Hind Rectifiers Q1 FY26 Results: Profit Up 86%, FY26 Guidance on Track
Guidance of 30% growth. At premium multiples, for a company dependent on one customer, with tender-based pricing, & early-stage execution in propulsion & exports
1. Power Electronics Equipment Manufacturing
hirect.com | NSE: HIRECT
Our core customer is Indian Railways, contributing 90% of our revenues
2. FY21–25: PAT CAGR of 63% & Revenue CAGR of 21%
Set up new manufacturing plant at Sinnar (2023)
Deep backward integration in transformers and converter subassemblies
Established in-house propulsion system (commissioned by FY25-end)
Created AI, IT & Web3 subsidiaries for future diversification
Expansion into export markets (Europe, MENA) initiated
Transitioned from a component vendor to a full railway systems provider
3. FY25: PAT up 197% & Revenue up 27%
Railway Business (90% of revenue)
Propulsion System: Commissioned & field-tested
Successful propulsion system commissioning positions company for 20% tender share once 50,000 km field trials complete (expected in FY26 Q2)
Traction Transformers: Market leader with ~45% share
Aux Converters for Alstom: >2,000 units supplied
HVAC for LHB coaches: Commissioned
EBITDA margin expanded by 220 bps, signaling healthier product mix
₹893 Cr order book provides strong visibility for FY26
Backward Integration:
Transformer tank welding (30–35% BOM cost) now in-house via robotic welding
Two new backward integration product lines to be operational by FY26 Q2–Q3
R&D: Focus: Braking systems, new converters, battery chargers
Goal: Increase margin, indigenize supply chain
New Subsidiaries:
Coincade Studios (AI, IT, Web3)
Hirect FZ-LLC (Middle East expansion)
Export Market: First products exported to Germany and USA
Targeting 30% growth in FY26 with improving ROE/ROCE and no major capex need
4. Q1-26: PAT up 86% & Revenue up 59% YoY
PAT up 28% & Revenue up 16% QoQ
5. Return Metrics: Improving & Strong Return Ratios
6. Outlook: 30% Revenue Growth for FY26
6.1 Management Guidance
Revenue Growth: ~30% YoY growth in FY26
EBITDA Margins:
Targeting “mid to late teens” over 2–3 years;
Near-term stable/improving margins expected
Propulsion System: Field trials underway; revenue contribution expected from FY26 onwards
Order Book:
Targeting strong visibility with order book at ₹1,025 Cr as of 30th June 2025
6.2 Q1 FY26 Performance vs FY26 Guidance
Key Qualitative Metrics vs Strategic Direction
7. Valuation Analysis — Hind Rectifiers
7.1 Valuation Snapshot
Market Cap: ₹3,253.36 Cr | EV: ₹3,411.26 Cr
These are premium multiples, especially for a company still dependent on a single customer (Indian Railways), with tender-based pricing, and early-stage execution in propulsion and exports.
P/E Ratio
FY25 P/E of 87.76× looks optically expensive. FY26E P/E drops to 64.77×, reflecting strong expected earnings growth (~35% PAT growth on account of margin expansion).
This still implies a premium valuation for a mid-cap industrial stock.
EV/EBITDA
FY25: 48.5×, FY26E: 35.4×
These are rich multiples, even for high-growth capital goods businesses.
A typical fair range for industrials: 12–18× EV/EBITDA.
Free Cash Flow Yield
Only 0.58% in FY25, suggesting that HIRECT is reinvesting heavily (capex + working capital).
Low FCF yield implies valuation is growth-justified, not yield-driven.
Valuation Perspective
Absolute valuation: Appears expensive on P/E and EV/EBITDA. Valuation embeds high growth expectations
Growth-adjusted: PAT CAGR of ~35%,if sustained from FY25 to FY28 still leaves it at premium valuations
Peer Comparison Higher valuation than peers like TRIL, HBL Power due to product mix & margin profile
Risk Premium High dependency on Indian Railways & tender-based business implies some execution risk
Re-rating Catalysts
Successful propulsion system scale-up: Field trials ongoing (Q1 FY26)
Export traction (Germany/USA orders): Early-stage
Operating leverage from ₹1,000 Cr order book: Visible in FY26
Margin expansion to 13–15% EBITDA: Gradual by FY27
7.2 Opportunity at Current Valuation
Strong execution visibility with ₹1,025 Cr order book; core segments scaling well.
Propulsion system field trials underway; eligibility for 20% of new railway tenders could be a game-changer.
EBITDA margin expansion from 8.5% (FY24) to 10.7% (FY25), and 11.3% in Q1 FY26.
PAT expected to grow ~35% in FY26; ROE already at a robust 26.2%.
Leaner working capital cycle and backward integration support sustained margin improvement.
Valuation has moderated – P/E at ~65×, EV/EBITDA at ~35× on FY26E, reflecting growth.
Optionality from exports, HVAC, and defense could unlock further upside.
7.3 Risk at Current Valuation
High customer concentration – 90%+ revenue linked to Indian Railways; any slowdown or policy shift can materially impact growth.
Valuation risk – P/E (~65×) and EV/EBITDA (~35×) leave little room for execution slippage or delays.
Propulsion system still in field trial phase – contribution to revenue is contingent on trial success and tender wins.
Low free cash flow yield (0.58%) – cash conversion remains weak due to high working capital and reinvestment needs.
Execution-heavy business model – ₹1,000+ Cr order book demands timely delivery and quality compliance across complex systems.
Tender-driven pricing – limits pricing power and exposes margins to competitive pressure.
Risk Rating: HIGH
Current valuations assume smooth execution and margin expansion. Any delay in propulsion scale-up, railway order deferrals, or margin pressures could lead to meaningful downside from elevated levels.
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