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Overall strong performance on all fronts...

Siemens Ltd (Siemens) reported consolidated revenue at | 3483.7 crore, up 22.8% YoY amid a low base. Gas & power, smart infrastructure, digital industries, mobility segments contributed ~34%, ~32%, 22%, 7%, respectively. EBITDA came in at | 457.8 crore with EBITDA margin of 13.1% (vs. | 8.5% in Q2FY20) supported by reduced employee and other expenses. Sequentially, EBITDA margins improved 60 bps. PAT came in at | 321.9 crore, up 83% YoY on a low base owing to superior performance in key segments. Order inflows came in at | 3309 crore, up 16.9% YoY led by order growth across all businesses. Order backlog was healthy at | 12677 crore.

Digital industries, smart infra, mobility to drive future growth...

Overall revenue growth was driven by gas & power (energy) segment, which grew 16% to | 1191.3 crore, Smart infrastructure grew 48.5% to | 1150.1 crore, digital industries revenue grew 50.3% to | 791.7 crore while mobility revenue grew 1.3% YoY to | 258.9 crore. It witnessed increased demand in power transmission, digital grid and distribution systems. Digital industries business saw growth in machine tool and process automation.

We believe grid stability & reliability will be the main focus areas driving the business in gas & power, smart infrastructure business. Digital industries (process, discrete) segment would benefit from expected revival of manufacturing capex. Mobility would be driven by capex in railways, high speed rail, metros. Overall, we believe Siemen’s growth will be driven by digital industries, mobility, smart infrastructure, which is expected to grow at ~17%, ~13%, ~17% CAGR, respectively, in FY21E-23E.

Segment mix, operational efficiencies to drive superior margins

EBIT margins across segments improved sequentially. Gas & power reported EBIT margin of 15.1%, which improved 250 bps QoQ. Smart infrastructure EBIT margin was at 8.6% (vs. 7.5% QoQ). Mobility segment EBIT margin improved 30 bps to 11.2% QoQ while digital industries EBIT margin declined 170 bps to 8.7% QoQ aided by better contribution from products and services side. Siemens continues to focus on profits over revenue by range of rationalisation and enrichment efforts for product mix to enhance market share. We believe EBITDA margins will further improve from 10.1% in FY20 to 12.2% in FY23E.

Valuation & Outlook

Overall, Siemens is expected to further strengthen its leadership position through further penetration of automation and digitisation products & services across segments, particularly in digital industries, smart infrastructure, mobility segments, driving long term growth. We revise our target price to | 2295/share (earlier | 2210) and maintain BUY rating, implying multiple of 50x on FY23E EPS for core business and valuing C&S business at 1.7x on FY23E sales.

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