Order book, margin gain expectations to drive gains in Siemens

The stock of Siemens was up 2.5 per cent in trade on a healthy performance in the September quarter, strong order inflows and a promising outlook. The company reported revenues of Rs 6,460 crore which was 11.3 per cent year-on-year (Y-o-Y) growth led by energy (12.4 per cent Y-o-Y to Rs 2,080 crore) and mobility segments (23.9 per cent Y-o-Y to Rs 880 crore). 

 

Gross margins improved 300 basis points Y-o-Y, but it fell 100 basis points quarter-on-quarter (Q-o-Q) to 32.4 per cent while operating profit margins jumped 120 basis points Q-o-Q and 240 basis points Y-o-Y to 14.5 per cent and operating profit grew 34 per cent Y-o-Y to Rs 940 crore.

 

Net profit grew 45 per cent Y-o-Y to Rs 830 crore. Fresh orders grew 37 per cent Y-o-Y to Rs 6,200 crore with a backlog of Rs 46,800 crore-plus. Capex was hiked by Rs 100 crore for large reactors, in addition to Rs 360 crore announced in November 2023 for increasing transformer capacity.

 

Large order inflow is likely over next 12-24 months such as 4-5 high voltage direct current (HVDC) electric transmission, locos or train sets among others. It plans to use internal accruals to fund the total capex. It has also allocated Rs 186 crore capex to build a metro train manufacturing facility at Aurangabad to cater to domestic as well as exports demand.

 

The company is already benefiting from strong demand from renewable energy and corresponding investments in transmission and distribution (T&D).

 

The demand-supply mismatch in the high-kVA transformers has resulted in better margins. The energy segment is witnessing tailwinds from renewable energy integration, transmission network expansion, modernisation of turbines and adoption of waste heat recovery in cement plants. In mobility, margins will improve once the delivery of locomotives commences from the financial year 2025 (FY25). Metro/bogey factory will emerge as global hubs for exports to Australia, the Middle East and Asia.

 

On Siemens Innovation Day, the company highlighted key products and solutions it has established for its customers. It is pushing energy efficiency, and it has a focus on high growth areas, such as renewables, data centres, electric vehicles, semiconductors. The pipeline is strong in these industries, and Siemens is ideally positioned to capture it given products, such as Xcelerator, industrial metaverse, and digital twins.

 

The Xcelerator has around 125 use cases, 11 ecosystem partners, and 200+ references. It is enabling many industries, like food and beverages, hotels, data centres, semiconductors, batteries, EVs by using AI and data to plug gaps in systems, reducing energy consumption and helping the move to sustainability.

 

The addressable market includes T&D, railways, metros, and data centres, along with investments led by PLI and semiconductor manufacturing.

 

Opportunities will arise in renewable energy-led capex, which is growing at pace; private capex in areas like data centres, batteries, EVs, and semiconductors; conventional private capex, such as F&B, services, and pharma, which may revive; and sustainability-driven capex.

 

The stock is expensive at nearly 80 times the FY25 expected earnings. But it is a direct play on multiple growth areas.

 

One concern could be delays in order finalisation from key government-focused segments such as transmission and railways. Also margins may compress if there’s aggressive bidding in big projects. Related-party transactions with parent group entities at lower-than-market valuations may weigh on the stock performance.

 

However, given the big order book and proven execution capacity, mid-teens revenue growth and improving margins make it an attractive prospect.