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Order pipeline strong, outlook positive

Hitachi Energy India Ltd., incorporated in 2019, is involved in power technologies as well as providing a range of products across the grid value chain.

• The company’s revenue rose a significant 31.3% YoY to Rs. 1,115cr in Q2FY23, mainly owing to its consistent focus on execution and successful delivery of domestic and global orders.

• EBITDA rose 3.6% YoY to Rs. 76cr. However, EBITDA margin contracted 182bps YoY to 6.8%, owing to higher input cost.

• A healthy order book from customers in high-growth segments such as renewables, railways, data centres, and substations and industries will continue to boost Hitachi’s performance. Therefore, we have upgraded our rating on the stock to Accumulate, with a target price of Rs. 3,492 based on 43x FY24E adj. EPS.

Robust orderbook and customer connect supported earnings

Hitachi’s revenue rose 31.3% YoY in Q2FY23 to Rs. 1,115cr, mainly due to the company’s consistent focus on execution and successful delivery of domestic and global orders. In addition, customer connect and various mitigation efforts partially limited the impact of a tight supply chain on earnings. During the quarter, the company received orders totaling Rs. 1,278cr, up 30.6% YoY, with key wins in the renewable and rail segments. However, EBITDA rose a mere 3.6% YoY to Rs. 76cr, and EBITDA margin deteriorated 182bps YoY to 6.8% due to higher input costs because of the shortage of semiconductors and geopolitical factors. Despite this, profit after tax increased 8.3% YoY to Rs. 37cr

Key highlights

• In Q2FY23, Hitachi received an order from NTPC Renewable Energy Ltd to supply power transformers for its upcoming 4.75-gigawatt renewable energy park in Gujarat. Once completed, this will be the world’s largest renewable power facility.

• Other key wins during the quarter included an order of 132 no traction transformers from BLW, 132kV as well as 220kV Scott-T connection projects from BNC Power, 400/220kV AIS S/S for an aluminium smelter, 2x500 MVA 400kV transformers from Power Grid Corporation of India Ltd, 220/33kV GIS order from a data centre company, and CRP SAS orders for Delhi and Patna rail metros.

• In railways, Hitachi is also seeking opportunities such as 2x25 KV electrification of a high-density corridor and upcoming 8-10 metro projects that are expected to be awarded in FY23.

• Hitachi announced the acquisition of the remaining shares of ABB India, further supporting its 2030 plan. This acquisition will accelerate synergies between businesses and functions, especially in research and development, IT transformation, common shared services, and various synergy businesses, such as rail, smart grids, etc

Valuation

Hitachi has consistently performed well on the back of a strong order pipeline. Healthy orders from customers in high-growth segments such as renewables, railways, data centres, and substations and industries will continue to buoy the company’s performance. Therefore, we have upgraded our rating on the stock to Accumulate, with a revised target price of Rs. 3,492 using a target multiple of 43x P/E on FY24E adj. EPS.

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