Sell Hitachi Energy; target of Rs 16500: Motilal Oswal

Motilal Oswal's research report on Hitachi Energy

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.

Outlook

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.