Hitachi Energy India Ltd has recently seen its shares surge by an impressive 14% this week, pushing the cumulative gains for the year 2024 to an astonishing 200%. This remarkable performance highlights the growing enthusiasm around capital goods companies. However, retail investors should remain vigilant; multinational corporations like Siemens, ABB India, and Hitachi come at a premium price due to their low floating stock. With promoter stakes consistently at 75% and institutional holdings exceeding 10%, these companies are inherently less accessible for broader investment. According to Bloomberg, Hitachi’s shares are currently trading at nearly 100 times their estimated earnings for FY26, which indicates a high valuation that potential investors must consider carefully.
In a recent meeting with analysts, Hitachi revealed plans to invest ₹2,000 crore into capitalizing on robust research and development opportunities—not just within India but on a global scale. This strategic focus aligns with India’s increasing dedication to renewable energy, ushering in new possibilities for growth and expansion.
Hitachi’s product lineup encompasses high voltage direct current (HVDC) technologies and transformers, integral components for modern energy infrastructure. HVDC systems are favored for their ability to efficiently connect, dispatch, and trade renewable energy, significantly reducing losses while enhancing power delivery and grid stability. The Indian Ministry of Power has earmarked a staggering ₹9.2 trillion for transmission capital expenditure by the year 2032, creating a compelling market opportunity for companies like Hitachi.
Additionally, Hitachi’s solid Japanese parentage provides access to valuable export opportunities. A notable example is a ₹790 crore transmission order from the Marinus Link Project in Australia, awarded to Hitachi India by its parent company in the first quarter of FY25. However, this strong affiliation does come with associated costs. Hitachi’s royalty and technology fees, which amounted to ₹190 crore in FY24, represent a significant expenditure when contrasted with the company’s EBITDA of ₹349 crore.
The order inflow for the first quarter demonstrated a remarkable year-on-year rise of 113%, totaling ₹2,437 crore. This spike was primarily driven by the projects segment, notorious for its lumpy inflow characteristics. Given this volatility, it is advisable to assess the annual order backlog, which is projected to reach ₹8,599 crore in FY25, according to a report by Antique Stock Broking.
The brokerage firm has estimated FY25 revenue at ₹6,498 crore, with an EBITDA margin of 9.5%. Looking ahead to FY26, they foresee a notable improvement in EBITDA margin, potentially climbing to 13.5% as operational efficiencies are realized. That said, the margin trajectory is also contingent on how aggressively Hitachi pursues larger projects and any fluctuations in commodity prices, especially steel, which are pivotal for construction and infrastructure development.
It is essential to acknowledge that there may be delays in project procurement and execution as the company navigates the complexities of working with government intermediaries. Even with a bullish outlook on EBITDA margin expansion, as suggested by Antique Stock Broking, Hitachi’s valuation remains elevated, necessitating careful scrutiny from prospective investors.
