Domestic brokerage HDFC Securities has initiated coverage on Hitachi Energy India (HEI) with an ‘Add’ rating, citing tailwinds like surging private sector capex on electrification, expected double-digit margins and a well-diversified order mix.
Hitachi Energy India Limited (formerly known as ABB Power Products and Systems India Limited) is the Indian arm of power technologies major Hitachi Energy.
HEI is one of the top technical players in the electrical engineering space having four business units -- grid automation, grid integration, high voltage products and transformers.
“HEI’s sustainable energy solutions and products are expected to gain good traction, backed by India’s target to be net-zero by 2070, robust order inflow from the metro and high-speed rail projects, electrification of balance 8,798 Rkms of Indian railways, growth in data centers, increased adaptability of the e-mobility ecosystem, modernisation and automation of existing grids,” analysts at HDFC Securities said in a note on March 23.
It has a target price of Rs 3,438 for HEI. Based on the current market price of Rs 3,358.
HEI expects an annual market potential for its services offerings to be Rs 2,000 crore in the long run, backed by its large installed base in the country. Further, it expects services to constitute 10-15% of its order mix from current levels of 5% (Q3 FY23).
“The 9MFY23 EBITDA margin came in at 4.5% (-170 bps YoY). With robust growth in export orders, focus on high[1]growth segments, local manufacturing and strong market potential from services orders, HEI expects the mid-term EBITDA margin in double digits,” HDFC Securities said.
The 9M FY23 order inflow (OI) came in at Rs 5,550 crore, taking the order book to Rs 7,230 crore.
“Segment[1]wise, the order mix is well-diversified into products/projects/services at 85/10/5%. Sector-wise, it is diversified into utilities/industries/transport and infra at 56/22/22%,” it noted.
For the three months to December 2022, the company reported an 8.5% decline in revenues at Rs 1,041 crore, mainly due to supply chain constraints, led by shortage of chips and electronics.
Net Profit stood at Rs 4.58 crore, down 92.57% from Rs 61.66 crore in the quarter ended December 2021.
In a recent note, BOB Capital Markets retained its ‘Buy’ rating on the stock, saying the management expects margins to normalise in a couple of quarters as chip shortages ease.
“Hitachi is targeting high-growth areas such as data centres, e-mobility, railways and metros. We remain positive on the company as we expect order flows to gather momentum and achieve a 13% CAGR over FY22-FY25,” it added.
However, it lowered the FY23/FY24/FY25 EBITDA margin forecasts by 200bps/20bps/20bps, driving EPS cuts of 62%/11%/9%.
HEI stock has stayed flat this year till date, and has dropped 1.80 percent over the past 1 year.
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