Siemens: Growth outlook intact

23 Jan 2024 , 01:36 PM

Siemens’ FY23 annual report highlights increased focus on burgeoning sectors like Energy and Power, coupled with alignment on parent’s strategy to exit non-core businesses with challenges. Key takeaways: a) Localisation and capacity expansion on the cards across all segments (except DI). b) Capacity expansion to meet domestic and global demand. c) Robust order backlog of Rs455bn (2.5x TTM sales) to provide clear revenue visibility. d) Positive outlook in automation, data centres, transportation (railway modernisation and EV charging infra), renewables and exports. Management to maintain its order execution pace to keep margins intact. Analysts of IIFL Capital Services keep forecasts unchanged; maintain ADD. 

Robust order book, inflows reflect healthy outlook: 

Order inflows improved significantly; up 136% YoY to Rs 464bn, led by large orders in Energy and Smart Infra and mega multi-year PPP project in Mobility (9000 HP loco Rs255bn). Order backlog is healthy with the widening of domestic portfolio and robust exports in Energy & Smart infra. 

Enhanced efforts on localisation: 

Focus on localisation will increase with technology absorption, but is also contingent on scale of domestic demand for the product. Segment-wise, DI solutions offered have low manufacturing support, given the thin volume to justify capex. However, SI supply chains are largely localised, catering to both domestic and global demand. Robust railways capex is driving expansion of portfolio on the rolling stock– components manufacturing, Bogie factory, etc., with localisation. 

Fairly valued: 

Analysts of IIFL Capital Services forecast sales/earnings Cagr of 22%/20% over FY23- 26 based on healthy order book across the segments, coupled with a pickup in capex cycle. Siemens Energy Demerger and listing is at least a year away. Analysts of IIFL Capital Services maintain their ADD rating with a TP of Rs4,383, at 52x on Dec’25 EPS.