Buy Siemens Energy India Ltd for the Target Rs. 3,000 by Motilal Oswal Financial Services Ltd
Long-standing player in transmission
Siemens Energy India Limited will get listed on 19th Jun’25. This business was demerged from Siemens Ltd in April’25 and focuses on Transmission and Distribution (T&D) as well as small-sized turbines. We expect the company to benefit from a strong addressable market in the T&D business. Based on the financial details available for FY24, we arrive at pro-forma financials for the energy business. We expect revenue/PAT CAGR of 25%/31% over FY25-27, with EBITDA margin expanding to 21.4% by FY27. Margins have already started expanding in 5MFY25. We ascribe a multiple of 60x to Siemens Energy and arrive at a TP of INR3,000 on Sep’27 estimates. We resume coverage with a BUY recommendation. Key risks to our thesis can come from a slowdown in ordering and supply chain issues impacting margin.
Siemens Energy’s business profile
Siemens Energy India Limited offers a wide range of services and solutions to power generation utilities and IPPs. It also provides industrial gas turbines and steam turbines—typically used in captive power plants across industries such as metals, cement, chemicals, sugar, textiles, and oil & gas—with capacities of up to 250MW. Additionally, it supplies heavy-duty gas turbines of up to 600 MW, as well as large utility steam turbines and generators of up to 800 MW. In the power transmission business, the company provides AIS and GIS, power transformers (up to 765 kV, 500 MVA), reactors (up to 765 kV), and traction transformers (up to 33 kV, 10 MVA), along with EPC solutions and services.
Well-placed to benefit from planned investments in T&D
We expect Siemens to be well-placed to benefit from planned investments in T&D. CEA expects investments worth INR3t from FY25-30 on planned transmission capacity addition across lines and substations. Consequently, the transmission line segment is expected to witness robust growth, particularly in HV lines of 400kV and 765kV, given their crucial role in inter-state transmission lines. Siemens is among the few players with a presence in high-voltage lines up to 765kV and is, hence, expected to benefit from planned investments. We believe that Siemens had adopted a selective stance for HVDC projects. However, with the upcoming pipeline of HVDC projects, we expect the company to participate based on its technological capabilities. Additionally, state-wise ISTS strengthening initiatives are expected to drive investments worth INR120b in the sector.
Planned capex across facilities to drive growth in financials
Siemens is continuously investing in capacity expansion across transformers and GIS. In its last annual report, the company highlighted a capex of INR4.6b for power transformers in Kalwa (doubling capacity from 15,000 MVA to 30,000MVA), INR3.3b for blue GIS in Goa, and INR0.6b for vacuum interrupters in Goa. This will provide support to revenue growth for the company once capex gets over. A portion of SIEM’s capacity expansion toward transformers and GIS is expected to be earmarked for exports too.
Financial outlook
Based on the financials available for FY24, we arrive at proforma financials for the company. We expect revenue/PAT CAGR of 25%/31% over FY25-27, with EBITDA margin expanding to 21.4% by FY27. Margins have already started expanding in 5MFY25. EBIT margin adjusted with one-offs stood at 15.6% in 1QFY25 and improved to 20.6% for a two-month period of 2QFY25. Our assumptions for revenue growth takes into account capacity doubling for transformers and expansion in GIS along with normal business growth for turbine business. With improvement in revenues and increased demand, we expect operating leverage to improve margin. Company has receivables from Siemens Ltd which once received would aid other income. We thus expect a PAT CAGR of 31% over FY25-27.
Valuation and view
The stock will get listed on 19th Jun’25. We ascribe a multiple of 60x to Siemens Energy and arrive at a TP of INR3,000 on Sep’27 estimates. Based on relative valuation of peers, Hitachi Energy trades at 74x P/E and GE Vernova T&D trades at 58x P/E Mar’27 estimates. Hitachi Energy has benefited from large HVDC wins, while Siemens is also better placed to win upcoming projects and has a better margin profile
Key risks and concerns
Key risks to our thesis can come from a slowdown in ordering and supply chain issues impacting margin.
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