Multibagger Stock: Hitachi Energy records 144% surge in a year, up 1235% from 2020 low; should you buy?

In the past year, the Indian stock market has experienced notable expansion, witnessing substantial returns for investors across various sectors. Particularly noteworthy were stocks within the power-related space, which garnered significant attention from investors. 

This surge in interest can be attributed to the robust increase in power demand within the country, propelled by growing economic activity. One notable performer in this space was Hitachi Energy India.

A year ago, shares of Hitachi Energy India were priced at ₹3,725 each. Today, they are trading at ₹9,084, marking an impressive gain of 144%. What's particularly notable is the stock's consistent positive performance, with 10 out of the last 12 months ending with gains, including a substantial 38% increase in April.

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Taking a broader view, the stock has soared by 1235% from its March 2020 low of ₹680. Looking at its annual performance, it yielded returns of 90% in CY20, followed by 96% and 32.48% in the subsequent two years. In CY23, the stock saw a healthy return of 57.27%, and so far, this year, it has surged by 69.47%.

Hitachi Energy India delivers comprehensive energy solutions, ranging from power generation systems to grid stabilisation technologies and energy storage solutions. Hitachi Energy India 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. 

Expansion in India amid rising power demand

Hitachi Energy is looking to open more global capability centers in India to expand local operations, amid growing energy demand and a push to scale up renewable energy generation in the country, Reuters reported. 

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"We are looking at Hyderabad for our GCC and also looking at Pune. It might take six months to one year," said Venu Nuguri, the managing director and CEO of the company's India unit, to Reuters. 

Brokerage view

On April 18, global brokerage firm Goldman Sachs initiated coverage on Hitachi Energy, highlighting the company's strategic positioning within India's energy transition as a primary beneficiary in the upstream manufacturing sector.

Goldman Sachs emphasised Hitachi Energy's technological leadership in high-voltage equipment and its highly indigenised manufacturing capabilities. The brokerage identified several factors driving Hitachi Energy's growth potential, including grid digitalisation, a global shortage of transmission equipment, and the diversification of the global supply chain.

The brokerage highlighted transmission equipment as a sub-segment where India demonstrates advanced manufacturing capabilities, supported by a robust ancillary supply chain and limited reliance on China for input imports.

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Goldman Sachs foresees significant benefits for Hitachi Energy from the projected US$105 billion grid capital expenditure forecast for FY24–32E, with a total addressable market (TAM) potentially reaching US$50 billion. 

Additionally, the company could explore opportunities beyond the grid sector, such as electrolyser manufacturing and renewable energy evacuation, contributing to an estimated TAM of over US$20 billion.

It gave a 'buy' rating for the stock with a target price of ₹8,250 per share. However, the stock reached this target price in the subsequent trading session.

Promising opportunities

Amidst the ongoing growth trajectory of the Indian economy, there's an anticipated surge in energy consumption, aligning with the nation's ambition to ascend to the rank of the world's third-largest economy. Therefore, the development of a robust and adaptable energy infrastructure becomes imperative.

In the current fiscal year, the market has already witnessed the initiation of 18 power transmission projects, presenting promising prospects for investment. Additionally, sectors experiencing rapid expansion, such as rail, metro, and other infrastructure endeavors, serve as supplementary drivers of growth.

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Power consumption in India exhibited a notable year-on-year increase, reaching 1,221.15 billion units (BU) during the April-December period of the previous fiscal year, signalling heightened economic activity. This contrasts with the 1,132.11 BU recorded during the same period in the fiscal year 2022–23.

According to projections by the International Energy Agency, India is poised to add electricity demand equivalent to the current consumption of the United Kingdom over the next three years, underscoring the substantial growth anticipated in the energy sector.

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 making any investment decisions.