Siemens Scaling New Heights On Strong Performance, Govt's Thrust On Infra

The cycle is up for engineering firms and Siemens is likely to be one of the leading beneficiaries. Apart from the generic revival in activity which is expected to continue through FY2023-24, the Budget has a strong infrastructure thrust, which works in Siemens favour.

The company reported standalone EBITDA of Rs 550 crore (up 66 per cent year-on-year or YoY) in Q1FY23 (Siemens follows a October-September accounting year). This was driven by 13 per cent YoY revenue growth to Rs 3,600 crore and the EBITDA margin expanded by 480 basis points to 15.1 per cent.

Every segment except mobility saw improved margin. The digital Industries segment saw an amazing 1,500 basis points rise in margins, though this is likely to normalise. ‘Other income’ also rose 66 per cent YoY due to earnings on high cash balances of Rs 5,700 crore. Reported PAT was 78 per cent higher YoY at Rs 440 crore. Order inflow increased by 6 per cent YoY to Rs 5,450 crore.

Consolidated revenues grew 17.4 per cent YoY to Rs 4,020 crore, driven by higher volume. Energy grew 6.5 per cent YoY to Rs 1,160 crore, Smart Infrastructure grew 18 per cent YoY to Rs 1,520 crore, Mobility grew 27.6 per cent YoY to Rs 380 crore and Digital Industries grew 28.9 per cent YoY to Rs 1,020 crore. Gross margin expanded 188 basis points YoY to 33.5 per cent, due to softer commodity prices. Consolidated EBITDA grew 66.6 per cent YoY to Rs 600 crore, with EBITDA margin improving in every segment except Mobility. Consolidated PAT was at Rs 460 crore up 87 per cent YoY aided by higher Other Income (up 71 per cent YoY to Rs 100 crore).

Greater demand for automation and digitisation is an excellent signal given the company’s strength in this segment. There are multiple growth segments like data centres, e-commerce, waste heat recovery, smart infra, digitisation, automation, railway electrification, charging infrastructure for electric vehicles, decarbonisation, smart metering, smart grids etc. A recent large order win in railways for 1,200 electric motive (9000 HP), worth Rs 26,000 crore is another signal that Siemens would be a beneficiary of the Budget’s policy thrust.

Given order inflows, the book stands at around Rs 18,670 crore (which is 1.1x annual revenue). Notably, the acquisition C&S Electric’s revenue grew 14 per cent YoY to Rs 330 crore with an EBIT margin of 3.4 per cent and EBIT of Rs 11.4 crore, compared to YoY loss of Rs 1.5 crore. The turnaround is another sign of a strong cycle. The parent Siemens AG’s upward revision of its Digital growth guidance to 12-15 per cent and EBIT margin guidance by 100bps to 20-22 per cent is a positive sign for the India subsidiary.

Analysts are almost unanimous in “Buy” and “Add” recommendations despite the high valuations (PE of 65x) which have been historically sustained. Target prices range from Rs 3,350, Rs 3,462 to Rs 3,800, which is a moderate to decent upside from the current price of Rs 3,270.