Multibagger Stock: Hitachi Energy gains 235% in less than 9 months, climbs 1540% in 4 years; is it a good time to buy?

Companies in the Transmission and Distribution (T&D) sector have seen their stock values soar exponentially in recent months, driven by steady order inflows amid India's energy transition.

One of the standout performers has been Hitachi Energy India, consistently reaching new heights. Since October 2023, the stock has been on a sustained bull run, resulting in a 235% gain. Impressively, the stock has closed in positive territory every month, with April 2024 marking the largest monthly gain of 40%.

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This robust rally has propelled the stock to gain 1540% over the past four years. On June 3, the company reached a new all-time high of ₹14,382 per share, surpassing the ₹14,000 mark for the first time.

India has witnessed strong power consumption in FY24 due to a significant increase in economic activities and a sharp rise in household consumption. High growth expectations for India's economy and manufacturing sector have prompted the government to ramp up power generation, including renewable energy sources.

To ensure the power supply reaches end-users, the transmission system is essential, providing the critical link between generating stations and the distribution network. This sector is currently experiencing substantial growth amid the increase in capacity generation, ensuring efficient delivery of power to consumers.

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Analysts have identified several tailwinds that could propel Hitachi Energy's growth trajectory, including grid digitalisation, a global shortage of transmission equipment, and global supply chain diversification.

Transmission equipment stands out as one of the sub-segments in which India exhibits advanced manufacturing capabilities, supported by a robust ancillary supply chain and limited dependence on China for input imports.

Over the past three years, Hitachi Energy has expanded its capacities in HVDC, power quality, and global technology services, outpacing the competition. Currently, many of its product lines are operating above 70% capacity utilisation, and sustained demand may necessitate further expansion.

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The company delivers comprehensive energy solutions, ranging from power generation systems to grid stabilisation technologies and energy storage solutions. The company has emerged as a prominent player in the energy sector through a strategic joint venture between ABB's Power Grids business and Hitachi Ltd. in 2018.

Macro drivers intact: Translating into a robust opportunity pipeline

Hitachi Energy is strategically positioned to capitalise on the government's push for renewable energy through its range of offerings, including transformers, HV products, STATCOM, HVDC, and grid automation.

There is a strong emphasis on enhancing and expanding the T&D network to facilitate renewable energy evacuation. This will drive investments in grid stability and automation solutions, as well as demand for substations, switch gears, transformers, and conductors.

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According to industry sources, at least 1-2 HVDC projects are expected to be finalised in FY25, aligning with Hitachi Energy's core competencies. The National Electricity Plan (NEP) anticipates an investment of ₹2.4 trillion to augment the T&D network by 2027, providing Hitachi Energy with significant visibility across its product range.

Additionally, the company experienced robust growth in inflows during the quarter, with a 737% year-over-year increase. It projects a total addressable market (TAM) of 10-15% for typical data center projects and closer to 18% for hyper-scale data centers. Key offerings in this sector include HV products, transformers, and grid stability solutions, said domestic brokerage firm Motilal Oswal in its recent note.

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Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.