Siemens stock soars 9% on strong Q2 results; demerger of energy business

Siemens stock update: In past three trading days, Siemens stock has rallied 17 per cent, while, in past one month, it has zoomed 33 per cent.

Shares of Siemens hit a new high of Rs 7,243.60, as they surged 9 per cent on the BSE in Wednesday's intra-day trade after the company reported a strong 70 per cent year-on-year (YoY) surge in its net profit for the March 2024-ended quarter (Q2FY24) at Rs 803 crore on the back of improved operational performance. Revenue from operations grew by 18.4 per cent YoY to Rs 5,750 crore. The company received new orders of Rs 5,184 crore.

In past three trading days, Siemens has rallied 17 per cent, while, in past one month, it has zoomed 33 per cent.

The company's strong performance was backed by a strong margin performance and higher other income leading to a sharp beat on net profit. Gross margin expanded by ~100bp YoY to 32.5 per cent, which, coupled with a reduction in employee costs as a percentage of sales, led to a ~250bp YoY/290bp QoQ expansion in EBITDA (earnings before interest, tax, depreciation and amortization) margin to 15.3 per cent.

Margin outperformance was driven by an improved revenue mix, pricing gains and productivity measures taken by the company. Siemens aims to maintain margins at higher levels amid a strong demand scenario, along with productivity measure, Motilal Oswal Financial Services (MOFSL) said in result update.

The management said overall, Q2FY24 results reflect the continued robustness in the economy led by Government spending in infrastructure, which has resulted in increased capacity utilization and the beginning of capacity expansions by the private sector.

Meanwhile, the company also announced fresh capex of more than Rs 500 crore and a demerger plan for its energy business, in separate announcements.

The board of Siemens approved the proposal to demerge its energy business into a separate legal entity – Siemens Energy India (currently a wholly owned subsidiary of Siemens). The energy business accounted 34 per cent of the total turnover of the company for FY2022-23. Shareholders of Siemens will receive 1 share of Siemens Energy India Limited for every 1 share of Siemens.

The energy business of Siemens means the business unit (including allocated support functions) of the company engaged in providing fully integrated products, solutions and services across the energy value chain of oil and gas production, power generation and transmission for various customers such as utilities, independent power producers and engineering, procurement and construction companies comprising of the entire part of the business and activities which is reported within the company under the ‘Energy Business Segment’.

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, the management said.

The brokerage firm MOFSL said they remain positive on Siemens, as the company is a direct play on the transmission and high-voltage direct current (HVDC) related spending over the next few years. It is also rightly positioned to capture the railway-related opportunities.