Hitachi Energy India Limited (POWERINDIA) Q2 FY23 Earnings Convall Transcript

Hitachi Energy India Limited (NSE:POWERINDIA) Q2 FY23 Earnings Concall dated Nov. 04, 2022

Corporate Participants:

Venu Nuguri — Managing Director and Chief Executive Officer

Analysts:

Dinesh Mahajan — Individual Investor — Analyst

Amit Avani — Prabhudas Liladar — Analyst

Mahesh Bendre — LIC Mutual Fund. — Analyst

Mohan Krishnaswamy — Individual Investor. — Analyst

Alisha Mahawla — Envision Capital. — Analyst

Harshit Patel — Equirus Securities. — Analyst

Unidentified Speaker —

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Hitachi Energy India Limited Q2 FY ’23 Analyst Conference Call. [Operator Instructions] I now hand the conference over to Mr. Wen, MD and CEO. Thank you, and over to you, sir.

Venu Nuguri — Managing Director and Chief Executive Officer

Good evening, ladies and gentlemen. Thank you for joining us for the call. And I hope you’re all doing well, taking care of yourselves and your families. Last year around this time. If you recall, we unveiled our new identity, rebranding our sell site Hitachi Energy. This name reflects the breadth of opportunities where we can contribute our competency, expertise and solutions portfolio and support the adulation towards sustainable energy future and societies. Through our first year as the Hitachi Energy, we invest in capabilities to capital that evolving energy landscape. — strengthening our foundation of talent, expanding our manufacturing footprint and building a brand that we all know today.

As Hitachi energy turns on — we will continue and deliver results with strategic expansion to drive high-growth segments. We have uploaded this presentation, which I’m going to refer in the — already in BSG and NSE. — or your benefits and going to refer the slide numbers. in the next 20, 30 minutes, I will take you through our performance during the quarter ended just now that 400 September. So let me move to the slide, number three. Consistent performance and a strong pipeline is a slide. In this quarter ending 30th September, we received orders worth INR1,278 crores, up 30.6% year-on-year. continued order growth momentum was driven by key wins in renewable industries and Rail segments. As you know that these are our high-growth segments — we have been driving this continuously, consistently for last several quarters.

The revenue stood at INR1,115 crores, up from 31% year-on-year while PAT was up 8.3% year-on-year, consistent focus on execution, close customer connect and various mitigation efforts are tempering the impact of tight supply chain on earnings. Some of the notable order win during the quarter were NTPC renewable energy order for the transformers and the rail segment from the BLW and B&C power, mining and data centers and some of the investee orders, aluminum smelter and the steel orders, etc. I would like to take a moment to talk about the order from NTPC Renewable Energy Limited to supply power transformers for their upcoming 4.75 gigawatt renewable energy park in Gujarat. And once it’s completed, it’s going to be one of the largest part and allow this renewal for anywhere in the world.

The solar park, as we told the largest part, we will be providing transformer manufacturer at our factory in Vadodara. And this will be the single specifically a lot just rating of transformer use for solar power evacuation in the country so far. These orders validate how we continue to gain traction from customers in the high-growth segments such as renewables, railways, data center and substation and industries. Moving to the next slide, number number four. And Hitachi Energy, we have followed the 3 pillars, namely safety, integrity and quality, which are of our licenses to operate. We have been continuously investing in our employees, including contract staff to ensure they understand and calculate the fundamentals and leave by these principles and examples. We continued organizing regular training sessions, training camps for our employees. While these have focused on physical health and safety aspects, we have been steadily increasing our focus on sustainability. This has been visible to customers who have accoladed associated of our work with the rewarded recognition

While embarking these in our operations and business process, we are also taking the message forward, promoting importance of safety and quality with our outreach efforts. During the quarter, we organized a road safety program solution with well reno-wheeler company, Motor Corporation. — and this includes portal reserved safety program session with more than 2,000 participants across locations. Moving to the slide number five. As a pioneering technology leader, we collaborate with customers, partners and stakeholders to enable a sustained learn in the future. We strive to be customer-centric and we work to build and maintain trust for a long-term partnership with our stakeholders across the sectors. — one of the orders back in the quarter in period the first order of 100 MBS court transformer. This is the first for Hitachi Energy globally — and I’m proud to share that from the product design to product engineering — our engineering team in Varadero will be driving this project from design to manufacturing and commission.

These projects are examples of how we are accelerating the evolution of world’s energy system by collaborating with customers and bringing a new solution on the foot. — and efforts to do so with transparency and integrity were recognized for excellence in corporate governance 2022 about a reaffirmation of our confidence. We are also driving the conversation on energy transition and industry thought leadership programs, taking the message to our customers across India and also nearby countries like Nepal, to Bangladesh, etc. With industry leaders, we are also reading talent equipped to tackle this transition. We are committed to supporting all of our customers addressing the needs of industries and societies as a part of our continued outreach to the communities around us — we supported the pediatric ICU in MIS District Hospital under our CSR initiatives, providing infrastructure that will enable the hospital to provide care that was not possible until now. Moving to the Slide number six. — taking is making timely progress with its portfolio that is strengthening, expanding and evolving power system.

The business is focusing on continued localization of it’s a global portfolio, building indigenous capabilities and products as well as creating new jobs. We are continuously evaluating the energy and demand landscape and necessary steps we must take to keep ourselves as relevant to deliver cutting-edge solutions to our customers in India and around the world. In August, our greenfield manufacturing facility for high-voltage power quality products was inaugurated by and the metro Kamataka, Mumbai, the specialty doubles the existing production capacity of advanced capacity units, tanks signed other products, which are very critical for the power quality. These products find application power utilities, industries, renewables, transportation, rail segments to improve efficiency and reduce energy waste.

Along with power quality products, — we also initiated a manufacturing of next-generation scale of operating mechanisms and expanded dry bushing for transformer. These factories have low environmental impact production principles and are iterating on technologies that improve reliability and flexibility of the grid. We are participating in the country’s growth story, continue to bring industry-leading experience deep demand knowledge and pioneering technologies that support our stakeholders with accelerating the global energy transition. Moving to the next slide, Slide number seven. Hitachi Energy in India has placed sustainability at the heart of our purpose focused on advancing a custom big future for all. The most significant impact that we are making is accelerating them in the transition in India.

As you know, last year, we adopted an ambitious target under September 2020 program to become carbon neutral in our own operations by 2030. — of revising our first milestone in December 2021 that is switching to 100% possible fit in our operations. We looked at innovative ways to optimize energy generation and consumption. As stated last quarter, we are targeting 60% reduction in CO2 emissions within financial year ’23 and have reduced operational carbon footprint in this quarter by compared to the last year same period. We also implemented greenhouse gas standards and are in the process to adopt things smart metering across our 18 factories and 19 sales touch points and other facilities. From the top leadership to location heads and business unit leaders, everyone in the organization is committed to these goals, and they have the target on monitoring on a month-on-month and quarter-on-quarter basis.

Moving to the next slide. I think this slide you all know that than me, slide number eight. And during this quarter, inflation climbed 7.4% against the 7% inflation in the previous quarter. And then the rupee depreciated at a record low of USD82.3 per and the lowest — which is the lowest in the history, the threat of recision looms large in the U.S. economy and its impact on other economies such as India is yet to be seen fully. The shortage of semiconductors, shapes, etc, continue to worry the industry even though the prices have improved slightly, but overall base is still a challenging system challenging shortage systems. There have been a gradual improvement across indices, such as index of industrial production and core industries, etc. The overall economic indicators are starting to look better. And India appears to be slowly getting back on track and the Indian economy remains one of the fastest growing economies in the world as of now. And moving to the next slide, slide number nine. As you see, we continue to gain traction from customers in our high-growth segments, and we have been driving this high growth segments since several quarters now.

And these are renewable industries, transport, data centers, HVDC, etc, some of the high-growth segments — and the total orders, with the efforts of various activities, the total orders are up by 4.6% year-on-year. And orders such as a one from NTPC Renewable Energy Limited supply for transformer resulting from the nation’s target to have a 50% electricity generation from renewable resources by 2030. So these are the commitments and offset of those commitments are some of these projects getting finalized in that. Orders were heavier on products from end users and even the plate within utilities and transport followed by industries in the sector, sectors, transport and Infra was stronger this quarter with the push towards the data localization, regulations and data center policies.

We expect healthy growth — in in ways, for example, we are looking at opportunities as such as two to 25 kV electrician of high-density corridor and upcoming 8 to 10 metro projects, which are expected to be awarded in the fiscal year. Moving to the next slide, Slide number ten. — with 25% of the order book exports remained healthy. And you recall our strategy from the last more than one year to bring the exports to that 25% corridor, which we are happy to share that we almost leased our targeted corridor. And with 35% of order book, the orders from an established export markets or nearby countries such as Nepal, Bhutan and Middle East and also the Americas. — understanding the market requirements. Hitachi NRG has been proactively augmenting its manufacturing facilities to meet changing demand.

Today, more than 80% of Hitachi Energy’s portfolio is locally manufactured in India and the manufacturing base in India also caters to the global requirements of 5 protect. And you have seen successfully for last several quarters, we are opening up the new factories or expanding the new factories in these directions. Service orders remained strong from a healthy mix of base orders for retrofit and space and utilities, including some breakthrough orders for GIS day extension and substation automation systems.

As a partner across customers’ plant build operation of rate life cycle Itai NSG in India continue to provide technical expertise, services such as renewable studies for utilities and engineering advisers for mining industries, etc. and the annual potential market for service averages around INR2,000 crores for Rita Generg in India. We are leveraging our installed base to expand in exports and service I will talk more about this in the upcoming slide. Moving to the slide number 11, our financial performance. As you can see from the table, the company’s first two words, mitigating the impact of macroeconomic factors have been yielding benefits. — by softening that impact of external challenges. We continue to face the semiconductor shortages, which is a very critical thing in our bid automation business. Commodity and fleet prices increased and foreign ForEx volatility — this was reflected in the company’s performance. In the short term, the company booked orders worth around INR1,270 crores, up from 35% and 6% in comparison to the same quarter last year. the profit before tax stood at INR50.2 crores, and the profit after tax is INR37 crores. I would like to plan your attention to the last column, if you see the year-on-year comparison of the company performance between the first half of our fiscal year 2022 and the 1st of previous year.

The growth has been more than 150% in the orders and an indication of a consistent growth performance on a strong order pipeline. — the large orders of HVDC Mumbai, which has been booked, our order backlog crossed INR7,000 crore mark and progress as a revenue visibility of more than 30 months. Moving to the next slide, Slide number 12. — as you all probably seen the news, but we largely announced Hitachi announced acquisition of remaining shares from ABB ahead of our schedule, further supporting Itacinergy’s 2030 plan. The joint venture company was launched and began operations at the Hitachi ABB Poison July 1, 2020, and then allow the change of company name and plan to Hitachi Energy on July 1, 2021. The progress in the company has been possible bringing together a passionate global team of 40,000 Gita CNG employees and 2,500 employees in Hitachi Energy India.

This acquisition will provide opportunities for accelerating the synergies between businesses and functions, especially in R&D, IT transformation programs common shared services and various synergy business atarail,smart smart grades, etc. It has also helped us move forward and continue with a trusted partnership and collaboration with customers, partners, which is essential to finding the solution of world needs. Going to the next slide, Slide number 13, which is a very important slide. And to give you a bit more information there is going to be have a high-growth segment focus going forward in that. The growth momentum in market and economy is helping us stay cautiously optimistic about our high-growth segments.

We are making strong imports high-growth segments such as solar, wind data center and raise times the renewable market, which present installed capacity on solar at a 6-gigawatt and wind energy at 41 gigawatt is poised for pipe and 3x growth, respectively. — to meet to make the commitment of the government in a 2030 scenario. We are offering for the renewable markets such as electrical balance of system and grid connected substation, evacuation substation, energy and deep management automation and various trade transformer, including driver transformer and so on and so forth in that. to efficiently transfer clean energy across the vast geography of the country, government is discussing projects to make the national bid more flexible and secure. Over the next 8 to 10 years, we anticipate HVDC connections for utility scale solar generated at Bala Lake, Cargill, etc. The data center market in India is expected to add 45 data centers spanning about 13 million square feet and more than 1,000 megawatts of IT capacity over the next three years — and this is a growth segment focus segment.

We have a very high market share as of now in this — we provide substation GIS, automation, right eComforsolutions, data centers and also planning study. Let me dive deeper into one of our growth drivers for us that Indian lines awards or logical network, you all know that is undergoing a massive upgradation and expansion that verification of rail and adoption of energy efficiency system. They have already announced a various priceable tenders for a high-density corridor admissions lost and also the 12,000 HP horsepower loco projects and 9,000 HP has 4 local projects. taking has been a long-term partner of Indian Railways, and we see a huge opportunity here for our products and services directly as well as through the OEMs on these particular projects. We have a large installed base in the country when it comes to service, and we have been here more than 60 gates. And this gives us a good market for leveraging service portfolio. Like I mentioned before, the annual potential market for service is in the range of INR2,000 crores for us — and with our portfolio of digital is classic services, advanced services and more of servitize solutions, those are the things where we’re going to focus on that.

We expect services to account for 10% to 15% of our orders — similarly for exports with our manufacturing expansion of our footprint, we have been clocking a quarter of our orders from exports over the last few quarters and expect to build down this trend going forward. We believe that the company is also well positioned to support the growing elicitation of transportation, industry and building segment with our purpose-driven growth plan. Moving to my last slide, Slide number 14. We are supporting customers across the value chain throughout the full life cycle along the winter value chain right from the planning stage of Penser the building phase of an asset until operation inventory space are Advancing a system energy future is not achieved purely by making best-in-class and pioneering technology products. It takes the relationship and collaboration delivered through committed exports and support to ensure the right solution with the best flexibility, efficiency, reliability and availability to their entire life cycle.

We know this because today, we are sure partner with responsibility for exiting existing assets commissioned over 100-plus years of technology leadership globally. And we tried to take an integrated view on the plan, build, operate and maintain phases to design and provide sustainable solutions to our customers partners, helping to advance the world’s energy transition. As we move forward with our Hitachi Energy, 2030 pots driven growth — we will continue to focus on strengthening our Power Grid core business. Our core business is our Cramo business, our Sitar business, our TC business, our pet automation business, they are our core business as we are doing. — doubling up on digital and services, as we talked about, and expanding at the edge of the energy system, it could be battery energy storage, data centers, etc, and lastly, exploring opportunities or innovation, synergies and partnership to accelerate the growth

On this note, I will close the presentation to open the house for questions — but I want to share another positive announcement that we would — I’m happy to announce that we are planning to organize that infers analysts made a state-of-the-art facilities in Baroda, where we have experience center, where you have energy Tech energy technology center, both digital and other technology centers out there where we would like to announce that planning to organize a in-person analyst meet in the next year. That is year beginning 2023.

And we shall share those further details soon. once since we have completed our planning stage. This will enable you to understand how the digitalization is shaping up in a very big way in this industry and how our new products, new portfolio can enable even faster acceleration of customers’ energy transitions in that.

So with that, ladies and gentlemen, I really thank you for joining us today, and I would now reca the operator to open the channel for your questions. Thank you.

Questions and Answers:

Operator

The first question is from the line of Dinesh Mahajan, an Individual Investor.

Dinesh Mahajan — Individual Investor — Analyst

Good evening, sir.

Venu Nuguri — Managing Director and Chief Executive Officer

Yes, yes. Please go ahead.

Dinesh Mahajan — Individual Investor — Analyst

Yes. As per recent media reports, there have been reports of transformer shortages in the North American market, like utilities are pacing transformer shortages because of increase in electric vehicle charging infrastructure. Do you see similar trends in world over or in the Indian market? And second question is pertaining to RB into high-speed rail transformer business, like the bullet train business, like Hitachi Energy catering to that business.

Venu Nuguri — Managing Director and Chief Executive Officer

So thank you for your question. I think if you really look at the North America market, I think you have it said you read it in the media, so same is the case — and there is a huge amount of demand arising out of energy transition there, okay? One is that and also strengthening the grids and the resilience of the grids, all those things are creating a huge amount of demand for lots of products. And — and in addition to that, as you rightly said, the electrical vehicles is also another growth segments. So some of the components which go into the multiple segments since the demand has come up in the same time, — so naturally, there is always a challenge from the supply and demand standpoint in that. And we expect a similar kind of trend to continue in our other countries, including India, even we have a very robust capacity further transformers. So the question is that the ability to take up on the thing is that now how fast we plan early the early our customers’ plan. So we are in a better position to plan and then delivering that. So in this regard, we are engaging with our customers to make them aware about the need to plan early on to their requirements so that they will not get into these challenges of supply and demand gaps in that.

Dinesh Mahajan — Individual Investor — Analyst

Okay Yes. And the second question on the high speed, I think our Hitachi energy portfolio goes into high-speed rail estate. — whether it is a traction transformer, whether it’s a track it transformer, whether it is scotconsumer, as I talked about, is in the new transformer, which we have actually designed and built for the Rina’s impact — so as you know, that we are in touch with this project, a high-speed rail project. And then as and when it gets materialized, we will be happy to share the information more information

Operator

Thank you — and this opens a question. Expression is from the line of Amit Avani from Prabhudas Liladar.

Amit Avani — Prabhudas Liladar — Analyst

My first question, sir, is on the data center as we Mentioned that there is a potential of 1,000 network did a build up. How much is our addressable in kind of product which we be supplying? — of the total capex, yes?

Venu Nuguri — Managing Director and Chief Executive Officer

As you know, first of all, thank you for the question. we have been also telling you this — our portfolio goes into grid connection — and then over evacuation and the strengthening of the particular things and automation and the high voltage and then dryers, etc in that — so all these things put into — depending upon the size of the data center, whether it’s hyperscale or not. So it’s in the range of 15% to 20% is our addressable market.

Amit Avani — Prabhudas Liladar — Analyst

Okay. With respect to exports, as you mentioned, you are targeting that range of around 25% of orders in coming year also. So could you elaborate more with geographies? What export mix is kind of will look like in next let’s say, one to year and which kind of products we are targeting in exports?

Venu Nuguri — Managing Director and Chief Executive Officer

As we have discussed in the beginning of the 2021, that we have kept ourselves a target of reaching 25% by 2023, 50% the total order by 2023. And we are happy to tell you that we have reached that target much ahead of our own ambition in that. So we have a 3-prong strategy when it comes to exports. The first one is we have some global feed of factories, such as our 66 circuit breaker and then compute, etc, where we be supplying to globally because that is — those 5 products are going to manufacture only in India, that’s number one. And the second one is we have some allocated markets for some most of our products. and those collected markets where we are having a strategy go-to-market strategy. We are also deploying our sales resources. We are working with those countries. — sales organization and then start selling those things directly to our customers. That’s the second strategy. And the third one is we also have Peter factory where we will be supplying some of the components to our our factories around the world, whether it is in our mechanism of operating mechanism, whether it is cold, etc, like that. So the combination of these 3 strategies will tell — will get us into which we already achieved, then we will, once again, we will review it and then see where we need to go up a part of that.

Amit Avani — Prabhudas Liladar — Analyst

So my last question on the margins. So as you already explained in your initial remarks. So now with respect to semiconductor shortage. — when are we expecting this to some view on normalizing at least specific to tag — and what would be the normalized margin in the, let’s say, coming quarters as things normalize

Venu Nuguri — Managing Director and Chief Executive Officer

Yes. So the semiconductor is a global challenge. And we have been continuously working with there and they’re taking a lot of mitigation actions as you obviously compared to last quarter and this quarter, our various mitigation actions have come in play, and then we have softened the impact due to that. So when it comes to the normalizing the supply chain, in our view, it will take at least a couple of more more quarters. And we have a lot of mitigation actions. For example, we are focusing on the product line, which do not depend heavily on the semiconductors and like — like we have a CombiPlex, RT, etc, in that — and we also have a collaboration approach on stock sharing with some of our Hitachi energy factories around the world. And — so and also, we are giving an early forecast to our suppliers to secure this material. We are pressing the early orders in antiquation of that. So this is basically in an industry-wide situation with all play module, all players say bigger similar challenges when it comes to semiconductor impacting the applies in that.

Amit Avani — Prabhudas Liladar — Analyst

Yes, thank you.

Operator

The next question is from the line of Mahesh Bendre from LIC Mutual Fund.

Mahesh Bendre — LIC Mutual Fund. — Analyst

Sorry, I missed if I miss your opening remarks. But I just want to know what is the

Venu Nuguri — Managing Director and Chief Executive Officer

On Mr. Bendre the audio is not earlier from your line, sir, there’s a disturbance coming

Operator

So the onco coming. Yes, go ahead.

Mahesh Bendre — LIC Mutual Fund. — Analyst

Yes So I just wanted to know what is the sustainable margin going forward over the next two, three years, what kind of synergies we will get into because we are overtly scaling up our business — so what could be sustainable margin over the next two, three years, we would like pursue?

Venu Nuguri — Managing Director and Chief Executive Officer

Yes, I think we have clarified this and we may also talked previously on this. So we have various levers. For example, we have taken several initiatives of brand, and then our go-to-market strategies are very solid. We have a focus on the various high-growth segments, all those things are enabling us to grow higher than the market. And in addition to that, we also have an exports. We have export as well as suedes strategies to take us where we would like to do that. So basis bits, we have also told last time that our midterm strategy is to bring the EBITDA margin to a 10% level by 2025 is what we have said that, and we’re still committed to that. And we believe that the sustainable margins going forward.

Mahesh Bendre — LIC Mutual Fund. — Analyst

Sure. And sir, export side, I think we seem to be doing well — so what is the outlook for that? And I mean, which are the countries we are exporting currently? And what is the outlook for that over the next two, three years?

Venu Nuguri — Managing Director and Chief Executive Officer

Yes We said we have actually in the last year, beginning of last year, we set ourselves with a goal because that time was on the 15% to 17% of our export — we said we’ll take these exports to 25% of our total order value by 2023. We have achieved at least ahead of the curve, at least 1 more than 1 year ahead of the call. And right now, we would like to stabilize this, and let me take a call on that. The — we have also announced opening up the new factories. All these factors would enable us to take further exposure into the export, but we want this to be stabilized, but before we take a next jump on that.

Mahesh Bendre — LIC Mutual Fund. — Analyst

Sure. And sir, the last question, just a broader question. Compared to a thermal power plant for renewables, how much the investments in T&D goes up, Higher Required for renewable plants, solar and wind compared to thermal?

Venu Nuguri — Managing Director and Chief Executive Officer

I think there have been a lot of similar questions previously also. In fact, — we have also informed that when it comes to thermal, you have only point-to-point connection of T&D requirement, like you bring power from the pit head to the load centers. But on the renewable, it’s a highly intermittent, decentralized, it needs more of T&D you need to bring initiated and also ensure that the great resilience is extremely important because you don’t know when the sun change, you don’t know when the being closed. — in this kind of situation, how do we ensure that the grid resilience, there is also a lot of T&D equipment like a power quality like automation, those equivalents will go into this one. In my view, I think it’s thermal to renewable. It’s not about going down on the T&D expenditure, but rather it should increase more, make it more resilient and able to enable the grids to penetrate more and more renewables going forward in that. So that’s was a visible impact. If you really look at previously, I was also saying, we used to have one HVDC project for for every five years or so. Today, the outlook is at every one PTC project — for the year, if not for the year, it is for 1.5 to two years. Now that kind of requirement is coming. And more and more, this technology is able, for example, we have received in the last quarter, we announced that is quarter one, the HVDC project for Mumbai from Adani, this is one example for a different application to make city incite more robust. So this connection when it is ready to bring some more power to the city of Mumbai to make it more resilient and more secure when it comes to the energy standpoint.

Mahesh Bendre — LIC Mutual Fund. — Analyst

No, sir, I was asking from the angle is that if the more T&D required for solar and wind.

Venu Nuguri — Managing Director and Chief Executive Officer

That’s what I’m saying compared to the thermal, it’s more is required for solar and So there will be more growth opportunity for us

Mahesh Bendre — LIC Mutual Fund. — Analyst

Absolutely. Sure, sure. And sir, last question. What kind of — I mean, e-mobility side, what kind of opportunity do we see in terms of setting up charging stations and so on

Venu Nuguri — Managing Director and Chief Executive Officer

So in terms of the e-mobility, I think we have a technology, what we call agrimotion, flash and feed charging. And this technology enables buses to get a boost of charge in less than five seconds. And we have been working on this. As you know, that these kind of technologies, we really want to make it work in India. It needs to be affordable, and that’s the reason we are right now focusing on localizing these technologies. We are also running a week running a pilot in as with other reported cost manufacturers on that. So we are doing all that to make that this technology is localized indigenized so that we are able to reach the required price plant and make this technology more affordable in this country.

Mahesh Bendre — LIC Mutual Fund. — Analyst

Thank you.

Operator

We’ll take the next question from the line of Mohan Krishnaswamy an Individual Investor.

Mohan Krishnaswamy — Individual Investor. — Analyst

I’m referring to the Slide number 13, which we have just shared on the service income, where we have mentioned an annual potential market of INR2,000 crores. Now is this with the target annual revenue, which you are looking at for Hitachi Energy because right now, we are talking about 10% to 15% of our revenues from services, which could be INR400 crores to INR500 crores — so is the understanding correct that we are looking at a significant increase over time next three to five years.

Venu Nuguri — Managing Director and Chief Executive Officer

Yes. So — thank you, Mr. Mohan for your question. And so what we are saying is that with more and more digitalizing of our network, of the power systems. So the service potential is going to grow based on our installed base calculation because all the installed base we have in our system, we estimate that the INR2,000 crores will be unwell potential in that. So it won’t happen overnight to reach that level in that. So definitely, it will take a couple of more years — so — but we are estimating that with so much of digitalization, so much of advanced services like your asset management, asset performance, and also workforce management, enterprise asset, all those things and vegetation management, all those things will enable us to get to you there. And we have not given any target as of now when to be reached there — but right now, our immediate target is to reach 10% to 12%. And once we reach the 10 to 12 million surveys, then we do them. But right now, we are saying that that’s the kind of potential based on our installed base can be achieved over a period of time.

Mohan Krishnaswamy — Individual Investor. — Analyst

Sure, sure. And sir, the next question is on the Lumara offering of Vitti, which is for the digital side. how are we leveraging that in India? Because clearly, that holds potential as well, and we are using Hitachi’s strength here. So can you just throw some color on that?

Venu Nuguri — Managing Director and Chief Executive Officer

Right. So as now we have become globally 100% owned by Hitachi once the deal completes by this December. So the very purpose Hitachi has advanced this taking a balanced stake from the global organization is to bring the between Hitachi and Hitachi NSG. Lumada is one of the well-known IoT platform. And we would like to leverage that of Hitachi Energy’s enterprise software, talking about asset performance enterprise performance and the workforce management and the visitation management — and all those things, we will be in approaching to offer in this Lumada platforms going forward. Basically, talking about is IoT and the cloud, — as we speak, we are running a lot of points with the various — both private customers and many of the government customers are coming on this in a very big way, and they’re working, what are the things we talk not the things they need to do that. Because with so much of renewable, it’s extremely important that entire fleet the network need to be digitalized. They need to have a more real-time basis information to take care of the required actions basis of the generation mix, etc, and that

Operator

Next question is from the line of Alisha Mahawla from Envision Capital.

Alisha Mahawla — Envision Capital. — Analyst

What is the current evolving technology in the making to the parent?

Operator

Sorry. I think can you just speak, I think it’s a bit ago.

Alisha Mahawla — Envision Capital. — Analyst

Am I audible now? Yes. I want to say what is the loyalty and technology fee payoff that we’re doing to the parent?

Venu Nuguri — Managing Director and Chief Executive Officer

I talk about that Thank you for the question. As you’re aware that we are a group company, and we end up on the technical of the group company. So currently, the royalty that is going on payout is approximately around 3.5% that we at the moment. But also, we need to understand that this is extremely important for us because the whole energy systems are undergoing a tremendous transformation. — this needs a lot of investments from the R&D standpoint to modernize their fleet, modernize our technology, providing the best-in-class technology. For example, everyone is talking about sustainability next scenarios. — and carbon to strategies, many of our customers. In that scenario, whatever the product they buy also need to meet those kind of requirements. For example, we use as gas in our GIS substations or our ringlated breakup, etc in that. You all know that SF6 is 3,000 more potent than 2 when it comes to the greenhouse emissions thing is that. So this will not be sustainable. We need a lot of investments to come out of the alternative that, and we are very happy to leverage our global technology, global scale. We already announced iconic portfolio, which is more sustainable than CO2 that. So these are all extremely important while the energy transition is going undergoing a tremendous transition, and these are the technologies absolutely essential for us.

Alisha Mahawla — Envision Capital. — Analyst

Sure. Understood. Just a clarification. Is there any payout that is going to ABB

Venu Nuguri — Managing Director and Chief Executive Officer

No, no. No,

Alisha Mahawla — Envision Capital. — Analyst

There is nothing — no payout costs

Venu Nuguri — Managing Director and Chief Executive Officer

Any other — is any other kind of payout going to Yes, we are having a TSS that we call technical service agreement on the usage of the IS infrastructure — so as you know that we are operating now on a stand-alone basis and the IDS separation requires a lot of infrastructure and the resources and the capability and skill set. So that needed a bit of time. So we have — we are having a TSA agreement with ADT for which we are now using the services at the moment. And that is why those payments are going to basically ABB at the moment, mostly on the related support

Alisha Mahawla — Envision Capital. — Analyst

And is it possible to quantify what percentage of revenue is going under the DHS agreement?

Venu Nuguri — Managing Director and Chief Executive Officer

You see it will be difficult to quantify because it depends upon the services that were taken. So lately, if you ask me, we are trying to come out of the services. So every month, every quarter we have been on it. So they are coming down. It is only down. We are adopting our technology, our infrastructure and graduality is coming down. So as a percentage, it would be very difficult — and we expect this to come in the next six months or so

Alisha Mahawla — Envision Capital. — Analyst

.Right? 2023, and we are expecting to come off.

Operator

The next question is from the line of Harshit Patel from Equirus Securities.

Harshit Patel — Equirus Securities. — Analyst

We are localizing heavily in the country. On top of that, we are also introducing new products from time to time. So could you throw some light on what are our capex plans for the rest of the year, which is the second half of FY ’23 and for the full year FY ’24?

Venu Nuguri — Managing Director and Chief Executive Officer

Yes. So I think we have been discussing this in the last two years, we have been investing here because we believe that we need to bring lot of products and to meet the local requirements. We need to locally manufacture Because we have a huge footprint yet. We have a huge opportunity to leverage the existing talent, existing engineering base, existing manufacturing base. to do that. So we have been continuously upgrading both greenfield power quality facility, for example, I talked about. We have doubled our capacity of existing power quality factory from 10,000 MBR to 1,000 and we are in Bangalore, Barabara pot. And then we also had a brownfield additions of next generation operating can some of high voltage, which we and — we also inaugurated our state-of-the-art pushing the dry bushing factory, which is the first time we are bringing this technology for 760 to India in that. So between facility upgrade and greenfield in a pen we anticipate an annual capex run rate amounted to close to ensure we continue to deliver to the needs of evolving energy landscape.

Harshit Patel — Equirus Securities. — Analyst

Understood, sir. Sir, secondly, on the HVDC project that we had won in the last quarter — so have we already commenced the execution and by when you plan to complete the execution Which you said? The Adani activity Where do we want the last quarter?

Venu Nuguri — Managing Director and Chief Executive Officer

Right, right. So Adani PTC, we have already commenced execution. As you know, these kind of projects, when you segment execution was past will start the engineering and the low analysis system today analysis will start. And then we will slowly getting into the site activities. And after that, the manufacturing of the various equipment start coming to the site in there. So we have around close to 36 months to complete from the date of booking of that. I think that is on track as on today.

Harshit Patel — Equirus Securities. — Analyst

Sir, could you comment on what would be the quantum of revenues that we would have booked in this particular quarter from that project?

Venu Nuguri — Managing Director and Chief Executive Officer

No, we will not be able to tell you about the project. But right now, that project is a very initial phase. Engineering will not get March, okay? So generally, revenues will pick up after 3 to 4 quarters. of that. But we will not be able to give you a project-wise revenues Yes.

Harshit Patel — Equirus Securities. — Analyst

No problem. Sir, just a bit follow-up on the — so could you comment on the margin that we will make from this project, whether that will be higher than the present company level average or lower than the present company ever

Venu Nuguri — Managing Director and Chief Executive Officer

So I’m afraid, I will not be able to share the project level margins on that. What I told you our guidance was the margin for our midterm strategy up to 225 years to reach a double-digit EBITDA level. So all this thing will add up to that.

Harshit Patel — Equirus Securities. — Analyst

Thank you.

Operator

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Wen for closing comments.

Unidentified Speaker —

Thank you once again for your interest and active participation. And I’m really looking forward to host you physically in our state of the old world plus Hitachi Energy Experience Center in Baroda and also our world-class factories in Baroda. And I hope that we will work out a suitable date all of you can join as that. So with that, once again, thank you. Please take care. And if you need any more information, do not hesitate to reach us to us, and we are happy to provide whatever the information you are looking forward. Please take care and stay safe. Thank you.

Operator

[Operator Closing Remarks]