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Targeting opportunities in transmission, railways, data center and select private capex

Siemens in its analyst meet highlighted growth opportunities across segments, plans to demerge its energy division, and plans to increase localization across segments. The company is optimistic about growth prospects in the domestic market across government and private capex. It is also positive about opportunities emerging from new areas such as semiconductors, batteries, and EVs. We believe that near-term order inflows may be affected by the general election schedule; however, in the long term, order inflow prospects remain strong from transmission, railways, data center, industrial automation, etc. A potential demerger and listing of Siemens’s India Energy segment should open avenues for value-unlocking over the next 2-3 years. We marginally revise our estimates to bake in slightly better margins and expect the company to clock revenue/EBITDA/PAT CAGRs of 16%/18%/19% over FY23-26. We continue to value it at 55X P/E on two-year forward earnings and maintain our BUY rating with a TP of INR4,600.

Key takeaways from the analyst meet

Full-year results reflect strong execution

In its full-year results, Siemens reported 21.3%/42%/47% YoY growth in revenue/EBITDA/PAT, driven by strong execution from the mobility and digital industry segments. Gross margins declined YoY on higher one-time costs in the mobility segment despite overall better realization. Overall order inflows for the year jumped 139% YoY, including a large locomotive order worth INR263b. However, order inflows moderated QoQ. The company’s order book at FY23- end stood at INR455b. The company is optimistic about growth prospects from increasing spending by the government on infrastructure (rail, roads, energy) and by private investments from several sectors such as pharma, data center, automotive, electronics, metals, intralogistics, chemical, water, and cement.

Initiated the process to demerge energy division and list it separately

Siemens AG has acquired an 18% stake in Siemens India from Siemens Energy for a total consideration of EUR2b, increasing its stake to 69%. In line with its plans to demerge the energy division, Siemens has got approval for forming a wholly owned subsidiary that may be required. Siemens Energy accounted for 31% of revenue and 32% of PBIT. The addressable market for the energy segment is expected to see a boost from transmission capex, HVDC projects, and its No.2 positioning in the domestic small-sized turbine market, which is also growing. We believe that this entire process of demerger and listing can take 2-3 years.

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