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Witnessing gradual recovery

Siemens in its analyst meet highlighted its continued focus on improving margins as volumes improve across segments. Smart infrastructure is benefiting from improved demand and digital industries segment seems to be bottoming out in terms of demand weakness. Mobility segment volumes will improve as locomotive delivery commences after a few quarters. The company intends to increase the share of exports in both Smart infrastructure and Mobility. We maintain our estimates and TP of INR3,200, based on 45x Mar’27E earnings on pro forma financials of the non-energy entity Siemens Limited. We will revisit our estimates once we have detailed financials of both the entities. We maintain Neutral rating on the stock.

Key takeaways from Siemens analyst meeting

Digital Industries (DI): Witnessing early signs of bottoming out

The segment continues to experience normalization after a post-Covid surge. While order inflow has improved sequentially, from INR7.6b in 4QFY24 to INR8.1b in 1QFY25 to INR9.5b in 2QFY25, revenue and margins remain under pressure due to subdued private sector capex, inventory correction at channel partners, and an unfavorable product mix. The company is consciously avoiding stock pushing to prevent the creation of excess inventory. Management is cautiously optimistic about a recovery, citing early signs of bottoming out.

Smart Infrastructure (SI): Room for margin improvement

Performance was resilient with 40% YoY growth in 2QFY25 orders and consistent revenue growth. This strength was underpinned by public sector investments, particularly in power distribution, data centers, and semiconductor infra, while private sector capex remains weak. Margin expansion was notable, with 1HFY25 EBITDA margins improving to 16.3% from 15.3% YoY, supported by product mix and disciplined execution. Management has showcased confidence in further margin improvement and expressed satisfaction with the performance of its C&S Electric acquisition, which continues to grow profitably. The company also aims to increase the share of exports and services in this segment to improve its margin profile over time.

Mobility: Production scale-up to help improve margins

The segment displayed a volatile but promising outlook. 2QFY25 saw strong order inflow, including export orders for metro bogies and a scope expansion for the 9000 HP locomotive project, particularly for maintenance. Execution, however, saw slight delays due to normalization of project cycles. Management emphasized that the ramp-up for the Dahod-based locomotive factory is progressing on schedule. Export demand from the parent remains strong, and signaling has been identified as a future growth lever. While current margins are impacted by upfront investments and R&D costs, the company expects improvement as production scales. The 9000 HP factory is ready and gearing up to start commercial production of locomotives. Bogey factory is also ready.

Low-voltage motors (LVM) business remains under pressure

The segment witnessed a 6.9% YoY decline in new orders due to tepid demand and pricing pressure. Despite revenue growth of 6%, EBITDA margin declined on YTD basis due to lower price realization and increased royalty payments to Innomotics, the global business that was recently divested by Siemens AG. Management confirmed that it is evaluating strategic options for the future of this segment in light of the external dependency.

Outlook

Looking ahead, Siemens remains optimistic about its growth trajectory in terms of revenue and profitability. Public sector capex will continue to drive momentum in the Smart Infrastructure and Mobility segments, with the latter expected to ramp up materially as major railway and metro projects advance. Export growth is a strategic focus, particularly for the Mobility and SI businesses, as global supply chains diversify and India strengthens its role as a manufacturing hub. Digital Industries, while currently muted, is expected to benefit from an eventual revival in private capex and rising demand for automation and digitalization solutions. Though the segment is still dependent on imports and impacted by transfer pricing, the company is hopeful of margin recovery through volume growth and improved operating leverage.

Energy segment demerger will not impact Siemens Ltd

Management highlighted that the recent demerger of the Energy business has no material impact on the operational outlook of Siemens Limited. The focus remains on profitable growth, localization, exports, and selective capex aligned with emerging verticals such as semiconductors, batteries, and data centers.

Valuation and view

We maintain our estimated CAGR of 14%/19%/19% in revenue/EBITDA/PAT for Siemens Ltd. The stock is currently trading at 47.3x/40.9x P/E on FY26/27E earnings. We maintain Neutral rating on the stock with a TP of INR3,200, based on 45x Mar’27E earnings on pro forma financials of the non-energy entity Siemens Limited. We will revisit our estimates once we have detailed financials of both the entities.

Key risks and concerns

1) Slowdown in order inflows from key government-focused segments such as transmission and railways, 2) Aggression in bids to procure large-sized projects would adversely impact margins, 3) Related-party transactions with parent group entities at lower-than-market valuations to weigh on the stock performance.

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