just uploaded the presentation I'm going to refer in the BSE website. And I'm also now sharing if you are able to see that, then I'll also refer the slide number for ease of convenience for all you. So moving to the Slide #3. The October to December quarter we are talking about is, as you know, is a typical in India marked by a festive mode in the country and the nation was also trying for a normalcy after a bleak first half of the year. In this period, we also witnessed significant orders from leading power players towards solar, renewables, solar and wind renewable projects and in grid strengthening as well as toward electrification of Indian Railways. We were awarded a project to set up a central command unit called the Remote Operations and Nerve Centre for India's largest private transmission company to monitor and control their power substations in Rajasthan. Further, we hope to convert around close to INR 200 crores worth of delayed orders where Hitachi Energy India was the lowest in the coming time. But concurrently, we were facing challenges that you all will be aware of. Globally, commodity prices have been reaching record highs and shortage of semiconductors has been challenging supply time lines. Grid [indiscernible] have been delaying shipments of critical materials. With this backdrop, we managed a credible performance in this quarter, October to December quarter, staying resilient amidst tough market realities. We put unwavering efforts at stabilizing our supply chains, building stronger process and improving efficiencies in that. As you can see from the slide, we have more green arrows. So moving to the Slide #4. Safety, as always, remains our primary license to operate and to ensure a culture where people take as priority ownership of there and their colleagues health and safety. We continued our efforts towards spreading awareness and building capabilities at our offices, factories and project sites where we operate. We have been conducting regular training sessions and consultations for our people and partners to combat the spread of COVID-19 virus, prevent ailments, rising out of the new normal and reduce HSC hazards at workplaces and work sites. As more people return to workplace, we partnered with various agencies to provide defensive-riding training and conclude helmet distribution to ensure road safety to all our employees at all of our locations. Our uncompromising safety standards and consciousness were not only appreciated by customers, but also garnered the leading industry recognition, which is a Golden Peacock Award we have received in this quarter for exemplary efforts toward ensuring a safe workplace at our locations. Moving to the Slide #6 -- sorry, Slide #5. Yes. COVID, Slide #6, sorry. COVID lending our support to augmenting public welfare and healthcare amenities is a natural extension of keeping people safe. After all, we are only as safe as our homes, neighbors and communities. As the government cast a wider net on vaccination, we conducted inoculation drives for employees' children and dependents. Applying the learning from waves 1 and 2 of the pandemic, we swiftly activated our crisis team, strengthened partnership with medical services and reinforced the use of PPE to tide through wave 3. While, we are glad that Omicron did not cast as dark a shadow, we continue to exercise caution and keep our people at the heart of what we do. And as you can see, 99% of all of our employees have already got 2 doses of vaccination, and we continue to have the strategies around testing, tracing, treatment and vaccinating to ensure that our employees are safe and business continuity is maintained. Moving to the next slide, Slide 7. So it was no doubt, a milestone quarter for us. We transitioned into our new identity, Hitachi Energy from ABB Power Products and Systems India Limited. We were joined by key leaders from the government, industry, utilities in the inaugural celebrations, which, of course, were measured to ensure at most health and safety compliance. And this is also a first physical event with our stakeholders, government, customers in the last 2 years, which was well received and by all of our stakeholders. With our new identity, Hitachi Energy India, we will be able to effectively position our pioneering technologies and services to existing and future customers, expanding beyond the grid, opening up a breadth of opportunities in areas such as sustainable mobility and smart life and contributing further economic, environmental and social value. We look to advancing a sustainable energy future for all. Moving to the next slide, Slide #8. In the first half 2021, we had released our 2030 carbon neutral goals. And we had set ourselves short-term, medium-term, long-term targets to advance the energy transition underway in India, and we are committed to 100% fossil-free electricity in our own operations by March 2022. If you recall, in one of the conference call, I was also talking about this. I'm happy to share that we achieved 100% fossil-free electricity in our own operations, offices and factories by December 2021 itself. We also implemented rooftop solar for a green electrification of a project site office. Designed by our engineers, this plug-and-play solution will negate the carbon footprint of almost close to 4,000 liters of diesel per year. And as we strive to achieve our goals, we constituted an environmental, social and governance committee, ESG Committee of Directors to track our performance and provide an outside-in approach to help us with an urgency also reflected in the government's commitment on climate action at COP26. Our company's portfolio, which provides a mission-critical technology to our customers in enabling carbon neutral, we thought we would be taking a leadership position and walking the talk, especially in ensuring that our own operations and our own footprint will be a carbon neutral going forward. Moving to the next slide, Slide #9. We echoed the shared goal of accelerating a carbon and neutral future across our business actions. From leading the conversation on key issues such as electric mobility at prominent forums to co-creating solutions that benefit society, we continue to deliver social, economic and environmental value. Besides commissioning nation-building projects, such as the Kanpur Metro, we also work with the local authorities to ensure their social infrastructure was robust enough to cater to local needs. We collaborated with customers to address the needs of an evolving energy landscape, such as evaluating reliable integration of renewables in the energy mix of many private utilities and upskilling the human capital to manage an increasingly digital grid. Example of that is, as you can see in this, we have signed an MoU partnership with our Tata distribution companies to shape the future talent, using our technology, our portfolio and our footprint. Moving to the next slide. Expanding value through digitalization. Digitalization is steadily percolating through the grid in our own operations as well as that of our customers in industries and in T&D utilities. In the 3 months of the quarter, October to December period, we conducted over 150 Remote Factory Acceptance Test, a process where customers can virtually test the products such as transformer, high-voltage, GIS or automation. Before signing off our delivery tool essentially in a world with a travel restriction. And we have started this process since day 1, and we continue to engage with our customers with this Remote Factory Acceptance Test. With the steel major, we entered into a digital partnership agreement, facilitating a combination of asset management software with our expertise, enabling equipment and O&M managers to reliably and cost-effectively optimize system performance and protect the crucial assets, RelCare. And the third example on the digitalization is, as I was telling you before, we have received an order to setting up our remote operations and nerve center RONC or a central command unit to monitor power substations in Rajasthan. The state is a leader in solar energy and aims to add 30-gigawatt worth capacity by '24, '25, which will introduce more intermediacy into the grid. The RONC will offer real-time monitoring, control and protection of mission-critical power assets via intelligent electronic devices. It will help power operators take timely, even preemptive actions to maximize product efficiency and prevent costly disruptions. These are just examples to show how our foray into digitalization of the entire value chain, not only from our own operations but also our customer assets. Moving to the next slide 11, in the October, December quarter with the launch of IdentiQ, we added another milestone product in our digital portfolio, principally a digital twin for HVDC and power quality. It is best described as an umbrella solution for all relevant site information and analytics for high-voltage sites, which are critical for ensuring grid reliability and stability. This game-changing digital solution uses an identical digital replica, which models accurately the behavior of the respective power asset solutions are process for HVDC and power quality, providing clear visualization and remote access on any device for the complete life cycle. Moving to the next slide, Slide #12. I think this slide, you are all familiar about the -- on a macro level and maybe you know more than me. But let me just give you my perspective on this, the last time when we met or when we had our conference call, India appeared to be on a recovery path, and then the Omicron wave brought with it a set of uncertainties, delays in decisions and strain on supply chains and also travel restrictions, et cetera. However, India continues to be one of the fastest-growing major economies, in the current financial year at 9.2% year-on-year GDP growth and 8% to 8.5% in the next financial year, this growth rate is expected to sustain in the next couple of years. The PMI index for services is back to pre-COVID levels. A similar growth trend is reflected in various core sectors contributing to IIP. While this is a positive sign, we have to view escalating fuel, commodities and freight prices in balance. You all know that the global semiconductor shortage is another headwind that continues to influence operations across geographies, and we will see how the situation unfolds aligned with uncertainty related to COVID. So moving to the next slide, not this time the headwinds I talked about just now, we remain the partner of choice for our products, services, software. Utilities drove about off the order book in this quarter through product orders for grid strengthening and power quality products and automation for monitoring and integration of renewable. We won major orders from leading power players towards solar and wind projects as well as toward Indian Railways electrification and Metro rail, in line with our key focus areas for business growth and our Vision 2025 focus areas. On a year-on-year basis, orders from data centers declined due to a high base yet with the proposed reclassification in the recent budget of data center as harmonized infrastructure, coupled with the rising demand, we are confident that the sector will normalize in the coming quarters. Products led our order book, especially through the direct sales, indicating our shifting center of gravity towards more technology-driven solutions and our end customers' evolving preference towards that. Moving to the next slide, Slide #14. Exports, as we have been talking almost every quarter, continue to lift orders, contributing approximately 25% to the order book in the December quarter, with an increased contribution from our feeder factories. As you recall, our strategy of exports is to take from 20% to 25% over a period of time. And I'm happy to report you that we already reached 25% in this quarter and an annualized base, we have reached almost 23%. Solid demand came from key utilities in South Asia and South America for our high-voltage products and grid-integration projects. Despite the current logistical logjams and increasing freight cost, export orders clocked a third consecutive quarter of year-on-year growth, starting our progress towards the goal of 20%, 25% range of order book. Traditional retrofitting, diagnosis, space and extension from utility steel majors and metro customers continue to contribute to our service portfolio order book, some of these orders were secured through synergies with Hitachi as well. In addition, we received remote and on-site service and maintenance orders from a steel major and other heavy industries for their electrical devices. Our consultancy business continued to draw demand for renewable studies from India and around the world and system studies for petrochemicals, mining and automobile industry houses. From existing installed base to the newly diversifying, we saw immense trust from our customers to be their partner of choice even during turbulent market conditions. Moving from exports and service to profit and loss statement in the next slide. We were able to reliably deliver on their faith through these challenging times by sticking to our 3-pronged strategy put in place at the peak of the pandemic that is protecting our people, preserving business continuity and preparing for the new norm. Even amidst commodity market and supply line tribulations, we delivered a credible and sustainable performance. As of 31st December 2021, our order backlog stood at INR 4,733 crores, which is expected to unlock revenue streams in the coming months. Recovering to pre-pandemic level, revenue was INR 1,137 crores, up 9% year-on-year. Profit before tax after accounting for a onetime reimbursement of reorganization expenses was INR 83.4 crores, up 10.3% year-on-year. Supply chain disruptions emanating from port delays weighed on process time lines. This coupled with increased commodity and freight costs, slowed our march towards target margin corridor. Operational EBITDA stood at INR 89.5 crores December quarter with EBITDA margin of 7.9% -- EBITDA margin of 7.9%. Moving to the next slide, Slide #16. You have seen all this Union Budget, and I'm sure all of you are aware about it. Let me also just give a snapshot from our perspective, looking into this Union Budget 2022-'23 set basically it set a broad vision for the Indian economy for the next couple of years through 4 pillars of development. You all know that it's a PM Gati Shakti, inclusive development, climate action and energy transition. It's a budget, in our view, is a budget for a change, budget for a growth and also for the future. It definitely touched on all levers to multiply growth and opportunity using public funding as the linchpin to attract private sector spending. A climate-responsive budget, there is a lot of focus in energy transition, where we operate. An additional INR 19,500 crores for PLI manufacturing, high-efficiency solar modules and allocation of INR 1,400 crores for 123-megawatt hydro and 27 megawatts solar projects in financial year '23. Issuing of sovereign green bonds in public sector projects to reduce carbon footprint initiative in the economy and steps to trigger adoption of electric mobility, including policies and battery swapping, charging interoperability and large-scale charging stations and also the 400 Vande Bharat trains with higher efficiency for passengers will be developed in the next 3 years and interconnected standardized Urban Transport Ministry. In all our view, all these things are the play areas for our company to be actively participating in -- going forward in that. Coming to my last slide, priorities. And it's crucial that we take on the challenge of accelerating the pace of change to reap the benefits of this energy transition. And we are seeing this energy transition happening in every part of this world and including in India. We see ourselves playing a leading role through our digital high-end energy platforms either partner of choice for our customers and for the industry. Our key focus will remain protecting our people, preparing ourselves to tackle them, vagaries of the pandemic-induced new norm, shaping an agile supply chain, being selective in our contracts and revisiting long-term agreements with customers and supplier as a price trajectory of commodities and freight remain uncertain. You all know that this kind of commodity -- elevated commodity prices are -- we have not seen these kind of things in the last several years. And this is unprecedented changes taking place, especially on the commodities, freight and port logjams. As I often say, we are investing in India for the long term. We will continue to build indigenous capabilities in high-growth segments such as rail, data center, transmission, renewable, automation, HVDC, power quality, et cetera. That are also pillars in the government's forward-looking budget and leverage the same for expanding our export base to Make in India, for India and for the world. And to do so sustainability, we will invest in ourselves towards reaching net zero in our own operation as well developing a diverse talent pool that is equipped to nurture the rapidly evolving energy landscape. As the pioneering technology leader, we'll continue to collaborate with the customers and partners to advancing a sustainable energy future for today's generation, and those to come in there. We would like to grow the organization to be more sustainable, flexible and secure. With that, I really want to thank you all of you for your attention. Ladies and gentlemen, I would now like to open the channel for your questions. Thank you.

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

Hello? Am I audible?

Yes, please.

But the current quarter results were definitely not as good as they were expected. So my first question is hitting at the core of 3Q results, trying to understand the gross margin weakness. You did highlight raw mat price pressures and fixed price contracts. So if you could provide some more inputs in terms of what was the impact of cost inflation on the operating margins? And to what extent was it led by change or adverse mix? Aligned with this, what percentage of the backlog that we have today is sitting on fixed-price contracts, which could have a potential impact on margins as you move towards CY '23 or next fiscal in terms of orders?

Yes. Thank you. Thank you for that. First of all, let me just give you an overview of that. It is not a one particular challenge we have been facing. We have been facing on increasing commodity prices on top of that semiconductor shortage. And on top of that, this freight cost. Now some of the freight costs, especially on export, as you know, our exports are [indiscernible] the cost increase is in excess of 50% to even to [ 100% ]. So revenue growth is fueled by a higher project execution and also product delivery, but the margin has an impact due to execution mix as well as rising commodity prices, freight and logistics cost increase in that. We roughly estimate the -- in the range of 1% to 1.5% contributing all this cost, like a rising commodity prices, freight costs, et cetera, in that. That's answer to your first question. The second question is, in our order backlog, if you take, we have -- 60% of our order backlog is having variable contracts that is variable prices. We have the price variation clauses, et cetera. And remaining 30%, 35% of the backlog do have the fixed contract. But we must be mindful about here, because we're talking about the variable, it's a normal variable, but this is unprecedented, right? You don't get our contracts come out with a freight charges. You don't get our contracts covered with these kind of things. Normally, covered with a normal price escalation of major commodities like copper, CRGO, aluminium, et cetera, in that.

So this is where I have the question because if we look at the freight expenses, et cetera, they will be largely housed under other expenses, which is higher, but still manageable under INR 198-odd crores, but material cost per se or [ RM ] to sales if we see has significantly spiked to 68.5%, which means that typically, where we were making almost close to 40% -- 39%, 40% gross margins. Our gross margins contracted sharply to this 31%. So which was the reason why ex of freighter all these expenses that sit in other expenses. On the core raw mat, we seem to have taken a very sharp impact, which is almost 10 percentage points.

Yes, that's also due to our project mix of execution in that particular quarter.

Exactly. So if you can help us as in what percentage was largely because of fixed price contracts and commodity increase and what percentage of gross margin compression was led by mix changes? Do you have that kind of number?

No, I don't think I have it readily because we have the things at an annualized basis. I don't have it in this particular quarter.

No issues. But broadly, as we move forward, at least for the next 6 to 9 months, while some of these inflationary impacts are likely to continue, do we expect gross margins to improve back from, say, March quarter or probably the impact will remain for a couple of more quarters in the similar 30%, 35% range?

So Renu, as you know, knowing our company well, we normally don't give any long-term view on that. We also don't give anything forward-looking statements. But what I can tell you is that the unprecedented changes, unprecedented things what is happening, in our view, will continue for some more time, right? The question is that how large it is? We are also looking at all the options. We have -- the management, the company is taking all the actions to go back to the customers, renegotiate with the contracts and they're not -- we'll be more selective and we are also looking at the more exports. All those actions are also playing, how much we are going to mitigate and what kind of mix we will bring in. So that is all makes the difference.

Got it. Secondly, can you also help us understand, A, now that we have moved to Hitachi Energy as a brand name and the entity as well. So the royalty and trademark fee which you were paying to ABB, does that continue in the same context or probably that 4% or 4.4% kind of range of revenues does that also undergo change with the change in the marketing brand name which we have undergone?

As you know, we have been talking also -- when talking about the royalty, our core technology when we are part of the ABB is also moved to our new company, right? Hitachi Energy, the R&D spend, the technology. So those things, if you really want to -- for example, I've shown you the new product which we have launched in the last quarter is that EconiQ. All those things needs the investments, right? So we need to continue to provide because the energy transition is a very big thing taking place in that. We really need to make sure that our product, our offerings has to be up to date and ensuring that we are bringing the differentiation to our customers by investing in that. So those things will continue to be there.

[Operator Instructions] Our next question is from Parimal Mithani from Credential Investments.

Sir, in terms of your order book, since the government has announced the CapEx side. How do you see going forward in terms of opportunity size, if you can highlight, first. And because [Technical Difficulty]?

Sorry, sorry, your voice was breaking. Can you please repeat that?

Sir [Technical Difficulty] did announcement in terms of CapEx on the infrastructure side. You already highlighted in your presentation. But if you can throw us light in terms of the opportunity size for Hitachi Energy, it's specific to the entire thing, and the addressable market basically. And secondly, in terms of the order book, sir. We have from [Technical Difficulty] we just have a figure of add-on orders with us in terms of order book. So how [Technical Difficulty]

Sorry, Mithani, your last question, I couldn't hear you.

In terms of order book, sir.

Okay, let me answer your first question. If the line is clear, then you can come back. The first question on the budget, as you know, the budget especially the government, the focus is to -- it's a CapEx-led budget, where the government has increased the CapEx to 35% for -- 35% increase in the capital expenditure compared to the previous year, right? All these things, especially the areas where the government is focusing on that, in the play areas for Hitachi Energy. Take, for example, the renewable penetration or renewable thing. So we have quite a big addressable market in the renewable, whether it's solar or wind. We have the grid connection. We have the balance subsystem. We have the automation of the renewable in that. Same is the case with wind. When it comes to data centers, as you know, data center and the grid level energy storage included in organized list of infrastructure, which will facilitate the easy credit availability to this things. And then we have a very good robust offering data center right from the grid connections to the automation and then electrification of that. That's also another of the big markets in that. The rail segment is a -- we have been telling you rail segment is one of the core segments. We have both -- we are supplying our portfolio to the fixed installations as well as the rolling stock for every Shatabdi, every third Shatabdi you touch, it will be powered through our transformer and every freight -- second freight loco is powered through our transformers in that. So we have quite a big bid there. And the whole budget if you see here, the focus is on the sunrise sector, especially sunrise sector is the focus and Hitachi Energy portfolio is exactly in that. So what we are saying is that we are enabling sustainable energy future for all and our portfolio, whether it is grid integration or grid automation or high-voltage and power it goes into entire sectors of that. And when it comes to the second question, if I understood you correctly, our order backlog is around INR 4,700 crores, which has a visibility of -- for a good number of quarters going forward in realizing the revenue from the order backlog.

[Operator Instructions] We have our next question from the line of Rahul Paliwal from Shefa Family Office.

So at Shefa Family, we have been following with Hitachi, since its inception or demerger. And so we have this question about the narrative, which is being set in terms of our capabilities, new-age businesses, which we're covering, digital opportunities and [ parent ] legacy. That's somehow not matching with the numbers in order book and in fact, with the margins so far. So we need your comments on the same sir.

Yes. So, Rahul, thank you for your question. So as you know, we have carved out from ABB and then we become part of the Hitachi Energy in the 2020 awards and then we have to also navigate the pandemic. And at the same time, we are also working ever since we become a part of Hitachi Globally, that is mid of July 1st 2020, right? And that's where we are looking at more synergies on that. The synergies on the digital capabilities, merging on that. So these are the things, it won't happen overnight. This will take a long time. It needs a lot of things, proof of sites, a lot of things -- a lot of places we need to do the pilot studies, et cetera, and that. That's where if you have seen my presentation on the digital capabilities, I just give you a couple of examples to that, and in this quarter, we won this digital orders, whether it's a Remote Operations Nerve Centre or the RelCare for industrial houses. So this will take enormous amount of time, proof-of-concept, pilot projects, running on that. So these things will start. Once it will start, as you know, in the digital thing, then we'll keep on repeating in that. So yes, in our view, this is the most challenging times we are facing. On one side is the dealing with the pandemic, other site dealing with a highly elevated commodity prices and the port challenges. And despite that, we believe that we have delivered a kind of resilience in our performance in the difficult environment in that. So that is my comment around, Rahul.

Am I audible?

Yes, you are audible.

Okay. Okay. So we have these capabilities in terms of e-mobility, like flash technology. I think, in India, the kind of initiatives being taken in the EV side, I think they're ready for this kind of products because I think that this EV stations are being now freed of any kind of regulations. So e-mobility side, then your IdentiQ, EconiQ side, semiconductor, power semiconductor side, carbon trading opportunities, energy storage solutions and data center side. What are the key initiatives being planned in the next couple of years, so that we can get advantage of scale in terms of exponential growth. That's my second question.

Yes. In case of e-mobility, the whole the segment is at a nascent stage in India, right? So it is started to grow up. And we have announced last year itself a pilot project with -- together with IIT Madras and Ashok Leyland to run our pilot flash charging technology in IIT Madras. So it took a long time due to the COVID and it was limited, but now the pilot is getting. We are hopeful to run this pilot in the next 6 weeks or so in IIT Madras. So that is where we are working on that localizing up those kind of things. How do we ensure that this technology is fully indigenized locally and build the local capability? So that is where it takes time to do that. But we have a clear plans that play a very, I would say, active role in our share of the e-mobility going forward, where e-mobility is that we create a complete the charging network, our Grid-eMotion Flash and Grid-eMotion Fleet technologies where we can create a mass charging technologies like a depot charging or airport charging, so on and so forth, for not only for the buses, but also 4-wheelers. So that launch is very, very is on. And the second one is data center. We have been already telling you the data center is one of our focus areas. We are taking a major share of our data center orders being finalized. And if I -- we are in every minimum 1 out of 3 data centers we are powering at this point in time. You name whether it is a global data centers or the local center. And when it comes to the energy storage is also another key area. So all these things are very nascent stage. They are coming here. We are working behind the doors to look at what is the technology we have to bring in. So here, the technology need to be affordable here. So we are bringing it to see that we localize it. We customize it. We bring it to the price point, which is sellable in the Indian market. All those things are actions and there are very clear growth dimensions, and we are at it.

[Operator Instructions] We have our next question from the line of Priyank Chheda from Standard Chartered Bank.

Sir, my question is with respect to the order inflows. We were -- so the broadly order inflows have remained in a very -- in a flat range of INR 900 crores to INR 1,000 crores, quarterly. And given the tailwinds and the priorities of 2022, '23 that we have, what can be the size of order inflows, one should expect? And particularly also if you can guide us on the HVDC order that we were expecting to come and we had one order under bidding. So what can be the size of that order and by when we can expect the outcome of that?

Okay. So when it comes to top line, as you know, we don't give any guidance or forward-looking statements. But what we can definitely give you, which we have been continuously saying that we are taking several initiatives. And with that initiative, we will be in a position to grow faster than the market. Even though last quarter, we have grown around 13% compared to the previous quarter. And if you really look at the market, market is not growing like that. If you take an annualized year -- one year so we are almost close to double-digit growth in the orders or slightly low at 9% or so. So the market is not growing that kind, if you really take the whole of the market. There may be some segments are growing higher, some segments are growing lower. But if you really look at the whole market, the market is growing in the last year in the range of 4% to 5%, whereas we are growing almost double in that. So that is the strategy we have adopted. We want to grow higher than the market, faster that market by as we are taken several actions upfront so we would like to maintain the same thing, and we are adding more products. We are also expanding our factories, and we are also now looking at exports more intensely because we are taking the exports upfront. So those things will continue to be there in that. When it comes to the HVDC project, as you were talking about, maybe you're talking about the Leh project. I think this is -- I think the bid for one is, you're talking about the Leh project, which is almost a 5-gigawatt capacity. What we understand now that the government of India has asked the PGCIL to execute this project. This is quite a big project, close to anywhere between INR 11,000 plus crores of project and in a very complex environment. And this is our opportunity, all of us -- we are especially our company is looking at it. And this also needs a lot of local manufacturing and that's where we are gearing up setting up our factories to see that we bring more and more local content for this project to offer in that.

[Operator Instructions] Our next question is from the line of Renjith Sivaram from Mahindra Manulife Mutual Fund.

Sir, just wanted to check with you like this, now If you look at Mumbai Metro, the propulsion system is supplied by Hitachi Energy and the traction transformers for that is done by Hitachi Design. So is it -- are we -- is it supplied by our factory, the traction transformers for those Mumbai Metro.

Yes.

I just wanted to understand. So then going forward, like for this high-speed rail and other large projects, Hitachi can play a major role. So does that open up a huge opportunity for us as a company?

Yes. Just to clarify to you that is a propulsion system, we don't manufacture, okay? So our range of products for the railway segment is traction transformers, and trackside transformers and fixed installation, SCADA and automation in that. So as I told you, rail segment is one of the biggest growth segment for us, and we continue to grow in the rail since several quarters. And then when it comes to the high-speed rail is also one of our focused project. We have a huge opportunity in the high-speed rail going forward in that. And that is a one project where we are looking synergies with Hitachi. As now we are part of the Hitachi, so we are also qualified for a step component to leverage as part of that.

So as a follow-up to that, it is as per Hitachi Design. So in that case, where do we -- whom do we pay the royalty for and what will be the amount? Because now it's more of a Hitachi company, right? So -- and what is the range of royalty now, which -- is that reduced. If you can throw some clarity on that.

Okay. So our company, which is Hitachi Energy in India, is a -- our parent company is Hitachi Energy, Hitachi Energy headquartered in Zurich, okay? And Hitachi Energy is part of Hitachi's thing. The royalties, we continue to pay it to Hitachi Energy. Hitachi Energy, Zurich, okay? And our product are technology-based, and that's what I was explaining, which require our Hitachi Group technology for bringing out the new products, new systems, for which we need to pay royalty and technology fees because result and technology holder is the global company and accordingly, the royalty is paid to the global company, that is Hitachi, Energy Limited in Zurich. Currently, royalty paid is approximately around 4.1% of our revenues. And we believe that with the so much changes taking place, so much of new products have to come, especially on the sustainability of EconiQ brands and those kind of things, we continue to pay these kind of royalties, which is very, very important for us to be the leadership position in this particular portfolio and technology.

Our next question is from the line of [ Raj Rishi from DCTL. ]

Am I audible?

Yes. Yes, please.

Any plans for taking advantage of the PLI scheme? Will you qualify for any of the schemes which have been announced?

No. We will -- we are looking at in the electrical vehicle charging equipment. We are actively looking at it in -- that qualify for the PLI scheme states, and we are actively looking at it.

Okay. And how is the -- like you have a number of entities in India, which are Hitachi entities, one of which is the listed entity, right?

Yes.

So how do you segregate the business? Is it like Hitachi Energy, like so there duplication, that kind of stuff doesn't happen. Technology....

Business-related entity is only one entity that is Hitachi Energy India Limited. We do have another entity, which is Hitachi Technology Services, where they will -- we'll be housing our back-end offices, engineering center and also R&D and those kind of things in that.

All the digital offerings, anything -- anything concerning business will be in the listed entity.

Mr. Rishi, you're not audible.

Am I audible now?

Yes. Now you are audible.

Yes. So I understand, sir, that all the business will come in the listed entity, right, including all the digital and everything?

Correct. Correct.

Our next question is from the line of Sujit Jain from ASK.

Is the understanding that the 2% royalty that we were paying to ABB is over. Is that understanding correct?

Poovanna, can you explain this?

So we have -- we paying royalty to ABB for the trademark until June 2020, effective July 2020 until '21-- sorry, July '21 to June 2022, it's a royalty-free tenure, given that we have to incur several expenses towards the demerger.

No, still not clear. But till when we -- till when do we pay royalty to ABB 2% per annum, when does it stop?

So this year, that is up to June 2022, there is no royalty to be paid. So we will need to negotiate it further for the future years.

So that payment will come down, but we still have to pay?

Correct.

Till when?

So that's something that we will need to pay.

Okay. The other way to put this is how long we can use ABB brand under the agreement in 2020?

Okay. So ABB brand as per the agreement, we can use -- the joint venture period globally is for 3 years. And from 3 years, another 5 years is that we can use them ABB plant. That means total 8 years from the day 1 that is July 1, 2020 onwards. 8 years, we can use ABB branded products. That means in our products, the transformer we ship or the switchgear we ship, it will have a ABB brand in that.

Got that. But which also means that for these 8 years, we cannot compete with ABB in their lines of businesses. For example, in Lumada, we can practically offer our solutions, not just in high voltage, they can be even in low and medium voltage. But until then, we cannot offer, right in India.

Again as you know, the competition is only -- not competing is only one direction, whereas we can offer in every part, whereas there is a -- you know the M&A will not be -- noncompete is not both ways. It's only one way, right? So we don't have any anti-competition. So we continue to supply our products to all the segments where we are operating it.

My question is can Lumada enter into spaces where ABB Ability is offering solutions eventually 8 years out, that is 2028?

Do you had an answer, yes.

Today -- until 2028?

Yes. No -- sorry. Yes. From last year onwards, we continue to offer. There's no issue there.

Great. And one last question, shareholding. This shareholding of 75% in this listed entity by Hitachi Energy Limited. This is fully owned by Hitachi Japan or this entity is 80-20 between Hitachi and ABB?

Yes. No, the entity in Zurich called Hitachi Energy Limited, and that is holding 75%. 75% In our company in India. Yes, Poovanna, can you clarify?

This is Poovanna here. Just to clarify further, that entity is further held by ABB and Hitachi Limited in the ratio of 19.9% and 81.1%, respectively.

Our next question is from Varun [indiscernible].

Am I audible?

Yes, please.

Yes. So earlier earnings call, there was a commitment to take the operational EBITDA toward double-digit range over a period of time. I understand factoring in the earlier commentary on inflation pressure that next 2 or 3 quarters might be a little bit difficult. But if you could just solidify by when this can be achieved this double-digit EBITDA and how it would be achieved? Also, what kind of investments are needed to achieve the growth in your top line?

Yes. Thank you. Thank you for your question. Again, as you know, in this quarter, that is October, November quarter, our EBITDA percentage is 9.8%, 9 EBITDA, okay? This is what we said. And if you take a 12-month period, our EBITDA is 9.1%. So we are almost come very close to the -- what we talked about in that, okay? That's one. Then we are also talking -- this is despite the challenges we are facing headwinds in the commodities, rise in commodity prices, or freight and logistics expenses, et cetera. But coming back to the second question, we are investing. We are setting up a greenfield factories in Bangalore. We are setting up a greenfield factory in Chennai. We are expanding our factories in Baroda. So these are the investments will take us into more localizing our equipment, bringing a more footprint, adding Make in India to take the -- tailwinds being provided by this budget, et cetera. Those things, we are investing it. And over a period of time, with our combination of our levers that is focused on high-growth segments, which I talked about renewable data centers, mobility, and HVDC, automation, et cetera, one side. And the second one is exports and the third one is the service. All these things put us to take us through the double digit. We are already very close to the double-digit EBITDA margin. And then we are in the right directions to go there where we would like to.

If I could just come back -- I'm sorry, this quarter, if I add back the other income, the operational EBITDA was INR 77 crores, which is just a shade under 7%.

We are talking about EBITDA, D-A, operational EBITDA is INR 111.7 crores.

I'm sorry. Are you getting -- so how have we achieved that? That the EBITDA is [ 62 ] plus if we take the other income, that's [ 15 ].

Ajay, why don't want to clarify this, Ajay?

So currently -- thank you for the question. So if you see for the current quarter, our operational EBITA is INR 89.5 crore that is 7.9%. And operational EBITDA is INR 111.7 crore that is 9.8%. So that is how we are placed.

Okay. I think sir, my part will take this -- can I take this offline?

Yes, sure, sure. Please do that.

Sure. No issues.

Ladies and gentlemen, due to positive of time, that would be our last question for today. I now hand the conference over to Mr. N Venu, Managing Director and CEO, Hitachi Energy India Limited for closing comments. Thank you, and over to you, sir.

Thank you. Thank you, Aman. And once again, ladies and gentlemen, a very big thank you for all of you actively participating in the analyst call, and we are happy to provide if you need any further clarification or anything, happy to engage with you. And I'm really hoping that in the coming quarters, we would like to post a physical one-on-one physical -- sorry, not one-on-one physical investors call, take you some -- take you all in one of our locations. I'm really hoping that the COVID would help us so that we will see each other. And -- but until that, please reach out any time anything you need, we are happy to engage with you. Take care and stay safe. Thank you.

Thank you, sir. Ladies and gentlemen, on behalf of Hitachi Energy India Limited, that concludes today's session. Thank you for your participation. You may now exit the meeting. Thank you.