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Result broadly in line; margin above our estimate

Hitachi Energy’s 3QFY25 result came largely in line with our estimates. The company reported a 27% YoY growth in revenue while EBITDA came in ahead of our estimates owing to lower RM expenses. Order inflow was boosted by the large HVDC win from PGCIL. We believe Hitachi Energy will continue to be a key beneficiary of green energy initiatives across domestic and international markets. We cut our FY26/27 earnings estimates by 8%/6% to factor in the longer execution cycle of HVDC projects and higher capex as outlined by the company recently. Our estimates currently bake in nearly 1 HVDC win for the company every year and consistent improvement in margins. We reiterate our Neutral rating on the stock with a revised two-year forward TP of INR13,300 (vs. INR13,800 earlier) based on DCF, as the current valuations factor in most of the positives related to inflow and margin improvement.

Margin beat offset by a slight miss on revenue

Hitachi Energy reported a largely in-line performance in 3QFY25, with a beat on EBITDA offset by a marginal miss on revenue and PAT. Revenue grew 27% YoY to INR16.2b (MOFSL est. of INR17b), led by execution mix and improved operational efficiencies. EBITDA margin came in at 10.3%, higher than our expectation of 9.2%, driven by lower RM expenses. EBITDA at INR1.7b (MOFSL est. of INR1.6b) grew 145% YoY on a low base. There was a notional forex gain of INR519m; excluding this, PAT came in at INR855m (+272% YoY), a tad below our estimate of INR887m. Order inflow surged to INR115.9b as the company bagged the Khavda-Nagpur HVDC project in consortium with BHEL. Apart from this, it also won orders in the transmission, power quality, substations, transportation, and data center segments. Excluding the large HVDC order, the share of exports improved to 40%, with orders from Australia, Indonesia, Canada, Croatia, Azerbaijan, etc. The share of services stood at 11%. The order book stood at INR190b, up 152% YoY.

Order inflows boosted by a large HVDC win

The company, in consortium with BHEL, was awarded the Khavda-Nagpur HVDC order by PGCIL. The ±800 kV, 6,000 MW bi-pole, and bi-directional HVDC link will transfer power from Khavda (Gujarat) to Nagpur. The project will operate on LCC technology, which Siemens has refrained from participating in. The combined entity’s scope involves supplying converter transformers, AC/DC control and protection, gas-insulated high-voltage switchgear, thyristor valves, 765kV/400kV substation, and auxiliary systems (link). This order win underscores Hitachi Energy’s prowess in the domestic HVDC market, having already been involved in 7 out of 15 projects in the past. Given that a series of HVDC projects is lined up under the revised NEP, the company has a decent opportunity pipeline to capitalize on.

Services to be set up as a separate business unit from FY26 onwards

The company has announced that Services will be established as a separate business unit from 1st Apr’25 onwards to capitalize on the aging installed base in the country, which is pegged at INR820b. The company sees an annual opportunity size of INR20b, which will be catered to by combining the services expertise from various business units under one unified service umbrella. During the quarter, ~11% of the order inflow (ex-HVDC) was accounted for by Service orders.

Export trajectory holding up well

Excluding the large HVDC order, the share of exports jumped to 40%, which bodes well for Hitachi’s margins going forward, as exports have a much better margin profile. During the quarter, notable order wins included a) 330 kV Circuit Breaker for Central West Orana Project of ACJV, b) 70 kV, 170 kV & 500 kV AIS Equipment, PLN Indonesia, c) 800 kV Current Transformers for Hydro Quebec, Canada, d) 420 kV Circuit Breaker for HOPS, Croatia, and e) 245 kV & 145 kV AIS Equipment for Sangachal, Azerbaijan.

Addressable market remains strong

Hitachi Energy is poised to benefit from its presence in high-growth segments such as renewable energy, transmission, data centers, e-mobility, railways, battery storage, etc. The recently-unveiled National Electricity Plan envisages investments worth INR9.16t till FY2032, where Hitachi can participate through its offerings such as HVDC, STATCOM, GIS, transformers, HV products, grid management solutions, etc. Similarly, there is robust traction in data centers, with capacity slated to reach 2 GW by 2027. Railways capex also offers Hitachi Energy a strong opportunity potential, with investments lined up for expansion of the rail network, Vande Bharat trains, HSR, station upgradation, etc.

QIP to strengthen the balance sheet

The company has announced a fundraise of INR42b by way of a QIP. It also recently announced a capex outlay of INR20b towards expanding its power transformers factory and traction transformers facility. We believe this QIP will help fund this investment and strengthen the balance sheet to execute the HVDC projects (Mumbai-Kudus and Khavda-Nagpur) in the order book by taking care of short-term and long-term funding requirements.

Financial outlook

We cut our estimates for FY26/27 to factor in a longer gestation period of HVDC wins while maintaining margin estimates at 8.5%/11.1%/12.2% for FY25/26/27

Valuation and view

The stock is currently trading at 84.8x/55.7x P/E on FY26E/27E earnings. We reiterate our Neutral rating with a revised two-year forward TP of INR13,300 (vs. INR13,800 earlier) based on DCF, as current valuations factor in most of the positives related to inflow and margin improvement.

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