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A big miss but thesis intact

Siemens’ 3QFY24 result was weaker than our estimates on revenue/EBITDA/ PAT as slower-than-expected execution and weak margins in mobility and digital industries weighed on the overall performance. The company reported a revenue/PAT miss of 15%/22% vs. our estimates for 3QFY24. Order inflows improved 18% YoY to INR62.5b, mainly driven by Smart Infrastructure, Mobility, and Energy segments, while the digital industries division continues to witness weak ordering trajectory. We cut our estimates by 9% each for FY25/26E to factor in lower revenue and near-term weakness in certain segments. However, we continue to expect Siemens to be a key beneficiary of the incremental spending on transmission, HVDC, renewables, and railway projects. We reiterate our BUY rating with a revised TP of INR7,800 (vs. INR8,600 earlier).

Result weak on all parameters

For 3QFY24, Siemens reported 7%/27% YoY growth in revenue/PAT while EBITDA declined 2% YoY. Revenue growth was weak across segments, with a revenue decline of 2% YoY seen in the energy segment, while mobility revenue grew just 7% YoY, smart infrastructure (+14% YoY), and digital industry (+8% YoY). Gross margin improved 80bp YoY, likely due to a favorable product mix. EBITDA margin came in at 13.3% vs. 11.6% in 3QFY23, led by higher gross margin and operating leverage benefits. Overall order inflows for the quarter jumped 18% YoY to INR62.4b, driven by all segments barring digital industries, where weakness persists. The company’s order book at 3QFY24-end stood at INR473b. The company is optimistic about the growth prospects from higher spending by the government on infrastructure, which will continue to support demand for its products and solutions.

Miss across all the segments

Within segments, the Energy segment posted a 2% YoY decline in revenue and 240bp YoY margin improvement. We expect that to have come from improved pricing for its products. The Energy segment is already witnessing tailwinds from the pipeline in renewable energy integration, transmission network expansion, modernization of aging turbines, adoption of WHRS in cement plants, et al. The Smart Infrastructure segment clocked a 15% YoY revenue growth and 400bp margin improvement. The mobility segment posted just 7% YoY growth in revenue but a sharp contraction of 390bp in margin, while it had earlier started to improve in previous quarters. The government’s continued focus on modernization, e-locos, propulsion systems, trainsets, metros, bogies, etc. augurs well for this segment going forward. The Digital Industry segment clocked a 15% YoY decline in revenue primarily on weak order inflows.

Margin contracted in this segment sharply sequentially.

Benefitting from the expanding addressable market The addressable market for Siemens is expanding rapidly, and the company is ideally positioned with its products across segments to benefit from the same. Despite weak execution in the current quarter, we expect the company to continue benefiting from fast-growing transmission, energy transition, and the data center market. Along with this, continued focus on renewable energy transition in the global market should also help SIEM to participate in opportunities with its upcoming new facilities. SIEM is already expanding facilities across GIS, metro, and transformers to cater to both domestic and export demand. Financial outlook We cut our estimates to factor in lower execution and margins. We expect a revenue/EBITDA/PAT CAGR of 15%/24%/25% over FY23-26. The downward revision is primarily driven by: 1) lower revenue in digital industries as inflows continued to remain weak, and 2) lower margin in the mobility segment.

Valuation and view

The stock is currently trading at a P/E of 78.5x/63.2x on FY25E/FY26E. We remain positive on Siemens, as the company is a direct play on the transmission and HVDCrelated spending over the next few years. It is also rightly positioned to capture the railway-related opportunities. Reiterate BUY with a revised TP of INR7,800.

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