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

Ladies and gentlemen, good afternoon, and welcome to Hitachi India Hitachi Energy India Limited's Q2 FY '26 Analyst Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. M. Venu, MD and CEO, Hitachi Energy India Limited. Thank you, and over to you, Mr. Venu.

Thank you, Nirav. Good afternoon, ladies and gentlemen. Thank you very much for joining us. I hope you're all doing well. And over the next 20, 25 minutes, I will take you through our performance from this quarter, September ending 30, 2025. And we have uploaded presentation on the stock exchange. For your convenience, I will call out the slide numbers, whichever one I'm talking. And in this room together with me, our CFO, Ajay Singh and our General Counsel and Company Secretary Poovana and [indiscernible] Communications and Government Relations Seema Siddiqui are here with me. As you all know on September 30, India reached a historic milestone as a country's total installed electricity capacity surpassed 50 gigawatt, reaching 500.8. It reiterates the growing energy network in India and an increased focus on advanced grid technology, digitalization, storage and integrated solutions. As you do the energy, we understand the significance of these evolving dynamics and is also reflected in our operational and financial performance. So I'm starting with the presentation and moving to the Slide #3, which is our license to operate. That is safety. Safety is a fundamental to our license to operate. In Q2, 26%, the focus on safety continued to keep the injury frequency rate under control through timely prevention actions and several initiatives across our factories, project size and offices. This is reflected the appreciation letters and awards we received from our customers and the stakeholders for harding to the highest safety standards as a leading industrial products at our project sites. [indiscernible] Energy, we prioritize and remain committed to our employees while being with a special focus on mental health. Towards that end, we introduced the can half this fiscal year, which offers online personalized support for mental well-being. Furthermore, during the quarter, we have organized several health initiatives, including multiple awareness sessions on first aid, a basic life support, emergency preparedness, so on and so forth in that. Moving to the Slide #4, which is also another key driver for our growth is a sustainable target, ESG target sustainability, you all know is a key part of Hitachi Energy's business strategy and fits into our company's purpose, does inspire the next year of sustainable energy. The company's sessionability strategy is built around 3 interconnected pillars, which is planet, people and principal is working together to fulfill its purpose. We have set ESG target for 2030. We have also released 2030 strategy of our ESG targets. Under the planet pillar, we are confident of achieving more than 70% reduction in CO2 emissions in financial year 346 in our operations from our targeted 50% reduction compared to a baseline year of 2019 ambitions. Similarly, we have achieved a 69% reduction in waste disposed of in landfills are incinerated in P25 and aim to further reduce in the financial year, 2526. When it comes to the people, we remain committed to safety and ensure diversity across our workforce. Currently, our general diversity stands at 11%, and we are confident of meeting our 16%, 18% mark in the coming years. Our principal strategy is committed to ethical behavior and responsible governance in all aspects of our work, [indiscernible] Energy remained devoted to 0 instance when it comes to integrity. Moving to the Slide #5. And I'm sure this slide you know better than me, but I still like to know say a few things on this particular slide. As you all know, in to World Bank, India's growth outlook looks positive with a revised forecast from 6.3% to 6.5% in FY '25, '26. One Bank has further rate India's GDP growth of 7.8% is exceeding expectations for the first quarter of '25. The GST 2.0 reforms, aligned with the strong domestic and resilient external sector has played a crucial role in sustaining this growth momentum. During this quarter, the trend efficient receded slightly despite several positive indicators, uncertainty looms over real tariffs, but we are hopeful like all a few of that it will be resolved soon to the dialogue, which are -- in terms of investment, India continues to make significant strides in the clean energy sector. In the first half of 225 alone, the renewal sector attracted investments of nearly INR 1 lakh crore. Additionally, the sanctioned INR 2.4 lakh crore of 500 gigawatt tonnes to the plant to link renewable which states with the demand center shows the country's growing confidence and commitment to sustainability. If I move to the Slide #6. The company continues to maintain strong growth momentum. In the quarter ending September 30, we secured a total orders of INR 2,217 crores, up 3.6% year-on-year, and our revenues stood INR 1,152 crores with a year-on-year growth of 23.3%. The effective execution of good margin orders, sustained operational excellence, a good product mix, increased export momentum and a lower base in the corresponding previous quarter the company reported a significant year-on-year growth in profit before tax and profit after tax. So profit before tax and profit after tax record at 4x year-on-year growth 39.8% and 5.6% at 3%. During the quarter, the company achieved the highest-ever order backlog of INR 29,412.6 crores, creating a revenue visibility for several coming quarters and years. Key orders this Quarter included our automation solution for state transmission companies and HVDC connections. The 230-ish, air stations for 250 megawatts solar that energy project in beta aligned with ports and 220 as for other solar projects, wind projects with 4 kVA stations in non-Bed and many other industrial projects such as GS stations for a green steel plant in part aluminum plant expansion at Mahan and Greenfield steel plant at Jaipur and for rail locomotive year new transformer for Indian always and bars, et cetera. Moving to the Slide #7, the technology leader, we continue to drive innovation and reinforce the nation's energy security through impactful initiatives. This quarter, we commissioned several significant projects covering renewable data center and industries I would like to share a few highlights in the Industry segment, we commissioned 22533 kV, package in Rajasthan for a leading cement brand [indiscernible] in Maharastra for a leading data center provider. In renewables, we established 150-megawatt ePOS in Rajasthan and 220 kV substation installation for 200-megawatt [indiscernible] for a leading renewable energy company. For all these commission projects, our teams were responsive for designing, engineering, manufacturing, supply, erecting testing and commissioning according to the defined scope of work. I move to Slide #8. EBITDA Synergy, we remain committed to leading with purpose and creating a positive impact across the industry and society. Our flagship platform, energy and digital world, '25, we connected with our team and partners across [indiscernible] collaborations in close to our customer places Additionally, successful completion of NABL reaspitation by our power transform factory reaffirmed our commitment to quality and eco-conscious practices. Our goal of facility has earned special recognition for sustainable practices at the CI Kanataka ESG Summit, an achievement that we are proud of Also, I'm pleased to share with you that our first plaza woman engineering grasses has secured 100% employment through our latest community initiative in education. 1,350 students in [indiscernible] will benefit from solar powered smart classrooms and litter. We continue to lead industry conversations. So key forums in this quarter, whether it's a [indiscernible] and IP and also the CI, et cetera. Moving to the Slide #9. Here, I would like to provide some more color on the orders received this current quarter. In terms of our segments, renewable wind and solar and rail metro contributed significantly to the order book. followed by industries in Q2, both renewable and rail and metro experienced a growth of 40% and 61%, respectively, whereas the transmission and data center segment witnessed a decline respectively, but we believe it's a timing issue, it is a temporary phenomenon, and we are very positive about both data center and transmission because of the large project we've done otherwise. There's a huge amount of pipeline is there. The order mix shown is shown on the right. In the graph, you can see that the projects have taken the lead in the segment whereas utilities the direct end users are clear winners for the sector and channels, respectively. Moving to Slide 10 of our growth levers, that is [indiscernible] and export. During the quarter, exports contributed 59% year-on-year growth, diverse geographies and industries, we start help sustain export momentum toward order book. The company received orders exporters from utilities in Europe, data centers in Southeast Asia and renewables in Middle East and North America. On the service front, it maintains its high single-digit contribution to the total order book. Some of the key services came from utilities and industries, including an air core reactors on HVDC projects and AIS expansions, repair and retrofitting a first iconic order in India, which is a game-changing sub-fee technology that we are deploying it in India for the first time. So moving to the next slide. I request my colleague, our CFO, Ajay Singh, to take you through. Over to you, Ajay.

Thank you, Venu, and good afternoon, everyone. I hope you all are doing well at your end. So let me just take you through the quarter 2 financials and our performance better happen. So if you see orders in this particular quarter, we did INR 2,217 crores, so which is 6% growth when I see year-on-year. And even if I remove the large orders of the previous quarter, I see that is a growth of 28%. Revenue revenues we closed INR 19 and INR 15 crores for this particular quarter, which is we showed a very good growth compared to Y-on-Y 23% growth and compared to basically quarter-on-quarter, 25% growth. So with the support of very good revenue, along with the execution of good margin orders, better product mix, operational efficiency and better exports. Our PBT in this quarter is 52 crores, which is 4% and PAT is INR 264 crores, which is 13.8%. Operational EBITDA, we closed at INR 291.6 crores, which is 15.2%. So overall, I said that this particular quarter is fairly better compared to the previous quarter. And out of backlog, we are, I think, roughly INR 29, 400-plus crores of order backlog, which provides a very good visibility for the several quarters. If I come to the next slide, here, particularly, I'd like to give you an overview a little bit more in detail where you see we are able to also reduce the cost structures [indiscernible] of the total INR 19 crores, INR 15 crores of revenue, we have other income of INR 59 crores. And this other income is basically coming from that interest deposits that we have done, the interest we have gained up INR 69 crores. And also, in this particular quarter, we had an exchange gain of INR 12.8 crores. Personnel expenses is 8.1%. Other expenses, if you see, based on the overall efficiencies that we gain with a better revenue and also the overall cost structure, we closed 16.9%, which was in the previous quarter, 22.7%, and that has also supported the bottom line development. depreciation. As you are all aware, we are investing for depreciation is slightly increased compared to the previous quarter and finance cost, it is 30 million because we are no more at having any debt at the moment. So on all these improvements and all these cost structures over and see that we closed the profit for the quarter is 13.8%. With this, I hand over to Venu.

Thank you, Ajay. And moving to my last slide before we open up to Q&A. And that's our priorities for the remaining part of the financial year and also coming years. As we closed our second quarter explained by our CFO, which is a very good quarter. So that's from our standpoint. And our focus remained on the 2 objectives: maintaining high growth momentum and enhancing our overall efficiency in all spaces of our work. Maintaining our leadership in core segments such as utilities, HVDC, transmission, industries, infrastructure, et cetera, and that -- and we continue to strive to capitalize on emerging opportunities in new segments such as data center, industries and refine our strategies to leverage opportunities in service, export and digital segments and which you have been seeing this how we have been driving this growth from -- for the last several quarters. Our 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 the [indiscernible]. On the business front, consolidated efforts will be made to leverage the large order backlog for revenue accretion, our focused strategy for the utilization of the capital raised during the QIP as we speak, a lot of projects are under execution, a lot of CapEx budgets under execution at various stages of completions, and we see the traction of some of them coming online from the next second half of the next year onwards. With the safety 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 a sustainable growth, whether through upselling and cross-selling our workforce, which is extremely important for the energy transition related or by strengthening our operational footprint to inspire the next era of suite future. So ladies and gentlemen, with this, I close my presentation, and [indiscernible] the operator to open that channel for the questions. Thank you.

[Operator Instructions]. The first question is from the line of Umesh Raut from Nomura India, please go ahead.

My first question is pertaining to our CapEx time line. If I look at our prospect document for fundraising, that is QIP, it mentioned that for FY '26, we were planning to deploy closer to INR 750 crores in the CapEx and about closer to INR 720 crores in FY '27. If I look at half year, I think we have done close to INR 67 crores of CapEx. So just wanted to understand how this CapEx ramp-up will happen, say, in second half FY '26 and then in FY '27, '28? That is my first question.

Okay. Thank you, Umesh. Thank you for asking this question. I think it's a very, very important question for us. So for us also, the CapEx projects going on stream in line with our time line, in line with our budget, cost expense is extremely important. We have a dedicated team working on that. And as we said in the beginning of our documents, INR 705 crores is what we going to spend in this year in terms of -- we will not be completing INR 750 crores worth of the projects. but we will be close to that range. I think we still see that traction of very coming very close to that and also similarly in the subsequent.

Understood. Okay. So three large projects that we have in terms of backlog, which is one on the domestic HDC program side and one in the Australia, again, more of an outsourcing package as a part of larger HVDC project. So just wanted to understand, would there be any delay in terms of execution because of a slight delay in terms of CapEx time lines? Or how should we look at in terms of completion time lines for these 3 projects, respectively?

Okay. First of all, the CapEx, as of now, there is no delay as per our schedule. They are going in line with [indiscernible], almost all of those, okay? And what are the projects we are booked we have seen everything in line -- our CapEx, some incremental CapEx has to come in for some of those products which are required for that. And we see that is very much on track. So I don't see any delays on account of those things.

And scheduled completion time lines for 3 projects, which I mentioned?

It is rearing from customer to customer, ranging from anywhere between 48 months to 54 months. So we are very much within our schedule and doing that. And as we speak, and all these projects you've led about we are completing the giant paces. We are doing some of the continent testing, all those things are going well.

Understood. Sir, my last question is pertaining to other expenses where we have seen a 7% decline on a year-on-year basis, while our revenues went up by about 18% for the quarter. So any particular reason for drop in other expenses or any one-off year?

Yes. I let our CFO, Ajay to talk on this.

Es. So I just in my initial commentary also mentioned other expenses has come down mainly I would say that we have achieved the operational economics in this quarter, and that is mainly driven by the containment of the cost and also supported by the higher revenues. But to give one specific example like in the last quarter, we had a higher royalty expenses. And you are aware, we have been telling that our royalty expenses are generally dependent upon the previous quarter [indiscernible] so the previous quarter, the prior quarter even as the higher on that in the last quarter, the expenses is was higher. But based on the last quarter revenue, this quarter, the royalty expenses were lower. So that is one of the also one of the major reasons where it has also come down. But overall, we have been telling that we'll be hovering around less around 20% level.

Understood. Sir, last one clarification. If I look at Slide #9, the figures which are mentioned here, it looks like Q2 FY '25 figures are basically for Q2 FY '26, is that the correct assumption? Because I think if I look at following slide, I think on the services side, was on the declining side, while in the first slide, that is on the line side, I think it is increasing for Q2 FY '26.

No. I think what you are saying, the slide underline is...

So I think the figures for Q2 FY '25 are basically for Q2 FY '26. So it's mentioned in reverse way.

Yes, yes. That is -- if you see here, and what you're talking about in the 10, Q3 up '25 and the left side the right range. That's only the representation standpoint, but otherwise, everything is okay.

No, but services confirmation in orders is basically.

Yes. And the services is down.

So it has increased for Q2 FY '26 in the Slide #9.

Slide #9, where did we say that?

From 7% in Q2 FY '25, that has gone up to 12% in Q2 FY '23...

Let me check on that.

The next question is from Parikshit Kandpal from HDFC Securities.

Congratulations on a great quarter. The first question is in the order. Sir, just wanted to understand out of the total order backlog right now. So what is the base orders, excluding [indiscernible]

No, I think we have at least close to INR 10,000 crores, we'll have a base order backlog.

Okay. Understood, sir. And in this quarter, sir, if you can help us quantify out of the total order inflows, how much was the export order and in the total order book of INR 10,000 crores based on the book, what would be the export order backlog.

No, we don't make it like that. It's our exports, we are telling you in the overall basis is 25%, okay? And it's varying from 25% to 20%, 30%. We don't have a large backlog exports. Most of the exports are at a quite short cycle, except for the Marines order which we have booked in but most of the exports are quite sharp cycle ticket. fairly, we can take around 35%.

Okay. Is the last order on the related party, sir, any large orders expected from the parent company, the related party like we have seen some of our peers getting orders from the parent entities or related parties. So anything planned for this year and thought that on the parent side where we can get orders.

So Parikshit, we have been saying consistently that our main focus, unlike some of other companies is the domestic market. We are expanding our factories. We are increasing our localization is primarily to serve the market. It's not that we cannot do it. So we see a huge amount of tailwinds in the domestic market. Today, I have a challenge our ability to supply that. So that's where we are doing it. We're expanding it. And as you can see, the new opportunities like a gigawatt scale of data center requires a large amount of transformer GIS, automation, et cetera. So it's quite a big opportunity pipeline for the domestic market, and our focus is that. Having said that, we have been saying consistently that our exports is we've been concentrating exports and we brought exports from 15% to 20% on an overall basis, and we would like to remain in that range on a few percentage earth way, but that's part of the thing. It is not that we've taken an export order from our parent and compromise on the domestic market, that's not what we had.

Okay. Just one thing for again order is over or is it like still some more execution left time? And in this quarter, was it a significant part of the execution?

Yes. Generally, we do not basically talk on those particular lines.

But is the order completion [indiscernible].

A Not yet. Its not yet.

So in this year, by this year-end, we'll have that outer completed by this year end.

Yes, hopefully.

Next question is from Harshit Patel from Equirus Securities.

Just a question on our Marine leak product order that we had received from Australia -- so what percentage of execution is completed for this order? And by then, we will complete this entire order, if you could give us cost.

No, I think it's a very small percentage right now, but we will be completing it in next 36 months or so.

Understood, sir. Secondly, could you give us a chance on what kind of margins we are realizing.

Sorry to interrupt you, your voice is coming muffled. Can you speak a little louder, please? Is this audible?

Could you also give us a sense on what kind of margins we have realized on this Mumbai DC project and similarly on [indiscernible]. We don't want the exact numbers, but if you could give us a flavor on how much higher the margins are vis-a-vis our standard lease order-related margins. That will be very helpful.

So Harshit, again, we -- this question as did in the previous quarter also, we have been saying consistently that we don't disclose a project level or a segment level margins. And all I can say you if you give a little bit of flavor and color on a qualitative basis, some of the projects and many of those projects, we always look at in a risk and reward basis, and it should fit into our margin parts. And what are the projects we've won or whatever project we are aiming to be, and they are all within our model cure.

Understood, sir. Just lastly, if you can update us on the HVDC project pipeline, what kind of projects will be tendered or awarded in the next 3 or 4 quarters?

So the pipeline, all of you may be knowing it. There are -- one project is the tariff-based bidding is over, and we hope that, that should get finalized in this financial year. On top of that, there's other 6 gigawatt of LCV project, which is likely to come out of NIT, and there's a good chunk back that can also get finalized in this financial quarter -- in this financial year, sorry, in this financial year, both are in this financial year, okay? So again, I've been saying -- let me give you a big picture. You can also go to the CEA website the details of there, and they're also upgrading it a continuous basis as and when the new update things. So -- and this I have been saying consistently not today, but at least 3 years back. And a country like India to manage this kind of complexity, arising up such a huge amount of renewable and with gigawatt scale of data centers coming in, it needs these kind of technologies coming in there. So previously, I've been saying one project per year, and I also said in the 2 projects per year should come but it is a matter of 2 to 3 projects per year is required going forward in that. They will come up for the building. So those are the things that there could be a large project, there is always a timing delays, et cetera, sometimes there might be some challenges in finalizing in one go, but that's what I see 2 to 3 projects per year for at least next couple of years.

Next question is from Shirom Kapur from Jefferies India.

I just want to ask you about your gross margins. So we've seen significant expansion in 1H or most over 550 basis points. So I was just wondering what has driven this gross margin expansion? You've been lay on overall EBITDA, but specifically on gross margin, what has driven this expansion? And are the current levels of 40-plus percent gross margin sustainable going forward?

So maybe let me answer I think and then Ajay will also join in that, as you know. So we have been saying this to not today. We have been saying consistently last 2 years that we are working on a strategy, which is a very long-term strategy, a very sustainable strategy, both on the growth as well as on the bottom line strategy, and we said we will take into double-digit EBIT margin corridor and then we sustain those things in that. So we also said that a lot of the levers available for us. The levers is that one we are growing higher than we could have the growth -- while the growth will not give you the same kind of fixed cost. And then we also have exports. We get a margin, we got a gross margin, and we're also working on the pricing excellence, et cetera, on that. And the last one is very important is our service strategy. We have created a dedicated service business unit. Because we have a huge amount of installed base that we would like to leverage and then improve on both top line and bottom line. And that's what you can see in the play over a period of time in that project.

[indiscernible] have already covered here. Basically, if you talk about this particular specific quarter, as I already spoke, this execution of the better margin order the orders and then a better product mix. So these are two things combined with giving us and coupled with exports. So these are the 3 levers where we see the margin has come from. And as Bill mentioned, going forward, we are quite clear about how we want to drive this. And definitely, our aim is to drive this in the right.

Noted, sir. And that's very helpful. So just to summarize, this is the part of our long-term strategy and should -- can be sustainable going forward if the strategy continues to be executed. Noted, sir. Secondly, of course, post your QIP or a large cash balance, you earned about INR 120 crores of interest income in the first half of the year. But as you deploy your CapEx, I mean is this also another -- how should we look at this over the next couple of quarters? And FY '27, can this level of interest income sustain? Or do you expect it to come down? Is it just a one-off in the first couple of quarters this year?