Energy, railways, data centres may drive Siemens’ growth
Siemens Ltd, with its diverse range of product offerings, is poised to benefit significantly from the increased spending on infrastructure in the energy and railway sectors. This optimism is mirrored in its stock price, hovering near the 52-week high of ₹4,499.80 apiece seen last week. Analysts suggest that power transmission and distribution, data centres, railways, metros, and locomotives will remain growth areas for the heavy electrical equipment manufacturer.
In the December quarter of fiscal year 2024 (Q1FY24), Siemens secured new orders worth ₹5,971 crore, nearly a 10% increase previous year. Growth was primarily led by the energy business, particularly the transmission segment. The company follows an October-September financial year.
New orders in digital industries automation fell due to destocking after demand normalization, but Siemens sees normalcy beginning Q3. “Excluding the large railway order, order book stands at ₹20,700 crore (1.2x FY23 revenues) thus providing strong revenue growth visibility for the near future,” said ICICI Securities.
The smart infrastructure segment, which includes data centres and constituted the largest portion of Siemens’ revenue last quarter at nearly 38%, saw a 22% growth year-on-year. The energy segment, benefitting from strong demand and the transition to sustainable energy sources, follows closely. Siemens’ energy solutions are tailored for transmission utilities, independent power producers, and system operators. Moreover, a heightened focus on railways meant that the mobility business saw a strong 72% growth, with prospects in e-locomotives, propulsion systems, trainsets, metro projects, and bogies.
However, the company saw a decrease in its Ebitda (earnings before interest, taxes, depreciation, and amortization) margin by 257 basis points to 12.4% in Q1, attributed to a lower gross margin and increased other expenses. Additionally, the base quarter’s results were buoyed by a ₹100 crore gain related to foreign exchange and commodity variations.
Over the past year, Siemens’ shares have surged 38%, underperforming peers like Bharat Heavy Electricals Ltd, and Bharat Electronics Ltd. Still, valuations are pricey with the stock trading at 58 times the projected FY25 earnings.
“Lack of clarity on LV motors business (which Siemens reported separately in Q1FY24) and demerger of energy business are key overhangs in the near term,” said analysts from Nomura Financial Advisory and Securities (India).
Investors should also keep an eye on large orders in railways, hydrocarbon and power transmission and distribution. Even so, Siemens has said that general elections might briefly slow down major project bids but will not disrupt its long-term growth trajectory.
