Hitachi Energy India Limited (POWERINDIA) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to Hitachi Energy India Limited Q3 FY '26 Analyst Conference Call. [Operator Instructions] I now hand the conference over to Mr. N. Venu, MD and CEO, Hitachi Energy India Limited. Thank you, and over to you, sir.

Thank you very much. Good evening, everyone. I hope you're all doing very well, and thank you for joining us for this third quarter '25-'26 analyst call. Appreciate very much. Over the next 15, 20 minutes, I will take you through our performance from October 1 to December 31 quarter. And for your convenience, I'll refer the slides. We have uploaded this slide deck a while ago on BSE. Today, I'm joined in the room by our CFO, Ajay Singh; the General Counsel and Company Secretary, Poovanna Ammatanda; and Head of our Communications and Government Relations, Seema Siddiqui. You have seen this week on Sunday the union budget, which lays out a very -- in our view, lays out a strong road map for technology-led growth with higher public capital expenditure and a clear push for AI data centers and advanced manufacturing. And as you know, in all of those things, Hitachi Energy is having a major play. And at Hitachi Energy, we understand the significance of these evolving dynamics and we are equipped and well positioned to leverage this growth momentum. In addition to that, recently concluded EU-India Free Trade agreement. According to some analyst estimates, there is elimination of tariffs on nearly 97% of EU exports to India and vice versa. So slashing up to EUR 4 billion in annual duties and boosting supply chain integration in renewable like offshore wind. We see this as a key area of opportunity. Simultaneously, the additional thing which came out just 2 days back, U.S.-India trade deal reduces U.S. tariffs on Indian exports to 18%. This is also promising in enhancing our export opportunities. So I'll move to the Slide #3, starts from safety, which is our license to operate. And safety remains fundamental to our license to operate. And we have further strengthened interventions at our factories, our project sites and our offices, et cetera. As a result, one of the metrics we measure is the total recordable injury frequency rate has improved to 0.09, surpassing our own target of 0.19, down from the previous year. This demonstrates the positive impact of our proactive safety initiatives. We also reinforce our commitment to health and well-being, achieving a 90% participation in our annual health check for our employees, conducting multiple awareness sessions and also mental health apps. Our shop floor and site teams received several recognitions from the industry, notably one of our Business World Awards ranked us in the third in electronics and hardware sector. If I move to the Slide #4, ESG target, which is very close to us. As you know that our technology, be it a product, system, services, software, decarbonize the customer industries and customer places. So that's the reason we have set ourselves the targets on ESG front. And sustainability remains central to our strategy, anchored in planet, people and principle. For planet, we continue to operate on 100% renewable electricity and are on track to achieve 70% reduction in operational CO2 emissions compared to 2019 base level, significantly ahead of the 2025-'26 targets. Water audits are scheduled in several locations, including some of our locations like Halol and Mysore to help us reach our goal of reducing freshwater consumption. Regarding waste, we have reduced landfill disposal by approximately 30% compared to '24-'25 and now recycle more than 95% of general waste. For people, we remain committed to zero harm. Safety is at the center of all we do here at Hitachi Energy. We are also steadily advancing gender diversity, reflecting progress across our talent pipelines, et cetera. On the principles, we uphold an uncompromising commitment to integrity with a 0 incident as our standards and also uphold highest standards of governance in our company. An offshoot of various actions and activities at our company. I'm pleased to report that our progress continues to be recognized externally. Our crisis sustainability ESG rating improved to 61 strong in 2025, while NSE ESG rating close to 62. If I move to the Slide #5. I think this particular thing I'm sure you all know more than me, but I still wanted to touch base a couple of things on that. The macroeconomic environment remains favorable. All growth indicators are up for tenders. Overall growth is strong and inflation has been maintained steadily. But if you really look at it on the right-hand side of the slide, which talks more about areas, segments where it's important for Hitachi Energy. As you see that renewable, we continue to have a strong growth momentum in this, close to 50 gigawatt in 2025, but then it's quite a lot of things. Same is the case with the transmission. Same is the case with industry. And the data center is the one big area where we are really hoping this will really come out in a big way. As you may be knowing, 90% of AI-ready data centers today are located in the 2 countries and which is U.S. and China and India is definitely going to have a big growth in the data center. And the data center is a very, very growth segment for Hitachi Energy in that. And then if I move to Slide #6. As you can see, our performance, solid performance, driving growth and building profit margins. Our operating momentum remains strong with the strong order inflows in this quarter with most of them are base orders of INR 2,477.6 crores, which shows -- if I remove the HVDC order in the previous quarter, so 73% growth. And if you take a quarter-on-quarter, 11% growth in that. Revenues are up by 29.6%, INR 2,168 crores, up by 29.6%. And then profit before exceptional item is also quite quadruple, almost INR 400 crores, 118.4%. And PBT after exclusive items, which we'll talk about more, basically, it is a labor code related thing in that, INR 347.8 crores, and we have a consistent and strong growth here. And as you can see here, our order backlog is all-time high, INR 29,872 crores in that. And look at a 9-month comparison, April to December this year versus last year, is also quite strong. All even in the high base of orders, we have maintained a slightly growing -- growing in that high base orders. Revenue is up 24% on a 9-month period and profit and other things is huge amount of improvement in that. This quarter, our work spanned various segments, including utilities, renewables, rail and industry. Notable project execution include 765 kV reactors, ICTs for solar and some of the wind substations in Gujarat and Karnataka, 130 kV GIS installation, 400 kV CRP and substation automations, et cetera. So orders came from multiple segments, multiple industries. And the notable worth of order to be mentioning is that our modular concept is also gaining traction. As you can see here, we could get a compact mobile 400 kV substations, enabling rapid deployment for a reliable power quality management in Kachchh, Gujarat, for one of India's leading conglomerate. So if I move to the next slide, Slide #7. And we continue to commission the projects, almost in line with our customers and wherever possible. And as a technology leader, we are committed to enhancing grid reliability through timely commissioning and high-quality execution. This quarter has featured some exciting projects, again across segments. I would like to highlight some of them is that 130 kV, 33 kV substations in Bhutan for a leading oil and gas company. And then the commissioning of a 200 kV GIS substation for a data center in Pune, in Maharashtra. And another 130 kV GIS bay extension for a major chemical company in Odisha. And then 220 kV, 33 kV substation for a 300 megawatt solar project in Koppal, in Karnataka, in that. In all these things, our scope, including comprehensive scope, including design, engineering, manufacturing, supply, erection, testing and commissioning in that. Move to the Slide 8. At Hitachi Energy, you have been seeing this, we are committed to leading with purpose and creating a positive impact on the industry, society and the various stakeholders with whom we interact with them. On Energy and Digital World, which is our flagship customer engagement initiative and which we have been doing in the Tier 1 cities, now we have taken to the Tier 2 cities. So we organized in Guwahati, where we connected nearly 150 industry leaders to discuss power automation, digital service solutions, consulting, sustainable grid technologies and transformer technology, et cetera. These discussions help us and our customers collaboratively address emerging system needs and accelerate the transition to a more digital and sustainable energy ecosystems in that. We have completed 25 years in India of power innovation in the transformers as a commemorating 25 years of power transformers in India in October this year. So we had a -- this includes our celebrations of 25 years of power transformers. And if you go to the next one, is that we are very passionate about our engagement and collaboration with academia. We are accelerating this across the overall on India basis, deepening academia industry collaboration through partnership with NIT Warangal, which we have extended for another 5 years. Through platform, such as the Transtech, Shell Changemaker and CII ESG Summit, we continue to shape conversations around infrastructure readiness, especially on the energy security and sustainability and affordability, reinforcing our role, the role of Hitachi Energy as a trusted partner in powering India's energy transition system. If I move to the Slide #9, let me give you a little bit more color on the order intake from which segments came in, in this quarter. As you can see here, renewable wind and solar, data center industries have a strong growth Y-on-Y. And while the transmission and the rail and metro seen a bit of decline on this quarter, but it is important to recognize that this is influenced by a project timing and by strong prior performance driven by a large order during the same period of the last financial year. So additionally, there is a year-on-year decline in the rail and metro segment. However, we believe this is simply a part of the market cycle and timing, and we expect it to improve in the coming quarters in that. The order mix is also illustrated on the right-hand side. As you can see here, our products is that's where we have been driving it for several years. And our contribution to the products is much higher compared to the projects. Utilities has been one of our major segment. But as you can see here, in this particular quarter, both utilities and the industries came almost equal in that 47% in utilities, 43% in that. So on the next 2 slides, I would like to hand over to my colleague, Ajay Singh, to take us through the performance on the financial front. Over to you, Ajay.

Thank you, Venu, and good evening, everyone. I hope all of you are doing well at your end. So let me take you through the quarter 3 results for our company. So if you see, orders in quarter 3 was INR 2,477 crores. And if I compare Y-on-Y, it is negative 78%. But yes, if I remove that HVDC order, then we are growing by 73%. And even if I compare with the last quarter, we see there is a growth of 11.7%. So overall, a very good development on the order. Revenues, we clicked INR 2,168 crores, 29.6% growth Y-on-Y and 13.2% growth quarter-on-quarter. If we talk about the PBT before exceptional item, so INR 402 crores is what we achieved. And this is basically based on the higher revenues, focus on execution, product mix, operational efficiency and export momentum has really contributed a good growth on the bottom line. And we are 118% more compared to the last Y-on-Y basis. And even if I compare with the last quarter, the growth is 13.9%. And when I talk about the percentage terms, PBT percentage before exceptional item, 18.5% compared to Y-on-Y 11%, and then the last quarter, it was 18.4%. PBT is INR 347 crores. And basically here, if you see the delta of roughly INR 54 crores on account of the implementation of the new labor code, that we have been, as per the guidelines, we have taken into this particular quarter and that is why PBT is 16% for the quarter compared to the previous Y-on-Y 11% and last quarter 18.4%. PAT, 12.1%, and quarter -- Y-on-Y basis, we are 8.2%. Operational EBITDA, we have reached INR 338 crores, and basically we have doubled received on Y-on-Y basis. And we are currently in this quarter 15.6% compared to on year Y-on-Y 10.1%. Even if I compare with the previous quarter, where we showed 15.2%, we are at more or less at the same level. If I go to the next slide, little bit more details, if I give more reflection on the numbers. If you see, in the revenues, the other income is INR 61 crores. That is basically coming from the QIP, that is deposits, the interest that we are getting. So that is what it has contributed. We have had a commodity exchange gain of INR 24 crores. And personal expense with material cost, if you see, is around 58% compared to the last quarter 59%. And Y-on-Y if I see, it is around 55%. And then, if you see personnel expenses in this quarter, 7.7%; other expenses, 14%; depreciation and finance, 1.2% and 0.1%, respectively. And that is how we are able to close operational EBITDA before exceptional items, INR 402 crores, 18.5%. And the impact of labor code, which I was discussing earlier, INR 54.2 crores, is contributing roughly 2.5% for this particular quarter. And the profit after tax is at INR 261 crores, that is 12.1%. So overall, I will summarize that a fairly good quarter in my view as far as this quarter 3 was concerned. Thank you. Venu, over to you.

Thank you, Ajay. And if I move to my last slide before we open up for Q&A. I think as we wrap up this quarter, we are happy about the progress we are making towards our two key objectives. That is sustaining our growth momentum and enhancing our efficiency across all our operations and also improving our margins and cash, et cetera. So we take great pride in, maintaining our leadership in core sectors like utilities, HVDC, industries and infrastructure. And we are eager to explore and see the new opportunities in exciting fields such as the data center and BESS and energy storage, et cetera in that. It's very important, we are working towards shifting center of gravity to include more export, service and digital. But that you are seeing how we are already trending in the right directions in that. And also working on our strategy of expanding at the edge of the grid. That is the e-mobility, energy storage, data centers in that. Our commitment to strengthening our service business in India is unwavering. So we created the separate global BU service, including in India. And we hope that the efforts of this particular team would start fetching over a period of time, they'll start fetching the results over a period of time in that. Services also help us keep continuity, which is critical to robust energy ecosystems. Many of our new age customers, such as data centers, are looking not only supplying of our technology, be it a product, system, services, but also life cycle partner. So we are dedicated to driving productivity and operational excellence under this, thereby improving our quality and expanding opportunities. We are also focused on capitalizing on our substantial order backlog to drive revenue growth and maximize the potential of capital raised for further expansion plans. On the safety, you all know, is deeply rooted in our culture and we are wholeheartedly committed to maintaining a robust safety first environment, not only in our factories, but also in our project sites. As we look ahead, we will continue investing in our capabilities for sustainable growth, whether through upskilling our talented workforce or expanding our operational footprint. Together, we are paving the way for a brighter, more sustainable energy future in that. So all in all, we are super excited about this market growth, market environment and we are super impressed with the way in which we are driving sustainable energy future. So thank you, and over to you.

[Operator Instructions] We'll take our first question from the line of Umesh Raut from Nomura India.

Congrats for a very good set of results. My first question is pertaining to execution. So I just want to understand how much of execution pertaining to Mumbai HVDC project is remaining now? And roughly how much of total turnover was contributed by Mumbai HVDC project for third quarter?

So thank you, Umesh. As you know, that we don't give revenue on a project-specific revenues in that quarter. And when it comes to the Mumbai HVDC, so we are -- we have just completed our pre-commissioning test. We have completed our work and we have just completed the pre-commissioning test. So in just another 2-3 weeks, we will commission the project.

Understood, sir. So my question was largely because of our gross margin performance, which was slightly lower on a quarter-on-quarter basis. From last quarter, it was down to now about closer to 39.5%. So apart from, say, probably increased contribution from Adani HVDC project, was there any particular other reason for this drop in gross margin on quarter-on-quarter basis?

Ajay?

So actually this gross margin fluctuation is basically on the product mix that we are operating. So we have also earlier talked about that in some quarters, depending upon the execution of the product, there could be slight changes left and right. So that is only the outcome of the product mix that we operate in.

Understood, understood. And second question is pertaining to recent inflationary pressure from commodity prices. So how you are managing these pressures? What percentage of our current existing backlog is on the account of price passed on to the customer?

We talked about also this, Umesh, previously. Most of our backlog having a price escalation formulas built in. So we have been also telling you from the beginning that it will not have impact great to the large extent, because more than I think 70% of our portfolio is having price escalation. There will be small amount of portfolio where they need immediately, within one or two months turnaround for the revenue. So those things may not be there, but otherwise, our portfolio is price escalation.

Understood, sir. My last question is on the outlook for domestic market. How do you see in terms of FY '27 demand, especially coming in for transformers, especially in the domestic market in terms of capacity, which is kind of also coming into the market? Whether we will have same kind of pricing power in upcoming tenders? So any insight about these things?

Yes. I think we can give a market trend. The market is, in my view, is very strong. It is still stronger, both in terms of transmission and also in terms of electrification is going in a big way. Electrification data center will come in a huge amount of thing in that. So the need for more power equipment, whether it's a transformer, switchgear, et cetera, is definitely is going to be there in that. So we have been looking at the capacities coming in. Various companies have announced their capacity expansion. Considering the existing capacities plus capacities to come, we believe that still there is a gap to close on that up. So it is -- this is the way. The energy transition story, in our view, purely in my view, is a multiyear growth story. Thank you.

[Operator Instructions] We'll take our next question from the line of Harshit Patel from Equirus Securities.

My first question is on our HVDC localization. I know you have highlighted in the past about we are making HVDC transformers, converter valves and doing the entire engineering of those projects in India. I want to understand whether we are increasing our HVDC localization further or we have already reached a stage wherein further value addition is not possible at the moment in India?

We won't say that a further value addition has not come. We are continuously taking lot of actions to further increase our value addition, right? So we have been doing that. We are also executing the HVDC project in the Marinus Link, for example, in Australia. So all these things will help us to further localize the supply chains here.

Understood. So secondly, could you please provide an update on the budgeted CapEx for FY '26?

Harshit, sorry to interrupt. Can you use your handset mode, please? Your audio is not very clear.

Is this better?

Yes, please go ahead.

Sir, could you please provide an update on the budgeted CapEx for FY '26 and how much of that we have already incurred? As well as, if you can highlight your CapEx plans for FY '27 and FY '28, that will be very helpful?

We have very clearly given in our QIP document how we wanted to utilize that. In this year, first year, we said we'll do INR 700-plus crores, and the next year will be an additional INR 700-plus crores. So that's what is the thing in that. So there could be a movement of few hundred crores this way, that way, but otherwise we are on track very much.

We'll take our next question from the line of Parikshit Kandpal from HDFC Securities.

Congratulations on a great quarter, sir. So my first question is on the CapEx. If I see the utilization of the proceeds, we have only used INR 155 crores till now versus INR 700 crores, which was envisaged for FY '26. Why is there a big disconnect between what's the CapEx incurred and what we have outlined in the document?

So just now I think we answered the same question. So we have a slow start for sure, but we have a pipeline in place where in the coming quarters it will pick up. So because of the product cycle, our product demands, we cannot do a bulk CapEx at one go, so we have to go into sequential approach. So we have a plan around that and we are hopeful that we'll pick up all. So it might happen that right now your utilization is on the lower side. Maybe the next quarter, in the coming quarter, we'll see there is a huge spike also. So that is how the cycle will operate. But we are very much on to that and we're very closely monitoring the usage of that CapEx.

Okay. So another question is on the order backlog. We have almost INR 30,000 crores of order backlog. And if I guesstimate or remove the HVDC parts, our base orders will be somewhere around INR 10,000 crores to INR 11,000 crores. And now the Adani HVDC order is over. So in the coming quarters, before the HVDC starts getting executed from FY '27, so there could be a slowdown in execution in the coming quarter, at least for 2, 3 quarters now?

No, I think, we told also, it is not that HVDC will slow down. Because HVDC, for example, we are already working on the existing 2 projects, right? Manufacturing is going on and also various other simulations are going on. So there is also -- those are the projects we recognize the revenue based on the POC. So revenues all keep coming in that. We don't see any slowdown in our revenue growth.

Okay. One last one question on the other expenses. So we have been seeing the reduction in other expenses despite increase in the turnover. So just wanted to understand, is there impact or any impact? Have you reduced any royalties? So how is this that the other expenses have been going down for the last 2, 3 quarters?

So we have been discussing earlier also that our other expenses normally hovers in the range of, let's say, 15%1to 9%, right? So depending upon what, A, the revenue growth and also on the operational efficiency that we have been focusing. So there we are able to get the leverage out of that. And this operational efficiency, we are talking about some of the expenses, also on the group expenses, where we are working, and that is how the outcome is there. So it will be in that corridor. If you ask me, ballpark number, it will be in that corridor only.

But has this ABB sharing of IT expenses is now totally -- I mean, are we migrated to our own IT system? Because earlier we were paying them some royalty for that. So is it because of that that we are seeing some reduction?

That we have closed this chapter a year before. So right now, we are totally operating on a standalone basis and we are not relying on the ABB basis. So it's very much it is our Hitachi Energy operating system, and we are working on SAP S/4HANA, our system is there. So it's -- we are on our own.

[Operator Instructions] The next question is from the line of Sumit Kishore from Axis Capital.

My compliments on a very strong set of numbers. My first question is, a couple of large HVDC LCC projects are there in the pipeline which could mature over the next 12 to 18 months. Could you speak about them? And capacity-wise, how are you geared to address the opportunity? And if you could spell out what opportunity these 2 projects present roughly in terms of size as well? That's my first question.

Thank you, Sumit, for your question. I think, as you know, there are quite a lot of HVDC pipeline, but one of them has definitely come for bidding for our customer, that is a TBCB customer in the [ Barmer ] project, which is a 6,000 megawatts LCC project. As you said, in fact, in the last con call also I've been saying consistently that we have been creating the capacities in anticipation of all that. So we do not have any limitation on taking any particular order. But every order we look into based on the risk reward profile and also our exposure, et cetera, any particular customer. Those are -- they're very other -- like any other organization look into that. So we do those kind of things. But on the pure play capacity standpoint, we do have a capacity. We will be bidding these projects.

And just to follow-up on this. Is it fair to say that the size of the HVDC opportunity addressable by you would be roughly 50% of the project cost?

We don't know, Sumit, to tell you differently. Depending upon how the line size and other things, it will be different in that, yes. But it is definitely sizable.

Sure. So if you could speak about the share of exports and services in your 9-month inflows and backlog and the outlook for the next 1 to 2 years for exports and services?

We said exports will be in the range of around 25% is what we set ourself target, but now we have reached almost close to anywhere between the 29%, 30% range in that. So it is -- and we also said our main thing would be to address the domestic market. And that's the reason we are expanding, we are creating the new facilities, because we have seen a clear -- we have a clear visibility of the domestic market where it is going to go. At the same time, our exports also are growing and -- but it is -- exports are not at the cost of the domestic market.

And services?

We'll take our next question from the line of Bhalchandra Vasant Shinde from Motilal Oswal.

Sir, if you can provide some insights on recent budget also, there has been potentially given for 7 high-speed rail? And on the export opportunity, also again, one point to address is like currency has depreciated. So we will be more competitive advantage-wise also on the better manufacturing cost. So don't you think that relatively export opportunities should increase for us further?

Thank you, Bala, for these questions. I think on the budget, I think in addition to what you talked about, there are many other positive things are there. But if I only restrict to the 7 corridors of high-speed rail, it is definitely a big opportunity for Hitachi Energy. And not sure what kind of fundings, et cetera. If it happens to be a Japanese funding, then we are -- even we are in a -- we're going to be in a much more sweet spot on that. So -- but leave alone the funding, I think this is an opportunity. In fact, again, considering these opportunities, we have already started expanding our traction transformer facility. So we are expanding our traction transformer, and this will -- and a lot of other equipment which go into that are also being expanded. Yesterday, we did our groundbreaking ceremony for high voltage products facility in Savli in Gujarat. So this also -- a lot of this equipment will go into, not only into the transmission, but also into this high-speed rail, et cetera, like that. So you are absolutely right. Export, right now because of the currency, we can definitely take an advantage of it. But we are building a very solid and sustainable strategy. So we don't want to create a strategy around the temporary phenomena of this thing. If it is -- it's going to -- it remain like that, probably we'll definitely do that. But on a short-term basis, yes, we are reaching out to some of our global companies wherever they need, so they can procure from us. It will be competitiveness for us. Those things we do it. But as I said, we are looking at a company at a longer term, longer strategy and basis which we are working on that thing. And as you have seen, our margin evolution over the last 5 years is only one direction, improvement.

Just one last point on the exports. Can I continue?

Yes, go ahead.

Yes. Just one last point on exports. Sir, as per our global analyst meet and takeaways, there also our capacities are tied up till FY '30, FY '32, and we are adding capacities in India and I think in other regions also. How is the scenario according to you on the global scale for us in that perspective that on the demand-supply gap?

It's a global scale. Globally also, it is the same situation. In fact, globally, in fact, they are adding the capacities, in fact, based on the frame agreements, et cetera, in that. So it is quite tight and quite challenging in those things. And so whatever the capacities they have added, in fact, the need is to further addition is what we feel. So those things are getting evolved as we see the demand. See, there are a lot of things are evolving. And you must understand that it's not a traditional power system. Traditional power system, we know the load growth, et cetera, in that. The AI data centers, the demand is so huge and the need yesterday basis. And that's what is the urgency of building up those kind of infrastructure. And that needs not only the equipment, but AI-ready data centers. And there's -- the variation in the load from 100 megawatts to 250 megawatts in seconds. Seconds, not even minutes, seconds. So you have to have the power systems flexible enough to manage that kind of load center, right? So it's not only the equipment, your whole system need to be geared up, and that's what is happening in North America, that's what we see in Europe, et cetera, in that. And I'm very confident personally that we see that mirroring in India as well.

[Operator Instructions] The next question is from the line of Amit Anwani from PL Capital.

Again, on data center, you did highlighted about the strong prospects. So just wanted to understand in terms of addressable market you have in that space. And since, as you highlighted, North America is our export, having data center orders already, what is the proportion? Has that increased? So is export also will be driven by data center orders globally? Just color on that.

Yes. I think, as I said, our exports, we are creating again capacities, et cetera, for the domestic market, but we are flexible enough to address those exports in the data centers and also in industries, et cetera, in the nearby, our regional Southeast Asia and other aspects of that. So to answer your question, yes, data centers is also one of the thing we are looking into. We have already received part of the orders from the data centers as exports and we are also bidding for some other exports for data centers.

So what's the addressable market there?

No, I think we will not be bidding everything together from here, so we will be complementing with our global organization wherever they are bidding it. Suppose if there's a requirement for a couple of hundred transformer, they will also source a couple of transformers from our side in that. So we will not be able to estimate exactly what is the addressable market in those areas.

And sir, what's the contribution from data center currently?

No, contribution from the data center and overall our order inflow still at single-digit, high-single-digit.

And this you are expecting to grow much faster, probably?

Yes, yes.

We'll take our next question from the line of Parikshit Kandpal from HDFC Securities.

Sir, just one question. This news, if you can help us understand regarding the Chinese thing which has been going on in the transformer side. So your views on that.

Thank you, Parikshit. I think we have also read the news and we have not seen any government clarification or official message on that. But what we heard during our interactions that they don't allow any imports from neighboring countries, okay? Border countries. So if they may, in case if they have any manufacturing facility here, they may allow. But for us, it's not about which competition is that. As long as a level playing field is there, we do not have any issue with that. So we don't see that as a major threat. And if we are not -- due to that we are not holding any of our expansion plans, et cetera, in that. We are very confident that as long as a level playing field is there, so we can beat the competition.

And second question is on the HVDC order. So I want to understand that you have a level of localization in India and then there will be imports from the parent entity. So when you calculate royalty, so how does it work? So does the imports are excluded from that or the entire revenue is -- the royalties will be applicable on the entire revenue? So how does it work on the accounting side?

So basically, royalty is generally is calculated based on the overall revenue. But if there is any intercompany thing, that generally gets excluded.

So in these two HVDC...

Royalty will pe paid as a technology, not as a localization of import. Royalty is because we are getting the technology and the technology we are allowed to localize that. For that, you need to pay the royalty. And once you localize it, it is not that it will be there forever. Every time they get an update, there will be some addition to the technology. So those things continue to do that. So royalty is absolutely required. For example, because we are paying the royalty, that's why our SF6-free technology, which is available in the world, so we are able to bring it here and sell it to our customer in India, to PGCIL, everything in that. So that's a big advantage, yes?

Sir, just wanted to clarify whether this entire HVDC order royalty will be paid on that or import content will be excluded? Just a clarification I need.

We will not give you exactly like that, Parikshit, but what is -- there will be some calculation methodology, et cetera, what is excluded, what is not excluded in that. But it will be at least some percentage on a ballpark, on an overall thing in that.

We'll take our next question from the line of Mohan Krishnaswamy, an Individual Investor.

Sir, on the data center, we have been reading reports stating that there will be an element of HVDC content in those orders because the power requirement and the speed of transmission is very, very different and very high. So do you think that is correct? And do we have the capability to do that in Hitachi Energy India?

So I think, as I said, the data centers are evolving. What kind of data center being built in U.S. is completely different from the data center being built here itself. So that's what I said, that 90% of the AI-ready data centers are located in those two countries. And I'm sure those data centers once start coming up here, so we will also look at it. Yes, absolutely. Today the data centers are having a big challenge in managing, getting the -- not only the reliable and affordable and clean power, but also ensuring that managing the flexibility of that. So there are the data centers who are looking at connecting directly to HVDC through any other renewable source of that. So from a competency standpoint, we do have those things in Hitachi Energy in India to do those kind of things as and when it is required and wherever it is required.

Sure. And secondly, sir, the recent EU deal, whenever it gets finally signed, being a European company as well, do you think that can have some impact on our export strategy in the years ahead?

Yes. So that's what I said. Definitely, we will have -- we will look at to using our factories in India to the benefit of our own companies in Europe because of this tariff difference in that. So that there will be some tweaking we'll do or at least we'll really look into it how this will pan out and what are the products we supply from here to Europe. Those are the things.

We'll take our next question from the line of Shirom Kapur from Jefferies.

I just want to understand a bit more on the export strategy. Is there any thoughts on the parent allocating greater markets to the Indian entity given the global shortages? Is there scope to for the Indian entity to serve more export requirements of the parent?

Thank you, Shirom. I think our export strategy is very robust and we have been building over a period of time. And we have a three-pronged strategy. The first one is that we do have certain global feeder factories, and those products we only manufacture here and we sell all over the world. And then we have some allocated markets, and these allocated markets being reviewed to add a little bit more wherever it is makes sense for us. And then we develop these allocated markets, just like any other market, together with the local sales organization of that particular country. And then we start amalgamating our factories and start selling those things in there. So this is accelerating as we speak and we are getting more and more markets to do that. And the third one is that we do have feeder factories where we manufacture the components for the bigger product, and this component we sell it to our own factories around the world. And the combination of these three, what we are saying is, it will be 25% to 30% of our orders going forward. Excluding, of course -- you need to take out the big HVDC project, then it will be 25% to 30%.

We'll take our next question from the line of Subhadip Mitra from Nuvama.

Just wanted to get a clarification on one point. I'm trying to connect 2 things. First, you have mentioned in the past that starting Q4 of FY '26 you're firmly going to be entering double-digit margins. I think we've already done that 2 quarters early, margins are already quite strong. At the same time, we are seeing the Adani HVDC project, which has gotten delayed for some time, now entering into the commissioning stage. Is there a chance that we could see some delay-related penalty or LD-related hits that could come in Q4? Or are you confident of maintaining these levels of margins and only improving from here on?

We don't have any delay on an HVDC on account of us on LD or anything in that. So that's very clear and we don't see that as a thing in that. As I said, now, we have been building on a long-term basis and you have seen in the last, not 3 quarters, but several quarters, how we are -- what we are saying and what we are doing it. And it's -- very consistently, we are bringing the margins up.

[Operator Instructions]

Okay. So operator, if you don't have any questions, so that we almost came to the last minutes. Operator, you there?

Over to you, sir, for the closing comments.

So once again, thank you very much, for your participation and your engagement. And if you need any further information, please do reach out to us. We are happy to engage with you and provide any additional information, et cetera, in that. So we are in a such an era of sustainable energy future. We are super excited about the opportunities arising not only out of our traditional segment, but also the new segments. And I'm sure, like us, you're also super excited about what we are doing it. And thank you for joining and looking forward to seeing you or meeting you or talking to you also. Thank you very much. Have a great day.

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