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

Ladies and gentlemen, good evening, and welcome to Hitachi Energy India Limited Q1 FY '26 Analyst Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. N. Venu, MD and CEO, Hitachi Energy India Limited. Thank you, and over to you, Mr. Venu.

Thank you, Nirav. Good evening, everybody. Thank you for joining us for the analyst conference call today. I hope you're all doing well. Today, we announced our results for the first quarter of the financial year '25-'26. And over the next 20, 25 minutes, together with my colleague, I will take you through our performance from April 1 to June 30, 2025. And for your convenience, I'll read out the slide numbers, and we already uploaded the slide deck in the stock exchange. Today, I'm joined in the room by our CFO, Ajay Singh; and the General Counsel and Company Secretary, Poovanna Ammatanda; our Head of Communications, Government Relations, Seema Siddiqui. Throughout the last fiscal, our focus was on balancing operational complexity and efficiency, which helped us continue to achieve a strong order intake, resulting in a record order backlog in the first quarter of '25-'26. Despite a volatile geopolitical scenario, the Indian economy remains one of the fastest-growing economies. The same will positively impact several ongoing energy initiatives, further strengthening the country's energy ecosystem. I move to the Slide #3. At Hitachi Energy, you all know by this time, we continue to emphasize the importance of safety, integrity and quality in our day-to-day operations. These are what we call as our license to operate and we never look the other way when we have to deal with them. And they are very key pillars of our work ethic. In the first quarter of the financial year, the focus on safety continued towards keeping the incident frequency rate within the defined corridor by learning from global incidents and also taking timely prevention actions across our sites. It's always heartening to see one's work getting recognized on our safety efforts. During the quarter, our teams from different businesses received several appreciation letters and awards from our discerning customers. Employees are our strength and their physical and mental well-being is one of the utmost importance for us. This quarter, we organized several initiatives, including multiple awareness sessions on key health topics such as health screening, first-aid training, mental health discussions, programs, et cetera. Also, International Yoga Day was observed across our offices and facilities with a large number of employees participating in specially-designed modules for their areas of operations. Moving to the next slide, Slide #4. At Hitachi Energy, our purpose is to inspire the next era of sustainable energy by making the world's energy system more sustainable, secure, resilient and affordable. While we march forth to our purpose, the company also ensures that it practices sustainable measures in the 3 key aspects that is Planet, People and Principles. Under Planet, we have reduced CO2 emissions by 84% and waste by 69%, respectively, in our own operations compared to base year of 2019. The company continues its efforts to reduce freshwater consumption to 25% from 18% in the last financial year. We already achieved the 100% mark of using electricity from renewable sources in all our operations throughout our sites. When it comes to our People, our focus persists on safety and diversity. We are committed to Zero harm and fatalities and -- Zero harm and fatality freeze and maintain a healthy mix of diversity in our work ecosystem. For Principles, the aim is always for Zero incidents pertaining to integrity. I move to the Slide #5. And I'm sure on the left-hand side, you know more than me. But still, I'd like to touch upon a couple of points on this. Indian economy remains one of the fastest-growing economies, reflecting the country's resilience and policy-driven growth, today, making it the fourth largest economy in the world. The country experiencing positive economic indicators. Inflation has cooled down to a 6-year low of 2.1% in June 2025, along with a surge in total exports and FDI. Though uncertainty looms over U.S. tariffs, we expect more clarity in the coming weeks to ascertain the impact in India and also for our business. Steady economic growth continues to have a positive rub-off on the manufacturing segment as the PMI stood at a 14-month high in June 2025 at 58.4. The scheduled investments in growth segments like renewable data centers and metro rail remain on track. For the NEP, the National Energy Plan, the market report suggests that in the next 2 years, spending of over INR 1 lakh crore on the interstate transmission system network to meet 2027 NEP target. Furthermore, the focus on DISCOM upgradation and modernization continues. Uttar Pradesh, one of the largest states in India is looking to privatize 2 of its 4 power distribution companies, which is a positive step in the right direction. I move to the next slide, Slide #6. This quarter ending June 30, 2025, our orders totaled all-time high of INR 11,339.2 crores and revenue stood at INR 1,529.8 crores, growing 365% on orders and 15.3% on the revenue on a year-on-year basis. Effective execution of high-margin orders, sustained operational excellence and good product mix helped to achieve a high year-on-year growth in profit before tax and profit after tax. Some of the key orders for this quarter include an order from a Power Grid to supply 30 units of 765 kV, 500 MVA single-phase transformers and also the renewable solar 400 kV GIS and industries 220 kV/33 kV GIS and semiconductor manufacturing factories in Chennai. Rail, several transformers and Scott transformers and several automation CRP SCADA projects and also service upgrade projects. And all this thing in addition to our HVDC project, which we already announced previously. Moving to the Slide #7. I think this is the one which you know we have announced this Bhadla-Fatehpur HVDC project in this quarter from Adani Energy Solutions, which is awarded to the consortium of Hitachi Energy India and BHEL, which is a 6,000 megawatt of 800 kV bi-pole, bidirectional HVDC project over a distance of 950 kilometers from Bhadla in Rajasthan to Fatehpur and scope includes -- India to provide converter transformer, AC/DC control protection, thyristor valve, 765 kV/400 kV grid connections and auxiliary systems, et cetera. If I move to the Slide #8. At Hitachi Energy, we have encouraged knowledge exchange across industry stakeholders. To this end, we have organized technical seminars for esteemed customers across geographical boundaries. The sessions focused on the advanced features and benefits of our hair-pin type Dead Tank CT and maintenance-free springless isolators and EconiQ solutions. The sessions were attended by domestic utilities and national utilities of neighboring countries, rail segment customers and also the new age customers, to name a few. In our keenness to level up our services, we have received 2 industry recognitions for consistent quality improvements. Our teams won the Gold Award at QCFI Convention 2025 for Transformers and CII's 52nd Kaizen Competition 2025 for Grid Automation. I'm also happy to inform you that we expanded our women in engineering program by welcoming a new batch of students from Gujarat. Also, as part of our commitment to education, we have undertaken the task of upgrading 2 government schools in Vadodara with smart classes. We continue to encourage our employees to participate and represent the company on various platforms. During this quarter, 2 of our women colleagues represented Hitachi Energy as a key speakers at the IEEE Power & Energy Societies and IEEE Asia 2025 events. And the company, Hitachi Energy India is a key contributor to the National Energy Policy through India Energy Stack. Moving to the Slide #9. As a pioneering technology leader, we remain steadfast in our commitment to strengthening the nation's energy security through a range of impactful projects. This quarter, we successfully commissioned some key projects, and I would like to take a moment to highlight a few of them. We commissioned 66 kV GIS transformer bay extension at Karala, Delhi for Tata Power Delhi Distribution Limited; a 400/220 kV AIS substation at Lapanga, Odisha for Aditya Birla Aluminium Smelter; a 400 kV bay extension in Odisha and installation in Chhattisgarh, respectively, for OPTCL, and BALCO. For all these commissioned projects, our teams were responsible for designing, engineering, manufacturing, supplying, erecting, testing and commissioning according to the defined scope of work. Moving to the Slide #9 to provide some more color on the orders received this quarter. In terms of the segment, the transmission continued to lead the order book, followed by orders from the rail and metro and data center. In the Q1 FY '25-'26, both transmission and rail metro experienced a sharp growth of 625% and 845%, respectively. The data center segment witnessed almost a cent percent growth and industry growth is at 23%. However, there's a decline of 25% in renewable, wind and solar, which we feel is a temporary phenomenon and it's a timing issue in that. The order mix is shown on the right in the graph. You can see the projects have taken the lead. Of course, if you look at the order mix on the right-hand side, this is without HVDC. If you do with HVDC, the projects takes leap. But in the -- without HVDC scenario, the products continue to be higher, followed by the projects and services in that. Moving to the next slide, which is our further levers of our growth, service and exports. Both services and exports remain consistent in this year as part of the order book. And diverse geographies and industries help sustain export momentum. Exports maintained consistently by contributing nearly 25%, 24.7%, et cetera, of order book that is without considering the HVDC. This quarter, export orders were received from Europe, South America and Asia, ranging from common apparatus and devices, capacitors, filters, circuit breakers, grid automation, et cetera. Service orders grew 90% year-on-year. This is also our first quarter after we carved out our new service business, which started from -- effective from 1st of April 2025 and contributed a high single digit to the overall order book. Some of the key service orders include SCADA upgrades, equipment replacement and annual maintenance contracts. As you are aware, we introduced our service business, which I've already told you. And basically, the purpose of the service business unit is to intensify life cycle engagement with our customers, not only utilities, but also industries and the new age customers. All our business units are working closely with the service business unit to maximize our reach. I now go to the Slide #12 and hand over to our CFO, Ajay, to take us through this slide and the next slide. Over to you, Ajay.

Thank you, Venu, and good evening to all. Hope you are all doing well at your end. So let me take you through the financial performance for quarter 1 '25-'26. In this quarter ending 30th June, orders were INR 11,339 crores, up 365% year-on-year. And this was primarily because of the large order of Bhadla-Fatehpur HVDC order that was -- that we booked in this particular quarter. And that is the result you see we closed the highest ever order backlog of INR 29,135 crores, which provides a visibility of revenues for several quarters. The company delivered a strong revenue performance of [ INR 15,029 crores ], with 15.3% growth Y-on-Y. And this resulted -- this actually happened from very good order execution during the quarter and constant improvement on the overall operational efficiency. Furthermore, our continuous focus on the effective execution of the high-margin orders, sustained operational excellence and a good product mix and also increased export momentum saw a phenomenal Y-on-Y growth in the profit before tax and profit after tax. And if you see the PBT and PAT, PBT standing at INR 176.9 crores and PAT we closed at INR 131.6 crores, respectively. If you see the operational EBITDA, operational EBITDA for the quarter stood at INR 170.2 crores, and this has resulted in a double-digit margin of 11.1% for this particular quarter. If you go to the next slide, let me see -- a little bit dissect more on the cost structure, how we fared. So if you see for the 3 months ended 30 June 2025, of the total income, INR 1,529.8 crores, the material cost were 53.8%. So in this particular quarter, as we discussed earlier, there is a very good development on the gross margin, which has really helped in the bottom line development. Personnel expenses were 9.5%. And if I compare with Y-on-Y of last year, 9.2% fairly, I will say we are consistent. Other expenses, 22.7%. Again, if I compare Y-o-Y, 23.6%, I will say it is consistent. In this particular quarter, we had an exchange and commodity loss of INR 9.4 crores. Depreciation INR 25 crores, basically, if you see there is a slight increase, and this is mainly because of the capitalization for the CapEx projects that we are doing, continue doing that. Finance cost is INR 4 crores, which has come down if I compare Y-o-Y and majorly because we do not have any short-term borrowings in this particular quarter. And that is how the development we see in this particular quarter, and we are able to close the PAT INR 131.6 crores of 8.6%. So with this, I hand over to Venu for the closing slide.

Thank you, Ajay. And if I move to the slide, that is Slide #14, which is -- which are our priorities for the coming quarters and the whole of financial year. As we closed the first quarter of this financial year, our focus remains on the dual objectives of maintaining growth momentum and enhancing overall efficiency in all spheres of our work and maintaining our leadership in core segments, renewable utilities, HVDC, industries, infrastructure remains our key priority. We consistently endeavor to harness potential opportunities in new segments like data center and focused strategies to leverage opportunities in service, export and digital segment. Furthermore, the focus will remain on strengthening the service business in India, and the company will continue to drive productivity with an emphasis on operational excellence to improve productivity, quality and opportunities under one Hitachi umbrella to leverage the synergies, et cetera. On the business front, consolidated efforts will be made to leverage the large order backlog for revenue accretion and margin accretion and also focused strategy for the utilization of the capital raised during the QIP to complete the expansion projects in line with our time line, strategies, et cetera. And with safety deeply embedded in our culture, our commitment to fostering a strong safety-first work environment remains steadfast. At the same time, we continue to invest in expanding our capabilities for sustainable growth, whether through upskilling and cross-skilling our workforce or by strengthening our operational footprint to inspire the next era of sustainable energy future. So we are looking for long-term strategy and long-term growth and sustainable strategy in that. So with this, I close my presentation and open the channel for questions. Thank you.

[Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities.

My first question is, what was the value of ex HVDC order in the quarter, if you can quantify? Or can you give us the growth in the order ex HVDC?

Sorry, what is the second one?

No, no, either you can give the value of ex HVDC order or give us the growth in the order ex HVDC.

No, we have also seen the growth without HVDC also. The growth without HVDC is in the double-digit range, around 20 -- in the range of 20-plus percentage in that. As you know, the similar projects are going on. So we will not quantify exact value of HVDC, but you can -- what kind of number...

Understood, sir. The second question is, sir, how has been the progress on execution in the HVDC Bhadla-Fatehpur, which we won, I think, in September, October '24.

So we also told in the last thing, these are HVDC projects is a pretty long multiyear projects. Our completion period is 48 months and 54 months. 48 months is we have to complete the bi-pole 1 and 54 months is a bi-pole 2. So execution will take place. And normally, in the first year, I also told you the revenues are not much. So we expect some amount of revenues starting from the next year -- next financial year. And thereafter, then it will pick up. So that's how the thing.

Next question is from the line of Ankit Pandey from Motilal Oswal.

It's [indiscernible] from Motilal Oswal. Sir, regarding the margin profile, I would like to know, when we compare it with our peers, our peers have increased margins significantly. So our margins though have improved, but not up to that extent. Sir, any possibility of reaching to those margins or it will take us a time to revamp on those kind of margins?

Yes. So thank you, [ Ankit ] for your question. So we have -- as I said, we are building a company on a -- in a very long-term focus, not on a short-term basis. So we are -- and we also told you several times that our main focus is to address the domestic market. We believe that the domestic market, the pipeline and the market visibility is very strong, and it will continue to be strong. That's the reason we are investing INR 2,000 crores of CapEx, which I'm sure you have not seen this kind of CapEx from others. So when I would like to compare, I would like to compare. So we are improving margins, and you have seen almost 650 basis points were improved Y-on-Y on EBITDA basis, and we continue to improve going forward on that.

And on the core order inflows wise also, one should expect this kind of a trajectory to continue where we are seeing good traction on the core order inflow side?

See if you really look at the overall orders, there are 2 aspects to that. If you -- there's the HVDC portion and then the rest of the things, right? Rest of the things is we are talking about the renewable industries, data centers and rail, et cetera, in that. That pipeline is extremely good. And HVDC, you all know that. I've been saying in that to manage the network of India, we need to have at least 2 to 3 HVDCs per year, at least in a couple of years to start -- at least a couple of years more.

Next question is from the line of Umesh Raut from Nomura.

Sir, my first question is pertaining to...

Umesh, sorry to interrupt you, your audio is not clear. Can you speak through the handset, please?

Is this fine now?

Yes, it's okay.

A little better.

So my first question is pertaining to translation of gross margins into EBITDA margins for this quarter. If I look at despite achieving closer to 44% plus kind of gross margins, our EBITDA margins are remaining in the range of about 10% to 11% and larger part of that is also because of higher other expenses at about 24% of sales. I believe our related party transactions like royalty, management fees, trademark fees are also eating up closer to 8% to 9% of sales within that other expenses. So how we kind of expect these kind of expenses to go down so that our margins can improve in line with our peers?

Yes. So again, we have been saying this consistently on this. So we are a technology company. So we need to really create technological advantage. And by paying a royalty and other things is absolutely important because we are able to get technology as and when it is available anywhere within Hitachi Energy globally. So that will be there in that. But we are looking at overall expenses. Once our revenues goes up, probably some of the expenses are not percentage, some are percentage, some are a fixed amount, which will be converted into the percentage in that. So those things will be tapered out over a period of time. Maybe, Ajay, you would like to add on this?

Yes. So thank you for the question. If you normally see our quarter 1, quarter 1, our other expenses, that is the reason when I told the other expenses on Y-on-Y basis, more or less it is consistent. But going forward, once we develop on the revenues, some of the expenses automatically gets translated. And that is why if you see the same other expenses we closed at the year-end, it was around 20%, so to say. So we are working on the other expenses piece for sure. But overall, at the end of the year, we'll get a visibility on how -- when we have the full loaded revenue, we'll be able to see that our other expenses are also in line.

Got it, sir. My second question is pertaining to HVDC project pipeline. I believe there are 3 projects which are in the pipeline to be finalized for FY '26. So what is your view in terms of time line for, one, Khavda South Ulapada HVDC project; second, Barmer-South Kalamb HVDC project and third Leh-Ladakh HVDC project?

Yes. I think what you talked about, the pipeline is absolutely correct. But if you're talking about our view on the finalization, right?

Yes, sir, in terms of rough cut approximate time line for awarding?

Talking about finalization, our view is that one project in this financial year for sure, but there could be also a potential for the second project getting finalized. So it's basically 1 to 2 projects finalization in this financial year that is on or before 31st March 2026.

Next question is from the line of Parikshit Kandpal from HDFC Securities.

Congratulations on a decent quarter. So my first question is on the -- what is the total order book of the base orders ex of HVDC out of the INR 29,000 crores?

Roughly in the range of -- you can take anywhere between 55% to 60% is the HVDC. The rest is non-HVDC, okay?

And out of that, how much is export and services?

No, we don't split there how much is exports and service. Service is just picking up, right? We don't split further on that. It's again, don't look at every quarter whether the product servicing. You have to look at the whole portfolio, right? The whole portfolio for us includes the projects, systems, services and software and also HVDC. Again, when you say HVDC means the HVDC portion also has transformer, HVDC portion also has GIS and high voltage. HVDC portion also has grid automation. So it is very difficult to segregate HVDC or not. The point what probably you are looking at it, that's the reason I said 55% to 60% is how much will be executed in the next 18 months and how much will be executed beyond 18 months.

Got it. And just on the total GPM, so now we have reported 44% on gross profit margin. So -- and there's no major contribution because HVDC will start contributing maybe a year after from now. So in the HVDC, what kind of GPMs do we look at? I mean will it be substantially lower or will be in the similar range? So what kind of dilution can happen on the GPM from HVDC project...

We will not talk about our project level margin. So all we have been saying is that we have been building not today over a period of time, we have been saying that we are looking at a very sustainable margins, double-digit margins, and that's what we are in a road map. So last year, we said when we enter and we have entered much ahead of our own target, and then we are also starting the same strong way. It will be a very solid performance going forward in our own view. Hello? Operator, are you there?

Sir, the line for the participant dropped. We move on to the next participant. Next question is from the line of Renu Baid from IIFL Capital.

I have a couple of questions. First, can you share with us the update on the first HVDC which we had won with Adani? How far are we from the formal completion of the project? Second, would you have any insights on the prospects for Leh HVDC? As we hear that Hitachi apparently has not submitted the bids and there's only one sole bidder for the project so far. So are we seeing the project -- the Leh project moving ahead? Or any updates from your side, if you would have any on it?

Yes. What was your first question? Update? We have already given update in the presentation, right?

No, no, not the current project, the Mumbai HVDC, which we had -- we were executing for Adani, which is [indiscernible] from your back INR 2,000 crore order.

We may be around 6 months is the one where we are looking at to commission that, 6 to 9 months.

Okay. Sure. Second, any insights on what's the status for Leh HVDC project which was under [indiscernible]

Yes. As far as we are concerned, it's going also -- there have been a lot of discussions taking place, what kind of technology, all those things are. Still it is in the discussion stage. So I don't know about what is the latest, but this is how it is going on that. So it might...

But in your view, do you think there is a probability that instead of the project coming on the HVDC format, it may actually eventually turn out to be an AC project?

That is -- anything is possible, Renu. I can't say that. But the probability of that AC transmission coming in that thing is very less, I would think though, okay. So...

Yes, yes. And sir, lastly, while I know you don't comment individually project-wise, but just trying to understand the current quarter, I think gross profits have come back at pretty healthy levels compared to the previous cycle. So do you think this kind of gross profit performance of almost 45% is sustainable given the current mix of backlog that we have? Or it would be more of a combination impact for this particular quarter alone? And one should not bake it into the expectations going forward?

No, I think it is not only gross profit has come back, but also net profit also come back. EBITDA level, we have improved 650 basis points compared to the loss Y-on-Y. So again, we will not comment on a quarter, but what we are looking at on an overall basis, we said we are looking at a very long-term strategy and mid- to long-term strategy, and we are continuously improve on our performance. So we are also investing on the future things. So that also needs to be done if you really want to look at in a long-term fix. It always between what is that do you take short-term measures and long-term measures. So we choose short term...

Right, because some of these investments in technology capacity will all be a part of other overheads, which was the reason why the question was on material...

Yes, while also look at...

Structurally?

No, structurally, we are absolutely fine. Structurally, I don't see there is an issue in that. As our volumes goes up, that's where the thing. Rest of the things, as I told, some of our charges, which are fixed in nature will convert into percentage. And as the volumes go up, it will come at a low percentage in that. And that's what you are seeing that. And we will improve, last year improved. And this year also on an overall basis, we will improve higher than last year.

Got it. Got it. And sir, lastly, anything specific that you would want to share in terms of export pipeline? Any regions or markets where you are seeing increasing traction with respect to order conversion for us?

No, export pipeline is quite strong, quite robust. And as I said, we have a three-fold export strategy. Again, exports also sustainable exports, not that we want to go a spike and then come down. So that's not our strategy. So we have products for 5 products, which are -- 4 products, which are global products. We are improving on that. And then on top of that, we have also allocated markets. So we are getting more markets allocated, as and when those markets are fructifying it, and we'll put a lot of our efforts to develop those markets in sustainable, just like how we develop Indian market. And the third one is we have a very base export strategy, which is we create a components for our feeder factory, and those things are also very robust. Again, it's we do not want to increase the export at the cost of the domestic market, which I have said previously also, and we are finding -- clarifying that. And our domestic pipeline is quite strong.

[Operator Instructions] Next question is from the line of Rajesh Kothari from Alpha Invesco.

Rajesh Kothari from AlfAccurate Advisors. Sir, I have one question with reference to the export opportunity. And if I look at globally, the statements, what I'm reading from the -- in the top CEOs of the world, they all are hinting towards the very large pipeline of the potential demand growth. So how the Indian company is positioned to cater to such requirements? And since you are looking to invest about INR 2,000 crores, in terms of your exports target over the next, say, 3 to 4 to 5 years, how should we look at the total revenue mix?

Yes. So we have -- again, we clarified this. Again and again, we want to clarify it once again. We -- the investment, whatever we are doing it, INR 2,000 crores, basically, we believe that we have a huge domestic market, domestic demand, and that's the reason we are doing it. Exports is, yes, on top of it, but we don't create capacities only for the sake of exports, right? Exports will -- as always, it has been there. It will continue to be there. And I explained just now also, it's a 3-pronged strategy. In roughly, we are looking at around 25% of exports. Maybe it might go a few percentage this way that way over a period of time. But again, it again depends upon the thing. My will -- put in a lot of efforts to serve our domestic demand, and that's what we're going to do that. And then on top of that, if we get an opportunity, we will do more than 25%. But 25% is what I see in the next couple of years, plus/minus a few percentage this way that way.

So when you look at your competitive positioning to get the export orders compared to, say, Hitachi Energy India within the group, who will be the other competing companies within group?

Within group means?

Means, for example, I mean, Hitachi Energy globally...

Yes. Again, it is a market. Still we have a lot of -- we are working in more than 60 countries. Our footprint is also very, very robust in many countries, right? It's not that anybody can send anything. We have factories in the regions. We have the factories in the countries, and there is a clear market allocation guidelines so that you are able to develop those markets sustainably over a period of time. And also, there's a lot of approval process to approve our factories. So all those things are guiding principles.

Okay. So basically, even if your domestic revenue is going to go up significantly because of this order book and also the pending HVDC order pipeline, you think that exports will also be able to maintain that growth. Therefore, your revenue mix will not change significantly, at least 25% to 27%.