Robust prospects for Siemens Energy, but high valuations may disappoint

Analysts had mixed responses to Siemens Energy’s April-June quarter (Q3) of FY25 results, though the stock fell by almost 3 per cent on Wednesday after seeing a minor gain of 0.6 per cent a day earlier. Results were announced on Monday, post market hours. The company, which operates across the energy landscape – from conventional to renewable power, grid technology to storage and to electrifying industrial processes, follows October-September as its accounting year period.

 

Revenue was at ₹1,780 crore, with earnings before interest, taxes, depreciation, and amortisation (Ebitda) at ₹340 crore and adjusted PAT of ₹260 crore for Q3FY25. The company received new orders worth ₹3,290 crore (up 94 per cent year-on-year (Y-o-Y)) and order book stands at ₹10,760 crore, as of the first nine months (9M) of FY25.

 

The PAT was up 80 per cent Y-o-Y, while revenue growth was at 20 per cent Y-o-Y, and the Ebitda margin was 19.1 per cent (up 470bp Y-o-Y), driven by strong performance in the transmission segment. Ebitda was up 14 per cent Y-o-Y (up 29 per cent quarter-on-quarter (Q-o-Q)).

 

During 9MFY25, the company recorded a provision of ₹54.6 crore for stamp duty and related charges on property transfers from its parent. Adjusting for that, margins were in line. There are receivables from Siemens Ltd, which would boost other income. The PAT is up 80 per cent Y-o-Y, while PAT margin expanded 490bp Y-o-Y to 14.7 per cent. For 9MFY25, revenue was at ₹5,180 crore with Ebitda at ₹1,030 crore, and PAT was at ₹740 crore.

 

The power transmission segment’s Q3 revenue increased 35 per cent Y-o-Y to ₹980 crore, and Ebit (earnings before interest and tax) stood at ₹180 crore, leading to 860bp Y-o-Y Ebit margin expansion to 18.7 per cent. For 9MFY25, the power transmission segment’s revenue and Ebit stood at ₹2,830 crore and ₹560 crore respectively, while the Ebit margin stood at 19.7 per cent. The power generation segment’s revenue rose 6 per cent Y-o-Y to ₹810 crore, and Ebit increased 6 per cent Y-o-Y to ₹130 crore, while Ebit margin was flat Y-o-Y at 16.2 per cent. For 9MFY25, the power generation segment’s revenue was at ₹2,350 crore and Ebit stood at ₹400 crore, and the Ebit margin was at 17.2 per cent. 

 

The company has a capex of ₹460 crore for transformers in Kalwa (doubling capacity from 15,000 MVA to 30,000 MVA), ₹330 crore for blue GIS (gas insulated switchgear) in Goa, and ₹60 crore for vacuum interrupters in Goa. Also, there’s capex of ₹280 crore in a phased manner in capacity expansion of high-voltage switchgear products at Aurangabad.

 

Assuming doubling of capacity for transformers and expansion in GIS, along with normal business growth for the turbine business, revenue growth estimates need to be upgraded. There may be growth rates of 30 per cent or more in revenues and Ebitda during FY25-27, led by strong growth across power transmission- 41 per cent compound annual growth rate (CAGR) and power generation (15 per cent CAGR). Ebitda margins should normalise at near 21 per cent.

 

Q4FY25 may see stronger execution and the order book gives good revenue visibility. Margin recovery is likely and Siemens Energy is a key player in grid infrastructure where there’s lots of opportunity and it could see a big acceleration in order inflows as a result. But the company’s stock is also very highly valued at around PE 80x for FY26 based on assumptions of 30 per cent-plus CAGR for revenue and Ebitda. So, there’s also significant risk of valuation downgrades if there’s any slowdown in ordering and supply chain issues impacting margin.

 

According to Bloomberg, four of the six analysts polled post Q3 results have a Buy rating on the stock, while one each is neutral and bearish. Their average one-year target price is ₹3,420.50, as against Wednesday’s close price of ₹3,164.10 on the BSE.