Siemens extends rally on solid outlook; stock zooms 91% thus far in CY 2024

Siemens is best placed to support India in its growth story, whether in energy, infrastructure, manufacturing or mobility, as per analysts

Shares of Siemens hit a new record high of Rs 7,674.95, gaining nearly 4 per cent on the BSE in Friday's intraday trade, extending its past three days' rally, on a solid outlook. In the past four trading days, the stock of the capital goods company has surged 12 per cent. Moreover, it has bounced back 32 per cent from its previous week’s low of Rs 5,822.40 touched on June 4.

Thus far in the calendar year 2024 (CY24), Siemens has outperformed the market by zooming 91 per cent as compared to 6.4 per cent rise in the BSE Sensex.

In the second quarter of the fiscal year 2024 (Q2FY24), Siemens had reported 74 per cent year-on-year (Y-o-Y) jump in its profit after tax at Rs 896 crore, on the back of 19 per cent Y-o-Y growth in revenue at Rs 5,248 crore. The company received new orders of Rs 5,184 crore in the March quarter.

Q2FY24 showed a robust growth in revenues built off a strong order backlog. Some large orders have been deferred. There has also been a slowdown in ordering of industrial automation products due to normalization of demand following shorter delivery cycles.

"The General Elections in 2024 may cause a momentary pause in tendering for large projects but will not disrupt the long-term growth trajectory, which is intact due to our nation’s political stability and consistency in policy measures. The GDP growth rate is also expected to pick up momentum, moving from the current 6.4 percent to above 7 percent in the next 3-4 years", Siemens had said in its annual report.

Siemens is best placed to support India in its growth story. Whether in Energy, Infrastructure, Manufacturing or Mobility, Siemens is well positioned to provide technologies and solutions that can address India’s requirements. The investment is toward capacity expansions of Power Transformers used in the Power Transmission business and of Vacuum Interrupters for Medium Voltage Switchgear used in the Power Distribution sector. The expansion in capacities of both these products will enable the Company to meet the growing demand both in India and globally, the company said.

Meanwhile, according to analysts, demand outlook in India is robust due to rising capex across verticals, led by huge government spending on infrastructure development (railways, roads & highways, etc.) along with private capex entering an upcycle as capacity utilization approaches less than 80 per cent. 

Siemens has announced the expansion of two of its 32 factories in India. This is in addition to the capacity expansions of the Power Transformer factory in Kalwa and Vacuum Interrupter factory in Goa announced by the Company in November 2023. With this, total Capex investment is expected to exceed Rs 1,000 crore.

The board of Siemens also approved the proposal to demerge its Energy Business into a separate legal entity – Siemens Energy India (currently a wholly owned subsidiary of Siemens). Shareholders of Siemens will receive 1 (one) share of Siemens Energy India for every 1 (one) share of Siemens.

Siemens will continue to be a leading technology-focused company in Industry, Infrastructure and Mobility while Siemens Energy India will focus on being the most valued energy technology company supporting its customers in transitioning to a more sustainable world.

Siemens Energy India will provide solutions across the entire energy value chain – from power and heat generation, transmission to storage through a portfolio that includes conventional and renewable energy technology such as gas and steam turbines, hybrid power plants operated with hydrogen as well as power generators and transformers.

The underlying market drivers and capital allocation requirements are fundamentally different in the energy business compared to the industrial business. The demerger will enable both companies to pursue their specific strategies, focus on their core portfolios and take decisions on capital allocation. This will enable the full value of each of the businesses to be unlocked for the benefit of the shareholders, Siemens had said on rationale behind demerger.

All this is likely to be completed by CY25F. The demerger will create two strong independent companies focusing on their core activities.

For FY24F/25F, analyst at Incred Research Services have raised their revenue estimates by ~2 per cent/7 per cent, respectively, factoring in the strong capex and order inflow led by digital penetration, government capex and also raised earnings estimates by 15 per cent/23 per cent, respectively, factoring in higher other income. The stock however, is trading above the brokerage firm’s target price of Rs 7,565 per share.