Buy Hitachi Energy Ltd For Target Rs.5,804 - Motilal Oswal Financial Services Ltd
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Muted quarter; miss on all fronts
* Hitachi Energy’s 3QFY24 result was below our expectations due to lowerthan-expected ramp-up in execution and weaker-than-expected margins. PAT grew 401% YoY, due to the low base of last year, but was sharply lower than our estimates.
* Revenue grew 23% YoY, driven by a healthy order book that stood at INR75.5b. The order book consisted of Adani’s HVDC project, which was awarded to Hitachi Energy in FY23. The order inflow during the quarter moderated sequentially to INR12.4b, due to an exceptionally large order awarded in 2QFY24.
* Gross margin contracted ~540bp YoY to 35.1%, while sequentially it was flattish. The staff cost, which stood at 9.5% of sales, was largely flattish both YoY and QoQ, and in line with the past quarter trends. Other expenditures declined 470bp YoY to 20.2% of sales. We would wait for more clarity on other expenses related to the royalty payments as well as other payments to the promoter group entities.
* EBITDA margin was at 5.3% in 3QFY24, up 150bp YoY, led by easing of supply chain issues and moderation in other expenses; however, margins were largely flat sequentially.
* Interest expenses grew 5% YoY, while other income declined 69% YoY.
* PAT grew 401% YoY, due to the low base of last year. It was driven by moderating supply chain issues. PAT declined 7% sequentially during the quarter. PAT for the quarter was sharply below our estimates.
Other highlights from the press release
* Order inflow during the quarter stood at INR12.3b, flat YoY.
* Data centers and renewables significantly contributed to the orders, while transmission and rail segments remained flat. Service orders were up by over 70% YoY, led by utilities and industries.
* Export order inflow grew by more than 60% YoY, on the back of transformers and HV products. The European and African markets drove the ordering for transformers, while demand for power quality solutions drove the ordering from LatAm, Africa, US and Europe.
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