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Riding capex through tech-driven offerings

We attended Siemens Innovation Day, where the company highlighted its key products and solutions that it has established for its customers. SIEM has participated in the journey of energy efficiency of various user industries, and it continues to focus on high growth areas, such as renewables, data centers, EVs, semiconductors, and other private capex-focused industries, to become more efficient. The opportunity pipeline remains strong from the above industries, and SIEM is ideally positioned to capture it with its key products, such as Xcelerator, industrial metaverse, and digital twins. We maintain our estimates and reiterate our BUY rating with a TP of INR8,400.

Opportunity pipeline remains strong

SIEM has a strong addressable market from T&D, railways, metros, and data centers, along with incremental investments led by PLI and semiconductor manufacturing. The company, with its tech-driven offerings, expects to ride on 1) the renewable energy-led capex, which is still growing at a strong pace; 2) private capex based on new areas such as data centers, batteries, EVs, and semiconductors, which is also growing strong; 3) conventional private capex, such as F&B, services, and pharma, which will revive in a few quarters; and 4) sustainability-driven capex, which is growing selectively. We expect SIEM’s revenue to clock 16% CAGR over FY23-26.

Siemens Xcelerator provides varied solutions

Siemens Xcelerator has around 125 use cases, 11 ecosystem partners, and 200+ references. This is helping various industries, such as F&B, hotels, data centers, semiconductors, batteries, EVs, etc., by: 1) using AI and data to plug the gaps in systems, 2) reducing energy consumption and increasing the throughput , and 3) helping clients move towards energy sustainability. Going forward, SIEM plans to transform the supply chain by including suppliers and partners in its sustainable manufacturing journey.

Energy and mobility segment margins have levers to improve

SIEM is already benefiting from strong demand coming from renewable energy and corresponding investments in T&D. The demand-supply mismatch, particularly in the high-kVA transformers, has resulted in better margins for most players, which is yet to reflect in SIEM. 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. Along with this, we also expect the mobility segment margins to improve once the delivery of locomotives commences from FY25. For the mobility division, metros and bogey factory will emerge as global hubs and will be used for exports to Australia, the Middle East and Asia.

Financial outlook

We maintain our estimates and expect SIEM’s revenue/EBITDA/PAT to post a CAGR of 16%/24%/25% over FY23-26. We project EBITDA margin to improve 300bp over FY23-26, driven by better margins in the energy and mobility divisions because of strong demand and operating leverage benefits.

Valuation and view

The stock is currently trading at a P/E of 77.7x/62.5x on FY25E/FY26E. We remain constructive on SIEM, 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 TP of INR8,400.

Key risks and concerns

a) Delays in order finalization from key government-focused segments such as transmission and railways, b) aggression in bids to procure large-sized projects would adversely impact margins, and c) related-party transactions with parent group entities at lower-than-market valuations to weigh on the stock performance.

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SEBI Registration number is INH000000412