Valuations factor in revenue growth, margin expectations for Hitachi Energy

Hitachi Energy India posted strong Q2FY26 margins and revenue on a solid order book and export demand, but HVDC's long gestation and rich valuations may cap gains despite an upbeat outlook

Hitachi Energy India (HEIL) reported strong second quarter (Q2FY26) results with operating profit margins (OPM) well ahead of its guidance and revenues registering healthy growth. Market leadership, a good balance sheet, a big order book and high return ratios are all positives for the company.

 

However, OPMs are expected to moderate from current levels and there could be long gestation periods on high voltage direct current or HVDC projects.

 

HEIL reported an OPM at 16.3 per cent (rising 920 basis points Y-o-Y), well ahead of guidance, supported by 18 per cent Y-o-Y revenue growth. An order backlog of ₹29,400 crore which is 4.6 times the FY25 sales ensures comfortable future visibility of earnings with future upside potential from new HVDC orders. The company is also betting on capex to augment capacity.

 

HEIL’s Q2FY26 revenue rose to ₹1,830 crore, and gross margin jumped by 420 basis points Y-o-Y to 42.5 per cent. The OPM expansion was driven by higher-margin orders, better product mix and exports momentum. The net profit rose by 4 times Y-o-Y to ₹260 crore supported by margin expansion and much higher other income also (₹82.6 crore versus ₹0.1 crore in Q2FY25).

 

There was a favourable base effect too.

 

The order inflow rose 13.6 per cent Y-o-Y to ₹2,200 crore with key end-users in renewables and industry, followed by transmission and distribution or T&D and transport with order book at ₹29,400 crore.

 

In Q2FY26, exports contributed 30.4 per cent of total orders, with utilities in Europe, data centres in Southeast Asia, and renewable energy or RE in West Asia and North America.

 

Exports grew 59 per cent Y-o-Y. Services orders rose 35 per cent Y-o-Y to around 12 per cent of revenues, including an air-core reactor for an HVDC project, gas insulated switchgear or GIS/air insulated switchgear or AIS extensions, repair and retrofitting, and also the first EconiQ (SF6-free) order in India.

 

The management’s growth outlook is upbeat with hopes of two HVDCs orders per year for the next few years.

 

Monitorables include timely ordering of large-ticket size projects (such as two-three HVDCs currently under bidding) and maintaining the current OPM.

 

Exports could continue to grow quickly and be high-margin given increased mandate from the parent and rising demand for high voltage products.

 

Capex deployment is in line with business growth, with an outlay of ₹750 crore for FY26. The company remains on track to achieve this target and does not anticipate any delays in capital investments.

 

Note that the order mix is becoming higher margin but also longer gestation. Hitachi is currently executing three large projects with execution timelines ranging from 48 to 54 months. Growth in order inflows was led by large orders for GIS and AIS and locomotive transformers. HVDC continues to be a major growth engine for Hitachi Energy in domestic and international.

 

Of the total order book of ₹29,400 crore, ₹10,000 crore is base orders, with the rest linked to HVDC projects.

 

Hitachi Energy assesses the addressable opportunity at 15-20 per cent in the domestic data centre market. And in both domestic and exports, it has a diversified customer base across utilities, renewables, data centres, and various industrial segments over multiple geographies. 

 

Margin improvement came from operating leverage, as higher execution volumes helped spread fixed costs, an improved product mix, with a larger share of high-margin products, increasing share of high-margin exports and rising service orders, and lower royalty cost due to timing effects of revenue recognition. The company can sustain double-digit OPM for sure as per its guidance but margins may normalise from current levels. Some analysts are looking at 14-15 per cent for FY26 and FY27.

 

Valuations are really high at triple digit price to earnings or P/E ratio (102 times) for expected FY26 earnings and around 80 times for FY27 expected earnings and the stock has gained 22 per cent in the last month. Although revenue is expected to grow at 30 per cent plus, the valuations could be an area of concern. Any slowdown could impact its share price.