Ladies and gentlemen, good day, and welcome to Hitachi Energy India Limited Q1 FY 2023 Analyst Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Venu Nuguri, MD and CEO, Hitachi Energy India Limited. Thank you, and over to you, sir.
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 yourselves and your families and your colleagues. 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's a healthy momentum with demand and economic activity picking up and business confidence has started to improve the last time before. However, multitude of factors continue to impact the growth numbers. We believe these are short-term challenges which will flatten out in the long term. We have uploaded the presentation which I'm going to use in the BSE and NSE.
I'm sure you have seen this. For ease of reference, I'm going to use the slide number so that you can just follow on that. Moving to the slide number three. We kick-started the quarter on an optimistic note, but we're also cautioned by supply side constraints such as increasing commodity prices, supply chain constraints, freight and logistics costs, semiconductor crunch. All of these are exacerbated by the turmoil. These have impacted economies and industries, affecting the entire ecosystem, including our profitability as well as that of our customers and partners. In these challenging times, Hitachi Energy India scored a significant win, significant order wins in the challenging markets. In this quarter ended 30 June, we received orders for INR 3,054.6 crore, which is up by 309.7% year-on-year.
As a pioneering technology leader, we entered in the market with a long-standing partnership with the customers. Our value driven engagement with customers helped us drive some of the key order wins this quarter. The order for 1,000MW HVDC link between Kudus to Mumbai reiterates customer confidence in our technology expertise. The game-changing 1,000MW HVDC link will increase the supply of power to the city by almost 50%, paving the way for utilities in the country to adopt the grid of the future. The order we received from Adani for 1,000MW HVDC infeed. Not only this, as you can see, we also received orders from the industries and the rail and the data centers. Our long-term fundamentals appear solid. India continues to be a fast-growth market with strong potential.
As a market leader, we continue our engagement with the customers to collectively emerge out of this uncertain market situation. As you can see, with this order, our order backlog end of 30 June is all-time record high, INR 6,777 crores. Moving to slide number four. Our work is underpinned by safety, integrity and quality. It's always we say they are basically our license to operate, and it continues to resonate with our customers through our high service ethics. We have continued organizing regular training sessions for our employees, contract staff and partners. In some cases, even with customers to also spread COVID, reduce site hazard and avert any issue arising out of it.
We conducted special sessions to spread awareness regarding risk management and life saving tools, safety net exercise, and so on to ensure our people can adapt to new measures and bring safety and well-being into a working practice as a way of life in all of our work centers, whether it is offices or factories or the project sites. Moving to the slide, next slide number five. As an organization, we take a holistic approach to the growth of the organization, our employees, our ecosystem, our stakeholders, and the communities we serve across the country. We marked milestone order, as I talked to you previously, such as Mumbai Infeed HVDC, expanded our export footprint for high voltage offering and executed projects from various industrial and infrastructure segments. We contributed to policy leadership forums such as platforms, CII, IEEMA, etc.
We continue to have a dialogue with the thought leadership forums like Karnataka Energy Conclave or Sweden India Dialogue on sustainability and also energy transition as a whole. To further share our technology expertise, we inaugurated a smart electricity lab in NIT Warangal, which is aimed at driving smart electric grid technology education, skill development and research activities. We also reinitiated Wipro G&RP technology conference on-ground face-to-face events at some of our customer sites, in this case, recently in Lucknow, and another held in partnership with the CEA. Marking Environment Day, we conducted a sustainability drive at our manufacturing facility in Gujarat. This was an employee-led initiative, and they planted over 1,300 saplings at our Vadodara premises recently. Moving to slide number six. Last year, we announced our 2030 carbon neutral goals.
We accept milestones defining our journey for operations in India as allies around the world. We modeled our strategies to implement this both ground-up and top-down to meet the urgency and pace of change required to reach a carbon neutral vision. In the last three months, we conducted energy assessments across our manufacturing locations. We have nominated location leads who will undergo BEE certified energy manager course and started a course with location ownership and management buy-in help ensure cadence and continuity in our sustainability plans. As you recall, we are the first among many companies to announce ESG committee at the board level to see and monitor how as a company we are performing.
As you also recall, our portfolio goes into mission-critical technology and also our portfolio enables our customers in energy transition, and that is also the reason where we want to walk the talk and take ourselves as targets of carbon neutral in our own operations. Achieving the promised means integrating renewable energy by overcoming capacity issues and reducing waste. We continue to maintain 100% fossil free electricity consumption at all of our locations, factories. Furthermore, the insights from the assessments also helped us identify the potential to reduce close to 60% CO2 emissions by end of this fiscal year. As a responsible organization, we keep proactively doing our bit towards a sustainable future, with the first one being our business responsibility and sustainability report, a non-financial disclosure done for the financial year 2021 and 2022 period.
This is also first among the many companies to set ourselves in the leadership position we have come up with this report, which we have published as part of our annual report. Moving to the next slide number seven. I think this you know more than me and more than us, but still I would like to touch upon couple of points on this. As you all know, we are living in a very dynamic market situation, you know. It started with the COVID and then from there the war and then commodity prices and the port blockades. You name anything, you know, in terms of the pandemic, we are still not out of the woods yet.
Definitely the caseload has decreased from where we are a year ago, but the concern remains on the COVID situation. There has been a gradual improvement across indices such as Index of Industrial Production and core industries. Earlier this quarter, India's power demand touched an all-time high of 210GW , according to analyst report. Electricity demand in just a few months of this year is exceeding the demand anticipated for the year. Analysts estimate India's GDP in this fiscal year to be in the range of 7%-8%. While India is not really a consumption-driven economy, we are not isolated by the global headwinds in terms of the supply chain, geopolitical and macro themes.
Inflation remains high above 6% against the global double-digit inflation, and it's projected that anywhere between 6.5%-10% for financial year 2022/2023. Our currency further depreciated against the dollar. Just earlier this week we touched 58 per dollar all-time high, the lowest in the history. The shortage of semiconductors continue to worry the industry there. All, you know, COVID-19 struggles by supply chain, semiconductor crunch, and also the three times the port launching opportunities there. Moving to the next slide number eight, which is just want to update you on the situation of the global semiconductor trends and what kind of mitigation actions, you know, we are taking as a company there.
You all know, but just want to reiterate, there are multiple factors at play leading to the present semiconductor crunch that we are facing. For one, there is a spiraling growth in the demand for semiconductors with the increasing digitalization and consumption of electronics and automotives. This, coupled with the lagging impact of COVID disruptions and geopolitical tensions, have reduced semiconductor supply to critical. Thus, we are working through the problem by reassessing certain strategies that will help us see through the turbulent time in the long term. One of the core strategies is reducing our dependency on the chips by redesigning products. Basically when I say redesigning products, means we'll be redesigning the product where the semiconductors of that redesigned product are easily available or available more. Increasing our focus on product lines that do not depend heavily on semiconductor.
As we have a vast, you know, portfolio where we would be like, we'd like to concentrate on the portfolio where the dependency on the semiconductor is less. We are collaborating with our global teams. As a global company, we also leverage global supply chain capabilities. We will work, you know, in sync with the global teams in business unit operations and supply chain teams on stock sharing and material allocations as and when is the case maybe. We are proactively stocking some of the fast-moving electronic items to provide temporary hedging from the skyrocketing product prices. While the global semiconductor manufacturers and the global supply chain organizations are continuously working towards striking the balance of demand and supply, in our view it will take some time to reach ideal scenarios.
Analysts are predicting that we are yet to hit the upper limit of demand, and thus the material cost, especially for semiconductor, might further rise in the near term owing to ongoing inflationary pressures. Moving to the next slide, that is slide number nine. If you look at the breakup of the orders, demand in this quarter was driven by orders from across the segments, including transmission, industry, rail, metro, and power quality. While the HVDC order being accounted for the large transmission DC order, but without the HVDC order also our orders growth is very robust across the segments. We saw a very robust growth of orders in the industry segment. As you can see almost 100% growth compared to the last quarter same year.
This also explains the sharp rise in the number of orders handled through direct sales desk. A considerable portion of our orders pertaining to renewable energy aligns with the central and state priorities for capacity addition reactors, which is basically about quality solutions. Some of the marquee orders are railways, data centers, industries, such as a couple of orders for the traction transformer from Indian Railways and private railway equipment manufacturers. All in all, this quarter has been one of the, you know, biggest quarter in terms of the ordering flows for our company and orders came from transmission sector, industry and railways, metro and infrastructure. Moving to the next slide number 10. As you recall, one of our key enablers for the growth and bottom line has been service and exports. Let me touch on the service and exports.
Exports was roughly.....w e have been talking about in a 20%-25% was our target corridor that we would like to reach. Last year we already reached in the midpoint of the target corridor, and I'm happy to share with you that in this quarter as well, exports was roughly 23% of total installed capacity India served in this quarter from markets like Uganda, Saudi Arabia and Azerbaijan, et cetera, and that. We have a mid term, as I told you, mid term target 20%-25% growth in orders and revenues from exports market, and we have comfortably stayed in this corridor for the last four quarters now. This is also important for us as the ongoing global supply chain constraints and the geopolitical issues are compelling global customers to look at alternative supply chain routes and partners.
In our view, India has the potential to make its mark as a resilient partner offering high quality products to different markets globally. Moving from exports to service. Our service portfolio continued to deliver with 10% growth year-over-year. We see the scope increase in the markets, and we are adding new customer names to our portfolio with the service order as we have a huge installed base. Our focus is to penetrate our installed base and add more customers in that. We have added new customers like CSPDCL, Vattenfall, ST Telemedia as part of our service offerings to these customers. As a small step of leveraging synergies with Hitachi Group, we booked the first order for a Modular Switchgear Monitoring from Hitachi, Japan, and for servicing the group company's GIS is there as well.
These are a couple of examples to just show that how our service offerings are going in line with our strategy and also going together with our new owners that is Hitachi, where we are leveraging the synergies to offer our portfolio to them. Moving to the next slide 11. Financial performance. Our long-term strategy is put in place to combat the global headwinds with the storm of uncertain market conditions. Even amidst the ongoing tribulations, we have delivered a sustained performance. The company booked orders for INR 3,054.6 crores, which is up 309% year-over-year. As I told you, without HVDC also our orders were up double digits year-over-year growth.
Revenue grows 24.4% year-on-year reaching INR 991.3 crores for the quarter ended June 30, 2022, supported by world-class project management execution. The company commissioned several substations, shipyard projects for utilities, industries, data center, and infrastructure centers. In the quarter, profit before tax was INR 2.1 crores and profit after tax was INR 1.3 crores, while operational EBITDA stood at INR 35.7 crores. The quarter witnessed rising costs of commodities and supply chain bottlenecks, creating a drag on margins. Various measures are being adopted to reduce the impact, with a special focus on semiconductor supplies. On the order backlog, we have a healthy pipeline that provides around several quarters of the revenue visibility.
Recent quarter, we received a large HVDC order that has further strengthened our order book, which stands at all-time high of INR 6,777 crore. This helps us plan for the future and prepare accordingly as a company. Moving to my last slide. Slide number 12. That is for the financial year 2022/2023. 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. We continue with our tried and tested three-pronged strategy that is protecting our people, preserving business continuity, and preparing for the new norm. We will focus on high growth segments in addition to our traditional segment.
As we have been talking about high growth segments, where we have a very good value proposition offered to our customers, we're yielding a very good result. We continue to focus on that, building a sustainable operation to guide us through the short-term supply side challenges. We strive to capture a large share of the market with our localized portfolio, developing leading-edge competencies and new business models through unique partnerships. As you know, our strategy is to grow higher than the market as we are taking several leading initiatives, and that is helping us to grow higher than the market continuously for last several quarters. We will strengthen our leadership position to grow, continue to grow faster than the market with a single focus on cash flow generation.
We believe this is possible with our emphasis on growing the high growth segments, namely rail, transmission, renewable, data center, HVDC, power quality and automation. We will continue leveraging our growth through digital solutions, traditional service offerings and portfolio, and exports, leveraging our local presence. As you know, today we are manufacturing more than 80% of our globally manufactured portfolio, we manufacture locally here. We would like to leverage this local manufacturing not only for the domestic market, but also the export markets. We have and will continue to invest in the planet, people, peace and partnerships with our commitment to making our operations carbon neutral and sustainable. That's the reason we have announced our carbon neutral strategy 2030. We have also announced all the themes.
The teams and the locations are working towards ensuring that we will meet our target of carbon neutral in our own operation by 2030. We believe diversity and collaboration equals great innovation, and therefore we promote peaceful and inclusive society for a sustainable development. Last year, we added 30% more female employees in our company. This is our commitment that Diversity 360 will definitely bring diversity and collaboration will lead great innovation to that. We will be working towards building a more sustainable and profitable company over a period of time. Thank you, ladies and gentlemen. I would now like to open the channel for your questions. Thank you.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Renjith Sivaram Radhakrishnan from Mahindra Manulife Mutual Fund. Please go ahead.
Yeah. Hi, sir. Congrats on the order win.
Thank you, Renjith.
Yeah. If you can just throw some more light like, how much was the difference between us and the L2?
Yeah. Thank you, Renjith. As you know, this is a tender where we are committed. It is not like unlike, you know, CPSE. It is not opened publicly. We do not have any privy to the information of L2 and other things. What we believe is that, you know, we are when we have submitted our tender, we are more technically and commercially competitive.
Okay. It's more of a negotiated tender, yeah?
No, it's not a negotiated. It's like an international ICB that we have submitted our bid and then they have announced that we are the successful bidder.
Okay. Sir, how much is the value of this Adani order? Because I think you haven't mentioned that.
Yeah. As you know, you know, we have as part of our request from our customers that we don't share the exact value as the bid details were not open publicly. You can expect that, you know, the HVDC projects are very large projects, and runs into, you know, several years.
What's the timeline for this? When will it commence and when do.....
Yeah.
When will-
The project started, the commencement has started, and we have to complete in 38 months.
38 months from this August 1 or this month?
No, 38 months. This is booked in the last quarter, so 38 months from June.
From June. Okay. Got it. Sure. Sir, just if I can ask, why the margins were a bit lower this quarter? Is it only to do with commodity prices, or you feel the competitiveness has been higher, or it's something to do with the product mix?
I think, Renjith, I think there are multiple reasons in this quarter. That means the quarter gone, which is basically, I would put it in four buckets. One is that the revenue of product mix. The next, second one, as I talked about, semiconductor shortages. Because as you know, we use a lot of semiconductors in the grid automation and also in HVDC product lines. The third one is supply chain disruptions leading to increase in freight and logistic costs, and also sometimes non-availability, et cetera. The fourth one is exchange and commodity price fluctuations in that. These are the primary four reasons due to which the margins were lower.
Thank you. The next question is from the line of Apoorva Bahadur from Investec. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, I believe the next large order that the industry will have its eye on is Power Grid's Leh-Kargil transmission. Any update on that? By when can we expect the ordering? What would be the size? And also, do we intend to participate in the storage element of that order as well?
Yeah. Thank you. Thank you for your question, Apoorva. Yes, Leh-Kargil is a very key project. As you know, HVDC, you know, Hitachi Energy is pioneer in this technology. More than 50% of our installed base, including the new projects around the world, including India, runs through our technology. We are very keen. We have been working with our customers on this. We believe that, you know, the tender would come, you know, shortly. Will not be in a position to tell exactly when as we don't have any information. We know that that is the next HVDC project being awarded. As you recall, in some time back, we are saying there's 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 the next three to four years. We have been geared up. We have a lot of localization of our equipment. For this part, for your information, for the HVDC Mumbai project, almost 80% of that particular project will be manufactured in India locally.
Okay, great sir. Sir, on the storage component for the Leh project as well, do we have any technology tie-up for it?
We have right now. We do the storage as a battery energy storage, we do that. As you know that, you know, right now, the plan for our customer, PGCIL, in our view is that they will go with the HVDC first and later they'll come with the storage. In any case, we have the technology.
Fair enough, sir. Very useful. Sir, also
Sorry to interrupt, Mr. Bahadur. Sir, may we request that you return to the question queue? Thank you. We'll move on to the next question. That is on the line of Amit Mahawar from Edelweiss. Please go ahead.
Good morning. Congratulations for the large project win. Sir, I have the first question is basically on in this quarter, how much of the product risk we have? And if you can, you know, comment on also the royalty and technology fees. You know, generally is it higher than the last year average as a percentage of sales or it's basically. Shed some color on that. And generally on profitability metrics, because Q1 was, you know, very sharp impact, and this is despite your gross margins which are relatively stable. So it seems the overhead, you know, are basically on multiple points impacting the profitability. So if you can comment on the profitability and the future.
Thank you, Amit. I'll ask our CFO, Ajay, to answer your first part of it, then I'll come back and comment on the first part, yes.
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. Let me first, you know, take on the royalty fees. The royalty fees is we are hovering around the 4%, so it is the same level. We do not see any increase compared to the earlier part. That is one. Coming to the point for this particular quarter, yes, we have been impacted by exchange and commodity price fluctuations. That is basically if I talk about roughly INR 30 crore is the total value that I can attribute to for this particular you know impact for this particular quarter.
Yeah. I'll just add to our CFO. You know, royalty fee is extremely important because you know we are a global company. The whole energy landscape is changing so much, and it needs to be all of our portfolio needs to be updated one. And on top of that, we need to build a new portfolio as well. It's extremely important that you know this is like our investment for getting the new technology, new products, new offerings, et cetera, like that, with this changing landscape of the energy transition. It's super important.
As I commented , you know, we have basically the whole ecosystem is affected with the supply chain constraints. The supply chain constraints includes, you know, some of the semiconductors, not semiconductors issues. You know, if you take the semiconductor issue, how it hits the world. Initially in the world, you know, the prices were higher. Later on, the delivery issues came out. Today, now it's not availability. From the high prices, non-availability of not committing the deliveries to non-availability of semiconductors. You'll see my slide also, how, you know, the global semiconductor industry is facing impact. That is the area. So far we were able to manage through our safety stock.
Once the chip is up, we are, you know, exhausted those safety stock and the inflows were actually reduced. We have several actions in place to mitigate this particular, you know, challenge we face here. While we are also engaged with the CEO, CSO levels of these companies at the global level, we're also working with our other companies to have, you know, sharing of those things. We are also redesigning some of our products where the availability of semiconductors is easier or better with that. All these actions would not happen overnight for sure. It will take some time, and those are the actions at least from a company standpoint we are taking.
Thanks, gentlemen. Second and last question is on basically, do you think high-speed rail ordering now that EPC is largely going to be over in the next couple of months, one can assume that high-speed rail equipment ordering for you will happen in the next 12-14 months? And also on the upcoming tenders for, you know, Vande Bharat and other railway tenders, generally your assessment of the offerings, you know, into large equipment, you know, specs that Hitachi will benefit from. Thank you.
As we have been talking about, you know, we talked about FCDP, we have booked a FCDP lot in the last quarter. Similarly, the high-speed rail, which is funded by the Japanese government is definitely in our radar. It is our targeted opportunity, and we have been working on that. Our estimate or at least our assessment is that the tendering will go by first quarter of the next year. First quarter of last quarter of this financial year. That is very clearly in our radar and we are working. We have a lot of our portfolio which is locally manufactured can go into this particular segment with that.
Similarly, there are many other, you know, train projects, for example, Train 18 is one such mega project. Vande Bharat train. All these things we are working very closely with the train manufacturers, and we have a huge portfolio which go into that. As and when, you know, it comes to that, we will inform you. But this will be more, you know, targeted segment for us as a company.
Okay. Thanks, Venu, and good luck.
Thank you.
Thank you. We'll move on to the next question. That is on the line of Varun Basu from Julius Baer Wealth Advisors. Please go ahead.
Yeah. Hello. Good evening, sir. I hope I'm audible.
Yes, yes. Go ahead.
My question is just a continuation of what a previous participant asked. You know, on the other expenses, you know, was the forex impact INR 30 crores?
It's INR 13 crores.
INR 13 crores. Are there any other unusual or one-off expenses, which you can quantify in the current quarter?
No, I think just to add to here, we don't have any other one-off things. I talked about basically the four things, revenue product mix, semiconductor shortage, and supply chain disruptions, which has also increased our freight and logistics costs, and finally the exchange and commodity price fluctuations.
Sure, sure. Sir, regarding our, you know, our order book, what percentage of our contracts allow us to pass through any cost escalations that we encounter? Hello?
Hello, members of the management team. We are unable to hear you. Ladies and gentlemen, we seem to have lost the audio from the management. Please stay connected while we try to regain the audio. Ladies and gentlemen, thank you for patiently holding. We now have the line from the management reconnected. Over to you, sir.
Sorry, Mr. Varun. Please go ahead and ask if the line got disconnected.
Yeah, sure, sir. 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 financial year?
Let me answer you the first one. That over 65% of our portfolio has escalation clauses. You need to understand that the provision of our escalation clause has a provision of formulas or something like this. What we are facing right now is unprecedented. For example, you have a steel cost. Those kind of costs are not covered in that, which is unusually very high. For example, overall steel grade is huge. It's not a percentage that increased, but it is in terms of, you know, X. Those kind of things are very difficult to quantify and do that. That's the one.
We will not be giving you any, you know, guidance on the EBITDA margin for the quarter. What I can say is that I can give a little bit of color to you that, you know, we have been consistently saying that, you know, we have a clear strategy to grow ahead in the market. That growth, as you have already seen, we have a huge order backlog, INR 6,770 crore. With the fixed cost of our thing. When the revenue comes, then naturally we'll have a margin accretion over a period of time. We also have a strategy on the exports. We have a strategy on our service offering, digital offering. All this would get us into a double-digit EBITDA margin by end of 2025 financial year.
Last year, you see we are very close to 9% of EBITDA margin. Thank you.
All right. Thank you.
Yeah.
Thank you. We'll move on to the next question. That is on the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited. Please go ahead.
Yeah. Very good afternoon, and, thank you so much, for this opportunity. My compliments to the team for securing a very, good traction on the order inflow. Now, given the fact that we are, you know, living in turbulent times, higher, orders also bring with them some risks, as we have seen this quarter's profitability. I request the management to give us a flavor of, what kind of profitability matrix can be expected and what kind of, you know, 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?
I think , thank you Manish and everyone very much. As you know, our strategy not this quarter but last several quarters, we have taken a strategy that, you know, we've not accept any project which has no escalation clause. Or any big order, large order which does not have any escalation clause. Or any order which go into a long execution period do not have any escalation clause. So with that, all the orders whatever we are securing, we have clearly the escalation clause is built in. Also there are several force majeure clauses also we have kept as part of some of the orders. You know, semiconductors non-availability.
In some contracts we have brought in as part of the force majeure regime, which is a, you know, a unique way to protect our margin under our contracts like that. As a company, we have seen this coming in. It's not that it's a surprise. The only last quarter that impacted us, but otherwise we know these challenges and we are taking all the actions to face these challenges.
Right, sir. Right. Also, so what debt now? Some of the customers, they are like very highly leveraged and what kind of debt cycles that we have on these contracts, meaning the payment terms that we have agreed on them, meaning are we taking any risk on that?
No. Sorry, it was not clear. Can you please repeat once again?
The payment ability of the customers.
Yeah.
It's also a risk. Given the fact that the leverage, the position of some of the customers is like very high, so how are our payment terms covering those kind of challenges that may happen?
Right. I think again, yeah. We, as you know, this is always a risk here and that's the reason, you know, we also have a clear strategy that, you know, we also negotiate the payment terms, which is, you know, like for example, we'll have a large contract, large orders. We have a good level of advance payments, and the rest of the things is covered through a confirmed letter of credit with that. We have been doing this, and so far they've been successful. There could be, you know, some particular portfolio orders which may have a direct credit but by and large, most of our orders comes in with a clear and committed payment terms with that. Payment security.
Wonderful, sir. All the very best and, thank you for this opportunity today.
Thank you.
Thank you. The next question is from the line of Viraj Butani from Koffeekodes. Please go ahead.
Yeah. Good evening, sir. Am I audible to you?
Yes, Mr. Viraj, go ahead.
Yeah, my question is a continuation of the previous participant. Listening to your comments, is it fair to say that we have fairly learned about in this quarter, so a lot of things been taken care going forward from here in terms of, escalation clauses, commodity pricing? I think,
Yeah. What I was telling you, Viraj, is that, you know, certain things even though we have learned, for example, semiconductors, it's not possible for us to, you know, overcome the challenge if the supplies are not coming in, right? While we are taking a lot of action to, you know, redesign the things that will take time, that will not happen, you know, overnight with that. When it comes to the semiconductors, you have also probably seen this. The best estimate is that, you know, it will definitely improve, but to normalize it to anywhere, it go into the 2023 or so.
It will improve from quarter to quarter, but really to normalize to the level where we used to see, and that is not going to be before, at least in the year 2023.
Oh my, nice. Okay.
Still is the case, you know. What we have done in the escalation clause, traditionally escalation clauses have been built in that, for example, the copper, the CRGO, the oil in the transformer and steel in that. But, you know, the escalation when it comes to the, you know, the freight costs, when it comes to the, our overseas, because we do a lot of exports now. The strategy we have built in exports, right? Those things will take little more time to stabilize, you know.
Okay. My next question is, the orders which you received, are margin negative or we've been sacrificing some margin to penetrate the market? Like, if you can give some sense on that.
As you know, in case of HPTP, we are a pioneer with this technology, right? We never taken an order to, you know, sacrifice our margins to get an order. We don't want to take an order for the sake of taking an order, you know. For us, every project, we always look at risk to reward portfolio. What is your risk and what is your reward it is giving? Once it fits into our strategy, then only we go for it. That is our clear strategy. We have it, and we adopt for every project we look at it, including this one.
My last question is we supply to the government utilities. Do we take into account the debtor cycle? The sometimes government state utility in particular takes long time to pay. We take our precautions when we provide to them whatever service or products we provide to them?
No. Can you please repeat if you don't mind because the line is not very good.
We supply to a lot of utility companies, the power companies, which is probably the government, central government, state government.
Yeah.
When we supply to them or offer services to them, do we take care of the things that the payment terms are very clear so that our payment don't get postponed, which is the case with the government, you know?
Absolutely. No, we're not, you know, at the moment we see any risk, we don't even go for that particular project at all. In some electricity boards where we see a huge amount of delays and we will always, you know, take a decision on that. Most of our contracts which are with the central utilities like PGCIL or Indian Railways like CLW, DLW, where we see our payments are fairly, you know, accurate as per the payment schedule.
Okay. That's it from my side and all the best, sir.
Thank you. The next question is from the line of Vishal Bararia from Max Life Insurance. Please go ahead.
Yeah. Thank you. Something on the export front, we had a target of increasing it to 25% in a few years. Where are we on that track? Have we seen incremental traction because of the chaos that-
Vishal, I think your line is very feeble. Can you please speak louder?
Yeah. My question was pertaining to Europe, to exports mainly. We had set a target of 25% exports of revenue in a few years. Where are we on that? By when do you plan to achieve it? 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?
Yeah. I think, you know, when it comes to the exports, I think we said we ourselves said a midterm target of between 20%-25%. Last year we were in the range of 23% of our revenue and our orders came from exports. This quarter also I was telling you that, you know, we reached exports 23%. We have a two-pronged strategy export. One is directly we export some of the products. We have a global feeder factory. So some of the factories, we have a global factory like our circuit breaker and compact switchgear everywhere around the world.
Second strategy is that we also have a global feeder factories where we sell the components to some of our factories. The third one is we do the direct sale to, you know, customers like in Africa or in the Middle East and also in South America, et cetera. We have a very clear strategy to bring it to the 25%. We believe that we already reached the mid corridor of our TAM, even though we kept three-year target, but we have reached and we continue to grow on this side.
Okay. Have you seen any near-term delta in exports or inquiries from Europe or from the feeder factories because of the chaos in Europe where the production has been affected?
Yes. There is a, you know, I don't want to say it's chaos, but there is. We are going as per our strategy. We have a very clear strategy to bring some of the products to the local manufacturing. That's the reason we have been expanding. We have been also telling you that, you know, we have a clear CapEx to support the exports. We have inaugurated one factory last quarter, and then we also have several factories lined up as part of that thing. You know, we also, in one of our conference call, we have also told what are the factories we are investing and expanding it, coming up with a new greenfield factory as well.
Thank you.
Thank you. The next question is on the line of Kunal from B&K Securities. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Sir, when I look at some of your end markets, you know, like data centers, railways, renewables, they all are quite high growth markets. I just wanted to get your view on what can be the medium-term or long-term growth, you know, number that one should work with in each of these sectors like utilities, industries and transportation as you classify it. Is it right to assume that all of these are, you know, mid-teens kind of a growth sectors or, you know, would like to hear your views on that, sir?
Sure. Kunal, thank you for your question. If you really look at, you know, the Indian power sector really going for a huge transformation, right? You know, the growth in the energy or power demand is just phenomenal, right? It's already reached 200GW . It needs lot of renewables coming in, and it needs a lot of technology support to the grid and the rest of the industry associated with that. Our growth sector is definitely a transmission and the renewables, right? This will be a far higher growth. When I say everything will grow, but these are the growth, they grow higher than the normal market average in that. HVDC transmission, for example, HVDC is one example in that.
You know, HVDC previously say one HVDC project was three to four years. Now we expect at least every year one HVDC project or every 1.5 year, one HVDC project. That is a kind of developments are taking place, and that's the reason we are also localizing a lot of equipment which we used to bring it from outside of our overseas countries. We are manufacturing everything here in India. That's one aspect of it. The second thing is we see the industrial CapEx. We have seen industrial CapEx. A lot of industrial CapEx we have already announced it.
Maybe due to the current macro situation, there could be some delay in decision-making, but we are seeing our pipeline is very robust at this point in time. Our pipeline in terms of transmission, in terms of renewable, in terms of you know, in terms of the industry CapEx, whether it is a steel and cement and aluminum, we are really going for expansions and also the data centers. So they are the high-growth segment. They are growing higher than the market average, and we have a clear strategy to grow above the market. That's the reason we have seen our orders in the last quarter, reflecting our strategy.
Sure, sir. This is really helpful. Just a quick follow-up on that one, sir. You mentioned about, you know, localization. You know, currently, what would be the level of localization across the company?
No, I would call as a, you know. It depends again on the product to product, things like that. What we are saying is that locally, whatever we are manufacturing, if we are manufacturing 100% of our portfolio, 80% of that we are manufacturing locally.
Okay.
That means everything is available locally in line with Make in India, bringing the new technology. Last quarter we announced opening up a new factory. This is a resin-cast, resin-integrated polymer machine. This is the first time 400 kV transformers, that kind of machines, were being manufactured here. This is a very high technology-intensive product, and we brought it here and we are manufacturing here in India. This is just to give a fair flavor of it.
Sure, sir. Oh, great, sir. Thank you so much and best of luck for the future.
Thank you.
Thank you. Ladies and gentlemen, due to time constraint, that was our last question. I now hand the conference over to Mr. N. Venu for his closing comments.
Thank you, ladies and gentlemen. Thank you for taking your time on listening to our call and appreciate very much lack of time. I think we could not answer any more questions, but please reach out to us anytime, and we are happy to you know answer your questions if any. Meanwhile, please take care of yourself, your families and your colleagues, and just stay safe and stay strong. Thank you.
Thank you. Ladies and gentlemen, on behalf of Hitachi Energy India Limited, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.