Earnings downgrades a worry for Siemens India amid muted Q3 showing

The energy segment delivered good performance with revenue at ₹1,440 crore (+29 per cent Y-o-Y)

Siemens India reported financials for the December quarter after a demerger of the company’s energy segment. For the combined entity, revenue was 9 per cent below estimates and net profit was 3 per cent above estimates. The demerger is on track to be completed this calendar year (CY25). Revenue and net profit grew 4 per cent and 22 per cent year-on-year (Y-o-Y), driven by the energy segment. The non-energy segments were impacted by a slowdown.

 

The energy segment delivered good performance with revenue at ₹1,440 crore (up 29 per cent Y-o-Y). Margin for the segment stood at 22.6 per cent (up 11.2 percentage points Y-o-Y). Excluding energy, Siemens India reported muted numbers for the first quarter of the financial year (Q1 FY25) with soft execution across smart infrastructure (up 6 per cent Y-o-Y), mobility (down 4 per cent), digital industries (down 24 per cent) and low voltage motors (up 3 per cent). (The company has a September year-ending.)

 

Operating profit declined 12 per cent Y-o-Y and margin for Q1 FY25 declined 100 basis points Y-o-Y to 11.2 per cent. Gross margin for the non-energy segment grew by 330 basis points Y-o-Y to 32.5 per cent. The company declared a dividend of ₹12 for FY24.

 

Order inflow (excluding energy) was a healthy ₹4,260 crore, registering a 20 per cent Y-o-Y growth while the order book (excluding locomotives) was a robust ₹21,100 crore, which is 1.2 times its trailing twelve months revenue. Management cited weak private sector capital expenditure (capex) spending as a key reason for slowdown.

 

Revenue (excluding energy) stood at ₹3,590 crore (down 3 per cent Y-o-Y) with mobility contributing ₹640 crore (down 4 per cent Y-o-Y), smart infra ( ₹1,850 crore; down 6 per cent Y-o-Y), digital industries (₹790 crore; down 24 per cent Y-o-Y), and low voltage motors (₹230 crore; up 3 per cent Y-o-Y). There was sharp margin contraction in digital industries (6.1 per cent compared to 12.7 per cent in Q1 FY24). Reported net profit was ₹370 crore in continuing businesses. Overall net profit (including discontinued operations of the energy segment) at ₹610 crore included one-off gain of ₹ 100 crore. 

 

The order pipeline remains healthy with Central Electricity Authority projecting transmission capex of over ₹ 9 trillion to be spent over FY22-32. Siemens announced ₹ 460 crore capex to add capacity in its power transformer and reactor businesses.

 

Low-voltage motors saw 100 basis points Y-o-Y lower segment margin. Digital industries continued to face challenges in the form of customer destocking and supply chain issues. Revenue in digital decreased 24 per cent Y-o-Y, while margins halved Y-o-Y to 6.1 per cent in Q1 FY25 vs. 12.7 per cent in Q1 FY24. Mobility revenue was down 4 per cent Y-o-Y, while margins expanded 60 basis points Y-o-Y to 8.1 per cent. Smart infra revenue grew 6 per cent Y-o-Y, while margins rose 140 basis points Y-o-Y to 12.0 per cent.

 

The energy segment will benefit from focus on renewables addition and transmission and distribution networks. The company is selective across high-voltage direct current projects and will hence limit large order inflow in such business. But the scenario is optimistic, with a robust pipeline and Siemens’ wide range of offerings.

 

Smart infra is expected to benefit from investments across data centres, EV charging, and commercial and industrial real estate. Slowdown in digital industries due to demand normalisation of industrial automation may affect growth in near to medium term. For the mobility segment, the order pipeline is weak with no imminent big-ticket railways orders.

 

The sharp miss on revenues and operating profit will lead to valuation and earnings downgrades. Strong order inflows do give comfort. However, drop in margins along with revenue decline is a serious concern. Related party transactions with parent group entities at lower-than-market valuations may weigh on stock performance.