Further scope for revenue growth and margin gains for Siemens Energy

Siemens Energy reported reasonable Q4FY25 numbers with 27 per cent year-on-year (Y-o-Y) revenue surge and 25 per cent operating profit growth.

 

The gross margin improved 100 basis points (bps) Y-o-Y to 35.6 per cent, while operating profit margin came in at 18.1 per cent, lower than the previous three quarters.

 

Net profit stood at ₹360 crore (up 31 per cent Y-o-Y). Order inflow was steady at ₹2,350 crore, with growth of 47 per cent to ₹16,200 crore. There was lower other income.

 

The 10 state-of-the-art factories it operates are helping it to exploit opportunities as they arise in India and South Asia (Bhutan, Nepal, Sri Lanka, and Maldives), for which it has exclusive business rights from the global parent.

 

It plans to expand its transformer and switchgear factories and has launched an industrial steam turbine service centre.

 

Revenues for the September quarter stood at ₹2,650 crore with full year (year ends in September) revenue at ₹7,830 crore. Operating profit was ₹480 crore (up 25 per cent) with full year operating profit at ₹1,510 crore. Margin contractions during the quarter were largely due to lower margin in power transmission. Full year operating profit margin stood at 19.3 per cent. The net profit stood at ₹360 crore (up 31 per cent), and full year net profit was ₹1,100 crore. Notably, net working capital days improved to 3 days versus 148 days (annualised) Y-o-Y and operating cash flow rose to ₹3,670 crore against ₹150 crore Y-o-Y.

 

Power transmission revenue stood at ₹1,360 crore (up 48 per cent). The segment profit was ₹250 crore (up 67 per cent) and the margin came in at 18.1 per cent (up 205 bps but lower than consensus). The power generation revenue stood at ₹1,290 crore (up 11 per cent). The margin was at 15.6 per cent (down 320 basis points). 

 

The company has technology leadership, an impressive product portfolio, an excellent infrastructure and strong network. The order book gives visibility of future revenues with over twice the FY25 revenues. India’s macro projections indicate a sharp climb in power demand with an attendant ₹3 trillion opportunity in the transmission segment, which implies both future orders and chances of margin improvement.

 

The power generation segment, which is centred on industrial gas turbines, is expected to track trends in private-sector capital expenditure (capex).

 

The results indicate a better working capital situation and strong cash flow generation.

 

Capex may be required to service future demand. Capex of ₹220 crore was incurred, and there is the ongoing capex of ₹740 crore for power transformers and high-voltage switchgear products. However, the company will be able to sustain this without stress.

 

Be it decarbonisation, power generation, power evacuation, grid automation, EPC services, and clean energy like green hydrogen and battery storage, it has a portfolio of products, solutions, and services along the entire energy value chain. It could exploit rising opportunities in decarbonisation and net-zero targets.

 

Apart from being in charge of South Asia for the group, it also exports products and solutions to Siemens Energy Group customers across the world. The key risks would be a slowdown in ordering and any supply chain issues which may impact margin.

 

It’s too early to assess if the demerger has been successful. Siemens India has a higher operating profit margin but Siemens Energy, being a power pureplay, may get better valuations. It may be able to develop new product and business lines to drive long-term growth as it has access to best-of-class technology from the parent.

 

Siemens Energy is currently trading at 75.4 times price to earnings of expected FY26 earnings but the stock dropped after the results.