POWERINDIANSEFebruary 16, 2022

Hitachi Energy India Limited

7,313words
67turns
9analyst exchanges
3executives
Management on call
Venu Nuguri
Managing Director & CEO
Ajay Singh
Chief Financial Officer
Poovanna Ammatanda
General Counsel and Company Secretary
Key numbers — 40 extracted
INR 200 crore
ompany to monitor and control their power substa- tions in Rajasthan. Further, we hope to convert ~INR 200 crore worth of delayed orders where Hitachi Energy India was L1 in the coming time. But, concurrently,
rs,
cations. Our uncompromising safety standards and consciousness were not only appreciated by customers, but also garnered leading industry recognition which is Golden Peacock Award we have received in th
99%
e continue to exercise caution and keep our people at the heart of what we do. And as you can see, 99% of all our employees have already got 2 doses of vaccination and we continue to have the strategie
30 GW
, to monitor power substations in Rajasthan. The State is a leader in solar energy and aims to add 30 GW worth capacity by 2024-25 which will introduce more intermittence into the grid. The RONC will off
25%
as we have been talking almost every quarter, continue to lift orders contributing approximately 25% to the order book in the December quarter with an increased contribution from our feeder factories
20%
sed contribution from our feeder factories. As you recall, our strategy of exports is to take from 20% to 25% over a period of time and I am happy to report to you that we have already reached 25% in t
INR 4,733.6 crore
v- ered a credible and sustained performance. As of December 31, 2021, our order backlog stood at INR 4,733.6 crore, which is expected to unlock revenue streams in the coming months. Recovering to pre-pandemic lev
INR 1,137.6 crore
to unlock revenue streams in the coming months. Recovering to pre-pandemic levels, revenue was at INR 1,137.6 crore, up 9 percent yoy. Profit before tax (after accounting for a one-time reimbursement of reorganizat
INR 83.4 crore
. Profit before tax (after accounting for a one-time reimbursement of reorganization expenses) was INR 83.4 crore, up 10.3 percent yoy. Supply chain disruptions emanating from port delays weighed on process timel
INR 89.5 crore
d freight costs, slowed our march towards target margin corridor. 5/15 Operational EBITA stood at INR 89.5 crore in the December quarter, with EBITA margin at 7.9 percent. Moving to the next slide No. 16; you h
Rs 19,500 crore
responsive budget – there is a lot of focus in energy transition, where we operate. An additional Rs 19,500 crore for PLI for manufacturing high-efficiency solar modules and an allo- cation of Rs 1,400 crore for
Rs 1,400 crore
nal Rs 19,500 crore for PLI for manufacturing high-efficiency solar modules and an allo- cation of Rs 1,400 crore for 123 MW hydro & 27 MW solar projects in FY23. Issuing of Sovereign Green Bonds in public sector
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Guidance — 20 items
Venu Nuguri
opening
“We were awarded a project to set up a central command unit called ‘Remote Operations and Nerve Centre’ for India’s largest private transmission company to monitor and control their power substa- tions in Rajasthan.”
Venu Nuguri
opening
“Further, we hope to convert ~INR 200 crore worth of delayed orders where Hitachi Energy India was L1 in the coming time.”
Venu Nuguri
opening
“But, concurrently, we were facing challenges that you all will be aware of.”
Registered and Corporate Office
opening
“And to ensure a culture where people take as priority ownership of their and their colleagues’ health and safety, we contin- ued our efforts towards spreading awareness and building capabilities at our offices, factories and project sites.”
Registered and Corporate Office
opening
“With our new identity Hitachi Energy India – we will be able to effectively position our pioneering technologies and services to existing and future customers expanding beyond the grid – opening up a breadth of opportunities in areas such as sustainable mobility and smart life, and contributing further economic, environmental and social value.”
Registered and Corporate Office
opening
“We also implemented rooftop solar for green electrification of a project site office.”
Registered and Corporate Office
opening
“As our company's portfolio which provides the mission critical technology to our customers in enabling carbon neutral operations, we thought we would be taking a leadership position and walking the talk, especially in ensuring that our own operations and our own footprint will be a carbon neutral going forward.”
Registered and Corporate Office
opening
“This, coupled with increased commodity and freight costs, slowed our march towards target margin corridor.”
Registered and Corporate Office
opening
“400 Vande Bharat trains with higher efficiency for passengers will be developed in the next 3 years and interconnected, standardized urban transport metros.”
Registered and Corporate Office
opening
“In our view, all these things are the play areas for our company to be actively participating and going forward in that.”
Risks & concerns — 8 flagged
Global semiconductor shortage is another headwind that continues to influence operations across geographies, and we will see how the situation unfolds, along with uncertainties related to Covid.
— Registered and Corporate Office
Coming to the last slide; priorities, it is crucial that we take on the challenge of accelerating the pace of change to reap the benefits of this energy transition.
— Registered and Corporate Office
Our key focus will remain protecting our people and preparing ourselves to tackle the vagaries of the pandemic induced new norm shaping an agile supply chain, being selective in our contracts, and revisiting long-term agreements with customers and suppliers as the price trajectory of com- modities and freight remains uncertain.
— Registered and Corporate Office
If you could provide some more inputs in terms of what was the impact of cost inflation on the operating margins and to what extent was it led by change or adverse mix?
— Renu Baid
It is not a one particular challenge we have been facing.
— Venu Nuguri
So, if you can help us as in what percentage was largely because of fixed price contracts and commodity increase and what percentage of gross margin compression was led by mix changes?
— Renu Baid
On one side is dealing with the pandemic, the other side dealing with the highly elevated commodity prices and the port challenges, and despite that, we believe that we have delivered a kind of resil- ience in our performance in the difficult environment.
— Venu Nuguri
I understand factoring in the earlier commentary on inflationary pressure that next 2 or 3 quarters might be a little bit difficult.
— Varun Basur
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Q&A — 9 exchanges
Q
The current quarter results are definitely not as good as they were expected. My first question is hitting at the core of 3Q results, trying to understand the gross margin weakness. You did highlight raw material price pressures and fixed price contracts. If you could provide some more inputs in terms of what was the impact of cost inflation on the operating margins and to what extent was it led by change or adverse mix? Aligned with this, what percentage of the backlog that we have today sitting on fixed price contracts which could have a potential impact on margins as we move towards CY23 or
Venu Nuguri
First of all, let me just give you an overview of that. It is not a one particular challenge we have been facing. We have been facing on increase in commodity prices, on top of that semiconductor shortage, and on top of that the freight cost. Some of the freight costs especially on export – as you know where our exports are – the cost increases in excess of 50% to even 100%. So, revenue growth is fueled by higher project execution and also product delivery, but the margin has been impacted due to execution mix as well as rising commodity prices, freight and logistic cost increase in that. We r
Q
Sir, first the budget announcement in terms of CAPEX on the infrastructure side, you already high- lighted in your presentation. But if you can throw some light in terms of the opportunity size for Hitachi Energy in specific to the entire thing and the addressable market basically? Secondly, in terms of the order book…
Venu Nuguri
The first question on the budget, as you know, it's a CAPEX-led budget where the government has increased the CAPEX to 35% compared to the previous year. All these things, especially the areas where the government is focusing on that are the play areas for Hitachi Energy. Take for example, the renewable penetration. We have quite a big addressable market in the renewables whether it is solar or wind. We have the grid connection, we have the balance of systems, and we have the automation of the renewable in that. Same is the case with the wind. When it comes to the data centers, as you know the
Q
At Shefa Family, we have been following the Hitachi Energy since its inception or demerger. We have this question about the narrative which is being said in terms of our capabilities, new-age businesses which we are covering, digital opportunities and parental legacy, that's somehow not matching with the numbers and order book and in fact with margins so far. We need your comments on the same.
Venu Nuguri
As you know, we have carved out from ABB and then we have become part of the Hitachi Energy from 2020 onwards. Then, we had to also navigate the pandemic, and at the same time, we are also working ever since we became part of Hitachi globally, i.e., on July 1st 2020, right? And that's where we are looking at more synergies on that – the synergies on the digital capabilities merging. These are the things, it won't happen overnight. This will take a long time. It needs a lot of things, proof of size, lot of places where we need to do the pilot study, etc., in that. That's where if you have seen
Q
My question is with respect to the order inflows. Broadly, the order inflow has remained in a flat range of Rs. 900 crores to Rs. 1,000 crores quarterly and given the tailwinds and the priorities of 10/15 2022-23 that we have, what can be the size of order inflows one should expect and particularly also if you can guide us on the HVDC order that we were expecting to come and we had 1 order under bidding, what can be the size of that order and by when we can expect the outcome of that?
Venu Nuguri
As you know, we don't give any guidance or forward-looking statements, but what we can definitely give you which we have been continuously saying that we are taking several initiatives, and with those initiatives, we will be in a position to grow faster than the market even though last quarter, we have grown around 13% compared to the previous quarter. And if you really look at the market, market is not growing like that. If you take annualized 1 year, we are almost close to double-digit growth in the orders. The market is not growing that kind if you really take the whole of the market. There
Q
Venu sir, just wanted to check with you now if you look at Mumbai Metro, the propulsion system is supplied by Hitachi Energy and the traction transformers for that is done by Hitachi design. Is it supplied by our factory the traction transformers for the Mumbai Metro? Just wanted to understand when going forward for the high-speed rail and other large projects, Hitachi can play a major role. Does that open up a huge opportunity for us as a company?
Venu Nuguri
I will just clarify to you that the propulsion system we don't manufacture. Our range of products for the railway segment is the traction transformers and trackside transformers and fixed installation SCADA and automations in that. As I told you, rail segment is one of the biggest growth segments for us and we continue to grow in the rail segment. And then when it comes to the high-speed rail, it's also one of our focused projects. We have a huge opportunity in the high-speed rail going forward. That is the one project where we are looking for synergies with Hitachi. As now we are part of the
Q
Any plans for taking advantage of the PLI scheme? Do you qualify for any of the schemes which have been announced?
Venu Nuguri
We are looking at the electrical vehicle charging equipment. That qualifies for the PLI scheme in some states and we are actively looking at it. You have a number of entities in India which are Hitachi entities, one of which is the listed entity, right? Yes. How do you segregate the business so that duplication kind of stuff doesn't happen? Business-related entity is only one entity, i.e., Hitachi Energy India Limited. We do have another entity which is Hitachi Energy Technology Services Private Limited where we house our backend offices, engineering centre, and also R&D and those kinds of thi
Q
Is the understanding that the 2% royalty that we were paying to ABB is over. Is that understanding correct? Poovanna Ammatanda: We have been paying trade mark fee to ABB upto June 30, 2020 From July 01, 2021 upto June 30, 2022 is the royalty-free tenure for trade mark fee given that we have substantial expenses post demerger.
Sujith Jain
No, still not clear. Till when do we pay royalty to ABB 2% per annum? When does it stop? Poovanna Ammatanda: July 01, 2021 upto June 30, 2022 is the royalty-free tenure for trade mark. . So, we will negotiate and agree trade mark fee for the future years after June 30, 2022. So, that payment will come down but we still have to pay? Poovanna Ammatanda: We will negotiate and agree for future years. Till when? Poovanna Ammatanda: As said, that is something that we will need to negotiate. The other way to put this is, how long we can use ABB brand under the agreement in 2020? ABB brand as per the
Q
Sir, in the earlier earnings call, there was a commitment to take the operational EBITDA to a double- digit range over a period of time. I understand factoring in the earlier commentary on inflationary pressure that next 2 or 3 quarters might be a little bit difficult. But if you could just solidify by when this can be achieved – this double-digit EBITDA? And how it would be achieved? Also, what kinds of investments are needed to achieve the growth in the top line?
Venu Nuguri
Again, as you know, in this quarter, i.e., October-November-December quarter, our EBITDA per- centage is 9.8%. And if you take a 12-month period, our EBITDA is 9.1%. So, we have almost come very close to what we talked about that. This is despite the challenges we are facing – head- winds, rise in commodity prices, or freight and logistics expenses, etc. But coming back to the second question, we are setting up greenfield factories in Bengaluru, we are setting up a greenfield factory in Chennai, and we are expanding our factories in Vadodara. These are the investments that will take us into mo
Q
Once again, ladies and gentlemen, a very big thank you to all of you for actively participating in the analyst call. And we are happy to provide help if you need any further clarification or anything. Happy to engage with you. I am really hoping that in the coming quarters, we would like to host a physical investors' call or take you all to one of our locations. I am really hoping that the COVID would help us so that we will see each other, but until then, please reach out anytime for anything you need to, we are happy to engage with you. Take care and stay safe.
Management
Speaking time
Venu Nuguri
25
Moderator
11
Sujith Jain
9
Renu Baid
5
Rajrishi
4
Varun Basur
4
Rahul Paliwal
2
Renjith Sivaram
2
Ajay Singh
2
Registered and Corporate Office
1
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Opening remarks
Venu Nuguri
Good evening everyone and thank you for joining us for the call. I hope all is well at your end and hope all of you are keeping safe during these unprecedented times and taking all necessary pre- cautions to keep yourself and your family safe. We have just uploaded the presentation that I am going to refer in the BSE website and I am also now sharing if you are able to see that. Then, I will also refer the slide numbers for ease of convenience for all of you. Moving to the slide No. 3, The October to December quarter is typically marked by a festive mood in the country. The nation was also trying for normalcy after a bleak first half of the year. In this period, we also witnessed significant orders from leading power players toward solar and wind projects and in grid strengthening, as well as toward electrification of Indian Railways. We were awarded a project to set up a central command unit called ‘Remote Operations and Nerve Centre’ for India’s largest private transmission company t
Registered and Corporate Office
8th Floor, Brigade Opus, 70/401, Kodigehalli Main Road, Bengaluru - 560 092 Phone: 080 68473700, 080 22041800 CIN: L31904KA2019PLC121597 www.hitachienergy.com/in @Hitachi Energy With this backdrop, we managed a credible performance, staying resilient amidst tough market realities. We put unwavering efforts at stabilizing our supply chains, building stronger processes and improving efficiencies. As you can see from the slide, we have more green arrows. Moving to the slide No. 4; Safety remains our primary license to operate. And to ensure a culture where people take as priority ownership of their and their colleagues’ health and safety, we contin- ued our efforts towards spreading awareness and building capabilities at our offices, factories and project sites. We have been conducting regular training sessions and consultations for our people and partners to combat the spread of the Covid-19 virus, prevent ailments arising out of the new normal and reduce HSE hazards at workplace or work
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