The Indian energy sector has been going through a rough patch. It is evident from the fact that the Nifty Energy Index is down 3.3% over the past year. (Source: NSE)
That said, Foreign Institutional Investors (FIIs) have been investing aggressively in one energy stock despite the poor performance of the overall sector.
And the stock is Hitachi Energy.
Let’s try to figure out the rationale behind their investment.
The Outlier: Why FIIs Bought the Dip
Hitachi Energy India Ltd. is the stock that FIIs are buying at a breathtaking pace. They increased their holding in this company by 2.48% points during Q2FY26, taking the total holding to 9.7% at the end of the quarter. A year ago, FII holding in the company was just 5.1%.
Interestingly, during the quarter, as FIIs were increasing their stake, the stock price of the company was actually falling. From around ₹20,000 at the beginning of the quarter, the stock price went down to around ₹18,000 at the end of the quarter. Given that the stock has rebounded since, FIIs seem to have timed their entry well.
Even more interesting is the point that FIIs were buying this stock aggressively even as they were large net sellers of the Indian equities.
The Thesis: Solving the ‘Grid Bottleneck’ Crisis
One reason why FIIs are drawn to Hitachi Energy India is perhaps because it is solving a core problem of the energy sector – energy storage.
The company is also engaged in grid automation, where it offers automation solutions to control and optimize the distribution network, which includes substations, a communication network, grids, and network infrastructure.
It offers engineering and digital solutions for the Discoms so that they can manage and monitor their transmission network effectively.
Apart from these services, Hitachi is known for its high-voltage products and the high-voltage technology it uses to develop these products. The company is also a leading supplier of power transformers, insulation and components, traction transformers, digital sensors, and transformer services as well.
Order Book: Renewables Surge, Data Centers Pause
The order book at the end of the July-September quarter indicated the company’s growing renewables business. There has been a 40% year-on-year (YoY) growth in order value for the renewable energy segment; the railways and metro segment rose by a whopping 61% YoY during the quarter.
That said, the orders for the transmission business segment dropped by 43% YoY, while those for the Data Centers dropped by 51%.
Expansion Across Geographies
Another probable reason for FIIs being interested in this energy transmission stock is due to its growing exports. The export order wins increased by 59% YoY during the quarter, and the orders are from different parts of the world, including Europe, the Middle East, North America, and Southeast Asia.
The Mega-Project: Powering 60 Million Households
The company has been awarded, along with Bharat Heavy Electricals Limited (BHEL), to design and deliver a High-voltage direct current (HVDC) terminal, which will be used to transmit renewable energy from Rajasthan to Uttar Pradesh – a 950 km long HVDC link which will power over 60 million households in India. This is a part of India’s 500 Gigawatt (GW) renewable energy evaluation plan.
The Numbers: 406% Profit Growth
Coming to the financials, sales of the company jumped from ₹1,554 crore in Q2FY25 to ₹1,833 crore in Q2FY26, growing 17.9% YoY. The net profit increased from ₹52 crore to ₹264 crore during the period, which is a 406% YoY growth.
Valuation
The stock is trading at a Price/Earnings (P/E) ratio of 112.8x, which is way higher than the industry median of 42.1x.
1-year Share Price Chart of Hitachi Energy India Ltd.
Potential Downsides
While the fundamentals of the stock have been great so far, however, certain vulnerabilities need to be addressed as well.
The transmission and distribution projects take years to complete. There are a lot of regulatory clearances required for each project, which reduces the operational efficiencies, leading to potential cost overruns, which in turn can reduce the margins.
Another factor to be considered is a change in policy due to a change in government, as these projects can even run over five years, during which a government can change. Any such sudden changes can affect the project timeline further, leading to potential losses.
The changes in raw material prices can also affect the project costing and potential returns.
Finally, the stock commands a premium in the market, which implies that the market has already built in high expectations. Any slip up in execution could trigger a sharp fall.
Wrapping Up
While the broader energy sector seemed to be grappling with poor performances of Discoms and infrastructure bottlenecks, FIIs are looking beyond these short-term challenges. Their increasing stake in Hitachi Energy India indicates their faith in the company’s prospects, especially its engagement in strategic services to break through the current stagnation in the energy transmission space. How their bet plays out, however, only time will tell.
We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available have we used an alternate, but widely used and accepted source of information.
Disclaimer:
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Maumita Mitra is a seasoned writer specializing in demystifying the world of investment for a broad audience. She has a keen eye for detail and a knack for explaining complex financial concepts in the simplest manner possible.
Disclosure: The writer and her dependents do not hold the stocks discussed in this article.
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
