POWERINDIANSEQ1 FY23July 27, 2022

Hitachi Energy India Limited

6,681words
66turns
10analyst exchanges
4executives
Management on call
Venu Nuguri
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, HITACHI ENERGY INDIA LIMITED
Ajay Singh
CHIEF FINANCIAL OFFICER, HITACHI ENERGY INDIA LIMITED
Poovanna Ammatanda
GENERAL COUNSEL, COMPANY SECRETARY AND COMPLIANCE OFFICER, HITACHI ENERGY INDIA LIMITED
N. Venu
MD and CEO, Hitachi Energy India Limited. Thank you, and over to you, sir.
Key numbers — 32 extracted
INR 3,054.6 crore
nergy India scored some significant wins. In the quarter ending 30 June, we received orders worth INR 3,054.6 crore, up 309.7 percent YoY. As a pioneering technology leader, well entrenched in the market with a lo
1000 MW
ement with customers helped at driving some of the key order wins this quarter. The order for a 1000 MW HVDC link between Kudus-Mumbai reiterates customer confidence in our technology expertise. The ga
1,000 MW
etween Kudus-Mumbai reiterates customer confidence in our technology expertise. The game-changing 1,000 MW HVDC link will increase the supply of power to the city by almost 50 percent, paving the way for
100%
ating renewable energy by over- coming capacity issues and reducing waste. We continue to maintain 100% fossil free electricity consumption. Furthermore, the insights from the assessment also helped us
62%
on. Furthermore, the insights from the assessment also helped us identify the potential to reduce 62% CO2 emission by end of this fiscal year. As a responsible organization, we keep proactively doing
210 GW
IIP), and core industries. Earlier this quarter, India’s power demand touched an all-time high of 210 GW. According to analyst reports, electricity demand in just a few months of this year, is exceeding
8%
sts estimate Indian GDP in this fiscal year to be in the range 3/14 of 7-8%. While India is largely a consumption-driven economy, we are not isolated by the global headwinds
6%
ption-driven economy, we are not isolated by the global headwinds. Inflation remains high above 6% against the global double-digit inflation. It is projected at 6.7% for FY22-23. Our currency furt
6.7%
ds. Inflation remains high above 6% against the global double-digit inflation. It is projected at 6.7% for FY22-23. Our currency further depreciated against the dollar. Just earlier this week, we touc
Rs 80
FY22-23. Our currency further depreciated against the dollar. Just earlier this week, we touched Rs 80 per dollar, the lowest in the history. The shortage of semiconductors continued to worry the indus
rs,
ing products and increasing our focus on product lines that do not depend heavily on semi-conductors, such as COMBILFEX, RTU, enterprise software and network control. We are collaborating with globa
15%
mit of demand, and that the material costs especially for semiconductors might further rise by 10-15% in the near-term owing to ongoing inflationary pressures. Moving to the next slide, that is Sli
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Guidance — 20 items
Venu Nuguri
opening
“We have a mid-term target to bring around 20-25% growth in order and revenue from exports market and we have comfortably stayed in this corridor for the last 3-4 quar- ters now.”
Venu Nuguri
opening
“Supported by world-class project management, the company commissioned several substation and switchyard projects for utilities, industries and infrastructure sectors.”
Venu Nuguri
opening
“We will be working towards building a more sustainable and profitable company over a period of time.”
Apoorva Bahadur
qa
“So, any update on that by when can we expect the ordering?”
Apoorva Bahadur
qa
“And also do we intend to participate in the storage element of that order as well?”
Venu Nuguri
qa
“And yes, Leh-Kaithal is a very key project.”
Venu Nuguri
qa
“We will not be in a position to tell exactly when as we don't have any infor- mation, but you know that, that is the next HVDC project being awarded.”
Venu Nuguri
qa
“As you recall, some time back, we were saying with so much of renewable coming in, so much of energy transition, our forecast has been that every year, one HVDC tender will come up for bidding in this country for at least next 3 to 4 years.”
Venu Nuguri
qa
“For your information for HVDC Mumbai projects, almost 80% of that particular project will be manufactured in India locally.”
Apoorva Bahadur
qa
“Sir, on the storage component for the Leh project as well, do we have the technology tie up for it?”
Risks & concerns — 15 flagged
Our long-term fundamentals appear solid, India continues to be a fast-growth market with strong potential and as a market leader, we continue our engagement with the customers to collectively emerge out of this uncertain market situation.
— Venu Nuguri
2/14 We conducted special sessions to spread awareness regarding Risk Management and Life Saving Rules, summer readiness at sites, and so on, to ensure our people and adapt to new norm measures and bring Safety & well-being into routine practice as a way of life in all our premises.
— Venu Nuguri
The Caseload has decreased from where we were a year ago, but the concern remains.
— Venu Nuguri
This cou- ple with lagging impact of Covid disruptions and geo-political tensions have reduced semiconductor supply to a trickle.
— Venu Nuguri
Our long-term strategy, put in place to combat the global headwinds will take us through the uncertain market conditions.
— Venu Nuguri
The quarter witnessed rising cost of commodities and supply chain bottlenecks, creating a drag on margins.
— Venu Nuguri
COVID still remains a matter of concern, and we are determined to ensure that we continue supporting the healthcare infrastructure for our employees and their family and the community.
— Venu Nuguri
Sir, the first question is basically on, in this quarter, how much is the Forex risk we have?
— Amit Mahawar
So, we have several actions in place to mitigate this particular challenge being faced here.
— Venu Nuguri
So, those kind of things are very, very difficult to quantify and do that.
— Venu Nuguri
And what kind of debtor cycles that we have on these contracts, meaning the payment terms that we have a read on that, meaning are we taking any risk on that?
— Manish Dhariwal
Sir, the payment ability of the customers it's also a risk.
— Manish Dhariwal
Right, as you know, this is always a risk here.
— Venu Nuguri
What I was telling, Viraj, is that certain things, even though we have learned, for example, semi- conductors we have learned, it's not possible for us to overcome that challenge if the supplies are not coming in, right?
— Venu Nuguri
So, for us, every project, we always look at risk-reward portfolio.
— Venu Nuguri
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Q&A — 10 exchanges
Q
Congratulations on the order win. If you can just throw some more light like how much was the difference between us and the L2?
Venu Nuguri
So, thank you, Renjith. As you know, this is a tender where we have submitted, and unlike in PTCL, it is not a public tender. So, we do not have the information of L2. So, what we believe is that we are - when we submitted our tender, we are both technically and the commercially competitive. So, it's more of a negotiated tender or what? No, it's not negotiated. It's like international competitive bid where we have submitted our bid and then they have announced that we are the successful bidder. 6/14 Okay. And sir, how much is the value of this Adani order because I think you haven't mentioned
Q
Sir, I believe the next large order that the industry will have its eye on is Power Grid’s Leh trans- mission. So, any update on that by when can we expect the ordering? What would be size? And also do we intend to participate in the storage element of that order as well?
Venu Nuguri
Yes. Thank you for your question, Apoorva. And yes, Leh-Kaithal is a very key project. And as you know, HVDC, Hitachi Energy is pioneering this technology. More than 50% of our installed base, including the new projects around the world, including India, runs through our technologies. So, we are very keen. We have been working with our customers on this. And we believe that the tender would come shortly. We will not be in a position to tell exactly when as we don't have any infor- mation, but you know that, that is the next HVDC project being awarded. As you recall, some time back, we were say
Q
Congratulations for the large project win. Sir, the first question is basically on, in this quarter, how much is the Forex risk we have? And if you can comment on also the royalty and technology fees. Generally, is it higher than the last year average as a percentage of sales? So, some color on that. And generally, on profitability metrics because Q1 was a very sharp impact, and this is despite your gross margins, which are relatively stable. It seems the overheads are basically on multiple points impacting the profitability. So, if you can comment on the profitability and the details.
Venu Nuguri
Thank you, Amit. I’ll ask our CFO, Ajay, to answer part of it, then I'll come back and comment on the profitability. Thank you. Thank you for the question. The first part, if I understand correctly was more on the profitability side and the royalty fee side. So, let me first answer the royalty part. So, royalty fees is we are hovering around the 4%. So, it is the same level. So, we do not see any increase compared to the earlier part. That is one. Coming to the Forex for this particular quarter, yes, we have been impacted by exchange and commodity price fluctuation and that is basically, if I
Q
So, my question is just a continuation of what the previous participant asked. On the other ex- penses, was the ForEx impact Rs. 30 crore?
Venu Nuguri
It's Rs. 13 crore. Rs. 13 crore. And if you can just sort of if you could -- are there any other unusual or one-off expenses, which you can quantify in the current quarter? No. I think just to add here, we don't have any other one-off things. I talked about basically the 4 things, relevant to our product mix, semiconductor shortage and supply chain disruptions, which has also increased our feed and logistic costs. And finally, the exchange and commodity price fluctuation. 9/14 And sir, regarding our order book, what percentage of our contracts allow us to pass through any cost escalations that
Q
Sorry, Mr. Varun, please go ahead and ask. The line got disconnected.
Varun
Yes, sure, sir. So, my question was what percentage of our contracts allow us to pass through cost escalations? And one more question, if I may is, how would our EBITDA margins look in this finan- cial year? So, let me answer you the first one. See, over 65% of our portfolio has escalation clause. But you need to understand that there is a traditional escalation clause either through provisions or formu- las or something else. But what we are facing right now is unprecedented. For example, we have a freight cost. Those kind of costs are not covered in that, which is unusually very high. For ex
Q
very Good Afternoon, My compliments to the team for securing a very good traction on the order inflow. Now given the fact that we are living in turbulent times, higher orders also bring with them some risks as we have seen this quarter's profitability. So, I request the management to give us a flavor of what kind of profitability matrix can be expected? And what kind of escalation clauses that have been put so that this continuing volatility in the exchange rates, in the supply disruptions, et cetera, do not cause further impact on the profitability.
Venu Nuguri
As you know, as our strategy not this quarter, but last several quarters, we have taken a strategy that we do not accept any projects which has no escalation clause, or any order which does not have an escalation clause, or any order which go into a long gestation period do not have an escalation clause. So, with that, all the orders whatever we are securing, we have a clearly the escalation process building and also there are several force-majeure clauses also we have kept 10/14 as part of some of the orders, semiconductors non-availability also in some contracts we have brought in as part of
Q
Sir, my question is with continuation of the previous participant. So, listening to your comments, is it fair to say that we have fairly learned about in this quarter. So, a lot of things will be taken care going forward from here, in terms of escalation clauses, commodity pricing, other things?
Venu Nuguri
What I was telling, Viraj, is that certain things, even though we have learned, for example, semi- conductors we have learned, it's not possible for us to overcome that challenge if the supplies are not coming in, right? So, while we are taking a lot of action to redesign the things, that will take time. That will not happen overnight in that. So, when it comes to the semiconductors, you have also probably seen this. The best estimate is that it will definitely improve, but to normalize it any- where, it’ll go into the 2023 or so in that. It will improve from quarter-to-quarter, but really to
Q
So, my question was pertaining to Europe and to exports mainly. We had set a target of 25% exports of revenue in a few years. So, where are we on that? By when do you plan to achieve it? And the other is, are we seeing any near-term traction on exports because of the chaos that we are seeing in Europe because of the energy crisis and other aspects?
Venu Nuguri
Yes. I think when it comes to the exports, I think we ourselves set a midterm target of between 20% to 25%. And last year, we were in the range of 23% of our revenue and our orders came from exports last year. And this quarter also I was telling you that we reached exports 23%. So, we have a 3-pronged strategy on exports. One is the direct. Here, we export some of the products. We have a global feeder factory, some of the factories we have a global factory like our circuit braker and Combiflex, they go everywhere around the world. And then second strategy is that we also have a global fleet of
Q
Sir, when I look at some of your end markets like data centers, railways, renewables, they all are quite high growth markets. So, I just wanted to get your view on what can be the medium-term or long-term growth number that one should work with in each of the sectors like utilities, industries and transportation, as you classify it. Is it right to assume that all of these are mid-teens kind of a growth sector? Would like your views on this thing, sir?
Venu Nuguri
So, Kunal, thank you for your question. If you really look at the Indian power sector is really going for a huge transformation, right? The growth in the energy or power demand is phenomenal, right? We probably reached the 210 gigawatt. A lot of renewables is coming in, and it needs a lot of technology support to the grid and the rest of the industry associated with that. So, our growth spectrum is definitely the transmission and the renewable, right? So, this will be our higher growth. And I say everything will grow, but these are the growth, they grow up higher than the normal market average
Q
Thank you, ladies and gentlemen. Thank you for taking your time on attending to our call and appreciate very much. Due to lack of time, I think we could not answer any more questions, but please reach out to us any time, and we are happy to answer your questions, if any. So, meanwhile, please take care of yourself, your families and your colleagues and stay safe and stay strong. Thank you.
Management
Speaking time
Venu Nuguri
28
Moderator
12
Renjith Sivaram
6
Viraj Mithani
4
Varun Basrur
3
Manish Dhariwal
3
Apoorva Bahadur
2
Amit Mahawar
2
Vishal Biraia
2
Kunal
2
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Opening remarks
Venu Nuguri
Thank You, Good evening everyone. Thank you for joining us for the call. I hope all is well at your end and you continue to take all necessary precautions to keep safe. While the pandemic seems to have eased recently, we reached the 200-crore milestone of cumulative doses administered in the country. However, there are dangers still looming just beyond the horizon. The economy is on the path of recovery to pre-pandemic levels. There is a healthy momentum with demand and eco- nomic activity picking up and business confidence had started to improve the last time we spoke. However, multitude of factors continue to impact the growth numbers. We believe these are short- term challenges, which would flatten out in the longer term. We have uploaded the Presentation in BSE and NSE website which I am going to use for your ease of reference. We kickstarted the quarter on an optimistic note but were also cautioned by supply side constraints such as increasing commodities prices, freight and logis
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