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Strong performance

Hitachi Energy’s 1Q result was ahead of our estimates with a sharp beat on both revenue and PAT. Order inflows (ex-HVDC) grew by 26% YoY to INR51b, taking the order book to INR322b, up 11% YoY. Though transmission inflows remained weak during the quarter, data centers, industrials, and BESS boosted inflows. We do see positives in 1) sustenance of higher revenue growth due to strong OB and HVDC execution scale-up, 2) further margin improvement, led by lower fees to the parent entities, higher share of export revenue, and operating leverage benefits, and 3) improvement in export order inflows. However, we limit our optimism to expectations of one HVDC order win every year for Hitachi Energy over the next few years. We bake in inflows of INR207b/INR234b/INR258b for FY27/FY28/FY29, which take into account an HVDC order win every year. We revise our estimates by 11%/3% for FY27/FY28 due to improved execution and higher margin expectations. At the current price, the stock trades at 90x/66x/51x on FY27/28/29, which we believe captures large HVDC order wins every year. We reiterate our Neutral rating on the stock with a revised TP of INR36,000, based on 60x Dec’28E (vs. INR32,000 based on 60x Sep’28E) and would wait for better entry price points.

Result above our estimate

Hitachi Energy’s 1Q result was above our estimates across revenue, margins, and PAT. Revenue grew 69% YoY to INR24.9b (vs. our estimate of INR19.7b), driven by strong, timely execution of order backlog across all businesses. Absolute EBITDA at INR4.2b (vs. our estimate of INR3.2b) grew 158% YoY, while EBITDA margin expanded 590bp YoY to 17.0% vs our expectation of 16.5%. PAT increased 151% YoY to INR3.5b, above our estimate of INR2.7b. Order inflow (ex-HVDC) surged 26% YoY to INR51b, taking the order book to INR322b. Exports accounted for ~33.6% of total inflows during the quarter. The company received export orders from Europe, North America, and South Asia for grid integration and power quality products.

Integrated battery energy storage systems gain traction

The company secured its first BESS order during the quarter of 165 MW/330MWh at Hebbatam, Andhra Pradesh. It plans to initially focus on the large domestic market, where storage deployment is increasingly becoming integral to renewable energy projects. Hitachi provides the complete balance-of-system solution, including power conversion systems (PCS), grid integration, automation, battery management software integration, digital monitoring capabilities, and end-to-end engineering, while customers procure the batteries separately. The solution is modular and scalable, allowing deployment across commercial & industrial as well as utility-scale applications over time. Margins are currently below the company's portfolio average due to the early stage of the business, but with ongoing localization efforts, we expect it to improve gradually as volumes scale and localization increases.

Capturing India's data center build-out

Data centers continue to emerge as a key demand driver, with the company securing multiple orders during the quarter, including a 42.5MVA project in Hyderabad for a leading Indian multinational. Hitachi's offering spans across transformers, GIS, substations, grid integration solutions, services, and digital solutions, while it is also developing a modular grid-to-rack platform that integrates these offerings into a standardized solution for hyperscale customers. Data center developers are increasingly placing orders for long-lead electrical equipment at an early stage, creating a favorable opportunity for its portfolio. With a healthy project pipeline and India's data center capacity expected to expand significantly over the coming years, we expect data centers to remain a key growth driver for order inflows beyond HVDC over the medium term.

Financial outlook and valuation

We revise our estimates by 11%/3% for FY27/FY28 due to improved execution and higher margin expectations. We thus expect revenue/EBITDA/PAT CAGR of 31%/42%/ 39% over FY26-29E. At the current price, the stock trades at 90x/66x/51x on FY27/ FY28/FY29, which we believe captures large HVDC order wins every year. We reiterate our Neutral rating on the stock with a revised TP of INR36,000, based on 60x Dec’28E (vs. INR32,000 based on 60x Sep’28E) and would wait for better entry price points.

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