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Inflow boost; pricey valuations

Hitachi Energy’s 1QFY26 revenue and EBITDA margin came in below our estimates, whereas PAT beat our estimates on the back of higher other income. Order inflow was healthy for the quarter, driven by the second HVDC order win of Bhadla-Fatehpur and a bulk order from Powergrid for the supply of transformers. Hitachi Energy has been a key beneficiary of renewable and T&D capex in both domestic and international markets. The company’s capacity expansion will help meet the upcoming demand across segments. However, its execution and margin performance are taking time to reflect its current strong order book as well as cost control measures compared to other players in the T&D industry. We expect these to reflect in the coming quarters. We marginally cut our estimates to bake in 1QFY26 performance and roll forward our TP to Sep’27 estimates to INR16,500. The stock is currently trading at 117x/87x/65x P/E on FY26E/27E/28E earnings. We reiterate our Sell rating on the stock as we already bake in 31% revenue CAGR and 60% PAT CAGR over FY25-28 and an implied target multiple of 60x on two-year forward earnings.

In-line PAT; miss on revenue and EBITDA level

Hitachi Energy’s revenue/EBITDA for 1QFY26 was 22%/29%, lower than our estimates as execution remained weaker-than-expected during the quarter. However, with higher other income and lower tax rate, reported PAT came in line with our estimates. Revenue grew 11% YoY to INR14.8b (vs. our estimate of INR18.9b). EBITDA at INR1.5b (vs. our estimate of INR2.2b) grew 223% YoY, even on a high base, while EBITDA margin at 10.5% was 100bp below our expectation of 11.5%. PAT increased 8% YoY to INR1.3b, which was broadly in line with our estimate. Order inflow surged 365% YoY to INR113.4b, bringing the order book to INR291b. Growth in inflows was led by a large project win of the Bhadla-Fatehpur HVDC link. The company also received a bulk order from POWERGRID to supply 30 units of 765kV 500 MVA single-phase transformers. In terms of segment, transmission continues to lead the order book, followed by orders from the rail & metro and data center segments.

Strong inflows skewed by HVDC concentration

Hitachi Energy reported healthy order inflows of INR113.4b in 1QFY26, marking a sharp 365% YoY increase. However, growth was largely front-loaded by a single large HVDC project from Adani Energy Solutions. Excluding this, the underlying order growth moderates to +20% YoY, supported by steady momentum in segments like rail, metro, and data centers. The composition of orders also changes notably when adjusted for HVDC. Excluding HVDC, the mix is more balanced, with products forming the largest portion, followed by projects and services. This indicates a healthier profile of shorter-cycle orders, with potentially faster conversion to revenue. In contrast, with HVDC included, the mix becomes heavily project-driven, skewing the backlog toward longerduration orders. Over 55% of the total order book now relates to HVDC, where execution spans 4-5 years.

Export sustainability supported by diverse geographies and industries

Exports continued to play a meaningful role in Hitachi Energy India’s order book in 1QFY26, contributing nearly 25% (excluding HVDC). The company secured export orders from Europe, South America, and Asia. Hitachi Energy follows a threepronged strategy for exports: 1) building on four globally competitive products, 2) deepening presence in allocated international markets with growing traction, and 3) supplying components to group feeder factories. Key export orders received by the company in 1QFY26 are:

* Common Apparatus & Devices, Capacitors & Filters, USA

* Common Apparatus & Devices, Capacitors & Filters, Sweden

* 420 kV, 123 kV & 72.5kV Circuit Breakers for Dynamic Balancing Reserve projects, Hungary

* 36 Nos. DTB for KPTL Guyana Power

* 245kV & 72.5kV Disconnectors for GPL, Guyana

* Grid Automation Products, Australia

Favorable sectoral tailwinds to support long-term opportunity pipeline

India’s ongoing infrastructure push presents a multi-year opportunity across key verticals where Hitachi Energy has a meaningful presence. According to industry reports, 1) the renewable energy segment is expected to see investments of INR3.1t by CY30, with 50% of this directed toward transmission and storage; 2) transmission spending alone is projected at over INR1t in the next two years on the ISTS network to meet NEP 2027 targets; 3) India’s data center market is estimated to attract INR1.7t-2.1t over the next six years; and 4) the expansion of the metro rail budget from INR58b in FY13 to INR348b in FY25 offers scope for project orders in the transport sector, especially around traction power and SCADA systems. With active exposure to these segments, Hitachi Energy stands to benefit from the sustained infrastructure momentum, particularly as it scales capacity to match rising demand.

Ongoing expansion to address growing demand

Hitachi Energy has committed to a sizable INR20b capex program over the next few years, spanning key business areas such as transformers, high voltage equipment, grid automation, and HVDC systems. These investments are intended to reduce capacity bottlenecks and prepare the company to handle the scale-up in execution, particularly as its record order book begins to convert into revenue. Management has indicated that asset turns could range between 3x and 4x once the full capacity comes online, offering meaningful operating leverage. However, the benefits of this expansion are back-ended, with most incremental capacities likely to be commissioned only by FY27 or later.

Financial outlook

For FY26 and FY27, we revise our revenue estimates downward and other income upward to bake in 1QFY26 performance. Our estimates currently bake in nearly 1 HVDC win for the company every year and consistent expansion in margins. This results in EBITDA margin expansion to 13.0%/14.1%/15.2% for FY26/27/28.

Valuation and view

The stock is currently trading at 117.4x/87.4x/65.1x P/E on FY26E/27E/28E earnings. We reiterate our Sell rating with a revised two-year forward TP of INR16,500 (vs. INR14,200 earlier), implying a target multiple of 60x Sep’27E EPS, as current valuations factor in most of the positives related to inflow and margin expansion.

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