Prabhudas Lilladher has issued an ACCUMULATE recommendation for Siemens India, revising its target price to Rs 7,716 from Rs 7,374, representing a modest upside from the current market price of Rs 7,243. Siemens delivered a strong performance in Q4FY24, marked by an 11.3% YoY revenue growth and 246 bps expansion in EBITDA margins, driven by robust demand across its Energy, Smart Infrastructure, and Mobility segments. Strategic investments, including an additional Rs 1 billion capex for large reactor manufacturing, along with plans to demerge the Energy business, signal significant long-term value creation.

Q4FY24 Financial Highlights

1. Impressive Revenue Growth:

Consolidated revenue rose by 11.3% YoY to Rs 64.6 billion, surpassing expectations of Rs 64.4 billion.
The Mobility segment led growth, posting a 23.9% YoY increase to Rs 8.8 billion, followed by Energy (+12.4% YoY) and Digital Industries (+10.2% YoY).
2. Margin Expansion:

EBITDA margins improved by 246 bps YoY to 14.5%, aided by better gross margins and cost efficiencies.
The Energy segment’s EBIT margin rose sharply to 17.8% (from 11.9% in Q4SY23), while Digital Industries witnessed a 283 bps contraction to 9.4%, reflecting challenges in this vertical.
3. Profitability Metrics:

Adjusted PAT grew by 36.4% YoY to Rs 7.8 billion, driven by operational improvements and a 47.4% increase in other income.

Order Inflows and Future Outlook

1. Healthy Order Momentum:

Q4FY24 order inflows surged by 37% YoY to Rs 61.6 billion, reflecting robust demand across Siemens’ core business verticals.
For FY24, the company’s total order inflow stood at Rs 235.6 billion, excluding the Rs 263 billion locomotive order.
2. Strategic Capex and Expansion Plans:

Siemens announced an additional Rs 1 billion capex to expand its capacity for large reactor manufacturing, bringing the total announced capex to Rs 4.6 billion.
Investments in infrastructure and localization efforts continue to strengthen its competitive edge.
3. Demerger of Energy Business:

Efforts to demerge the Energy business are underway, a move expected to unlock significant shareholder value by focusing on high-margin segments.

Segmental Performance

1. Energy:

Revenue: Rs 20.8 billion (+12.4% YoY).
EBIT Margin: 17.8% (vs 11.9% YoY), reflecting improved efficiency.
2. Smart Infrastructure:

Revenue: Rs 22.7 billion (+7.6% YoY).
EBIT Margin: 13.4% (up from 11.6% YoY).
3. Mobility:

Revenue: Rs 8.8 billion (+23.9% YoY).
EBIT Margin: 8.2% (vs 3.3% YoY).
4. Digital Industries:

Revenue: Rs 10.5 billion (+10.2% YoY).
EBIT Margin: 9.4% (vs 12.2% YoY), indicating challenges in this vertical.

Valuation and Investment Rationale

1. Robust Financial Projections:

Siemens is expected to achieve 19.6% and 19.1% revenue growth in FY25E and FY26E, respectively.
EBITDA margins are projected to improve steadily, reaching 14.6% in FY26E, supported by strategic investments and operational efficiencies.
2. Competitive Valuation:

The stock trades at a forward P/E of 83.3x for FY25E and 68.5x for FY26E, reflecting premium valuation due to its strong market position.
The revised target price of Rs 7,716 values the stock at a P/E of 73x FY26E earnings.
3. Long-Term Value Drivers:

Continued growth in public and private capex, localization efforts, and digitalization initiatives position Siemens as a leader in electrification and automation.

Risks to Monitor

1. Weakness in Digital Industries:

The segment’s declining margins could weigh on overall profitability if challenges persist.
2. Competitive Pressures:

Increasing competition in the electrification and automation markets may impact market share.
3. Execution Risks:

Delays in executing large-scale projects or demerger plans could hinder growth projections.

Investment Recommendations

1. Short-Term Trading Strategy:

Entry Range: Rs 7,200–Rs 7,250.
Target: Rs 7,500–Rs 7,600.
Stop Loss: Rs 7,100.
2. Long-Term Investment Strategy:

With its diversified business model and strong fundamentals, Siemens is a robust addition to any portfolio.
Suggested Buy Price: Rs 7,243.
Target: Rs 7,716.

Bottomline

Siemens Ltd. remains a market leader in automation, electrification, and smart infrastructure, supported by strong order inflows and strategic investments. Despite challenges in certain verticals, the company’s long-term growth trajectory appears intact. With a target price of Rs 7,716, Siemens offers a compelling investment case for those looking to benefit from India’s infrastructure and capex boom.