Shares of Siemens Ltd are up over 3% since it announced its results for the quarter ended September after market hours on Tuesday. Consolidated Ebitda increased 34% year-on-year to ₹938 crore, beating analysts’ estimates.
Siemens follows an October-September financial year. For FY24, Siemens’ Ebitda increased 25% to ₹3,100 crore. While the company is expected to maintain its growth momentum, investors face a tough call, with the stock trading at an expensive valuation of about 87 times its estimated earnings for FY25.
Revenue growth was 11% after a muted increase of 6.6% in the June quarter. The Ebitda margin expanded 246 basis points, aided by lower raw material costs and other expenses. One basis point is 0.01%.
Order inflows increased by 37% year-on-year to ₹6,160 crore, a strong pick-up after an average of less than 10% growth in the first three quarters. However, the unexecuted order book remained subdued at ₹21,600 crore, less than 1x the trailing 12-month revenue (excluding the locomotive order to be executed over 35 years).
Siemens is focussing on increasing its presence in the domestic renewable energy market and expanding its share in exports through integration with the global supply chain of its parent, Siemens AG.
It is demerging its energy business, accounting for 28% of revenue and 33% of Ebit (earnings before interest and tax) in FY24, into a separate entity, similar to the global hive-off of the energy business into Siemens Energy AG in 2020. The demerger would help the Indian entity source renewable energy technology from Siemens Energy.
“We remain positive on Siemens India from a long-term perspective given: 1) its strong and diversified presence across industries through focus on electrification, digitalisation and automation, 2) product localisation, 3) strong balance sheet, 4) healthy public and private capex and 5) value-unlocking from demerger for energy business,” analysts at PL Capital said in a November 27 report.
Adding capacity
Siemens is expanding capacity for several products, with its Indian facilities expected to act as a sourcing hub for its parent, apart from serving the domestic market. These include doubling of its transformer manufacturing capacity, to be completed by December next year, for which it has also announced additional investment for expansion of the product portfolio.
Other projects are the expansion of its gas insulated switchgear manufacturing plant and construction of a new metro train manufacturing facility, although they will be commissioned starting in FY27 only.
However, the company’s rich valuation remains a hurdle. Nomura Global Markets Research has a ‘Reduce’ rating on the stock with a sum-of-the-parts-based target price of ₹6,000, which implies a multiple of 60x its estimated earnings per share for the 12 months ending September 2026.
Siemens shares are now trading at about ₹7,500. For further cues, investors may face a lengthy wait until the demerger is completed and trends in the energy business performance are clear.
