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Schneider Electric Infrastructure Ltd (SEIL) witnessed a strong quarter across all parameters continuing with its journey of consistent performance. It remained better than anticipated on all fronts with revenues growing at 30% driven by P&G, MMM, Mobility and other electro-sensitive segment while EBITDA improved 87% YoY and APAT jumped 2.1x YoY on better product mix. Stable RM cost and better product mix helped gross margins improve 607 bps YoY while margins improved 460bps YoY and also improved 220bps sequentially. Gross margins expected to sustain at the similar levels given stable raw material as the current order book has high margin orders. Ordering momentum remained strong for the quarter and notched up higher by 34.5% YoY in Q3FY24 and 38.8% for 9MFY24 driven by power and grid (P&G), mobility and electro-sensitive segments. The overall order backlog too improved 24% for 9MFY24 providing healthy outlook ahead. Overall, management remains positive on the business outlook across its traditional and emerging segments providing more avenues for digitization and expects momentum to continue.

The company has been receiving breakthrough orders across its Ecostruxure platform and building on it with newer initiatives like Ecostruxure Transformer Expert or initiatives like ECOCare (memebership program to help you revolutionize customer equipment’s servicing needs having different suites) launched in Q3FY24. Initiatives like this substantiates the fact that company also remains focused on its service business and providing native connectivity to bridge Capex & Opex to unlock service growth and recurring business in the long run. SEIL remains well positioned across its core segments and adequate digitalization opportunities helping it in better market penetration and repeat order wins from its customers and partners along with efficient supply chain. Further, company’s performance has been consistent for FY22, FY23 and H1FY24 wherein execution has remained strong after and expects it to continue with strong order book and pipeline ahead. Overall company remains optimistic in the short to mid-term with support from the government in the form of investment, reforms and policies. Considering the strong 9MFY24 performance we are increasing the estimates and target upwards given strong beat across revenues and margins. We also introduce FY26 estimates. Hence, we maintain BUY with a revised TP of ?690.

Q3FY24 / 9MFY24 Summary

SEIL witnessed a strong quarter and PAT remained in the positive territory for the ninth consecutive quarter. Revenues improved 30% YoY (Services-12%, Transactional is 21% and system is 67% in which equipment is 40%, project -11% and IG -16%) while gross margins at ~36% have remained in the similar levels from last four quarters were higher by +607bps YoY given stable RM cost and better product mix. EBITDA improved 87% and EBITDA margin improved 460bps YoY to 14.8% which were better than estimates. Gross margins expected to sustain at the similar levels given stable raw material as the current order book has high margin orders as indicated. Higher operating leverage led to APAT at ?910 mn (+2.1x YoY). Order inflow at 744 mn was higher by 29.5% YoY driven by strong momentum in orders in all segments. For the 9MFY24 Revenues/EBITDA/PAT improved 27%/108%/114% while gross margins at 35.7% improved 510bps while margins improved 500bps at 12.8%. Overall order backlog at ?10 bn for 9MFY24 (+24% YoY) providing healthy revenue visibility ahead. Order booking improved 39% YoY. Good momentum in orders driven by P&G, Mobility and other electro-sensitive segments.

Outlook and Valuation

SEIL has tripled it’s market capitalisation since our initiation of coverage vindicating our stance that the street would continue giving premium valuations since it was truly representative of the emerging India Story. Business momentum remains positive across its traditional and emerging businesses and we expect this to continue as core data improves which reflects on the overall business it operates in with adequate digitalization opportunities and positive outlook ahead. Further, company’s performance has been consistent for FY22, FY23 and 9MFY24 wherein execution has remained strong with consistent margin improvement and expects it to continue with strong order book and pipeline ahead including focus of management remains on collections and cash. Overall company remains optimistic in the short to mid-term with support from the government in the form of investment, reforms and policies. Considering the strong 9MFY24 performance we are increasing the estimates and target upwards given strong beat across revenues and margins. We also introduce FY26 estimates. Hence, we maintain BUY with a revised TP of ?690.

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