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Mixed Quarter; cost pressures weigh on profitability

We revised our EPS estimates by -9.1% for FY27E factoring in impact on margin amid commodity inflation, forex volatility and higher input cost. Siemens (SIEM) reported a muted quarter with revenue up 14.8% YoY to Rs47.1bn, while Adj.EBITDA margin (for one time of Rs390mn in Mobility) contracted 430bps YoY to 8.4% due to INR depreciation and elevated commodity prices. Smart Infrastructure saw healthy revenue growth (+10.7% YoY), supported by robust demand across grid modernisation, data centres and commercial real estate, while Digital Industries also grew strongly (+24.9% YoY) on healthy demand across solar cell manufacturing, metals, electronics, pharma and water. However, margins in both businesses remained under pressure from higher material costs, commodity volatility and FX headwinds. Mobility reported healthy revenue growth (+12.8% YoY) led by the Rolling Stock business, while margins improved by 633bps to 10.2%, aided by a one-time Rs390mn gain. Strong order inflows of Rs63bn (~16% YoY) took the order book to Rs466.7bn, providing healthy revenue visibility and supporting the medium-term growth outlook. SIEM completed sale of its LVM business for cash consideration of Rs21bn. Resilient domestic demand across private and public sectors remains supportive, although near-term margins remain a key monitorable given continued input-cost and currency pressures. The stock is currently trading at 71.9x/53.4x on the earnings of FY27/28E. We maintain our rating to ‘Hold’ while valuing the stock at a PE of 51x Mar’28E (same as earlier) arriving at a TP of Rs3,831 (Rs3,750 earlier)

While we remain cautious in the near term due to supply chain disruptions and elevated input costs amid the ongoing Middle East conflict, we continue to remain constructive in long-term growth prospects driven by

1) continued traction in public capex in areas like T&D, Metro, railways, utilities etc.

2) its strong and diversified presence across industries through focus on electrification, digitalization & automation

3) product localization

4) strong balance sheet

5) value unlocking from demerger for Energy business and Low Voltage Motors business.

Higher input costs impact profitability despite healthy execution: Consolidated revenue grew by 14.8% YoY to Rs47.1bn (Ple: Rs46.1bn). Adj. EBITDA (adjusting onetime gain of Rs390mn in mobility from other expenses) decreased by 24.2% YoY to Rs4bn (Ple: Rs5.5bn) with EBITDA margin contracting by 430bps YoY to 8.4% primarily due to contraction in gross margin, higher commodity prices and depreciating INR. PBT (exc. Extra Ordinaries) declined by 25.3% YoY to Rs4.3bn (Ple: Rs6.1) due to lower other income (-6% YoY to Rs1.2bn). Adj. PAT declined by 25.6% YoY to Rs3.2bn (PLe: Rs4.5bn) due to weaker operating performance partly offset by lower effective tax rate of 25.8%. Company reported extraordinary loss of Rs31mn related to demerger expenses and Onetime gain of Rs390mn in Mobility business in Q1FY27

Higher material costs impacted DI & SI margins:

Digital industries segment grew 24.9% YoY to Rs11.4bn, Mobility segment grew 12.8% YoY to Rs9.3bn while Smart Infra segment grew 10.7% YoY to Rs26.3bn. Smart Infra EBIT margin contracted 577bps YoY, while Digital Industries EBIT margin contracted 562bps YoY, whereas Mobility segment EBIT margin expanded 633bps YoY.

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