Siemens stock drops rapidly as management flags growth challenges ahead

Siemens has plans of capex of Rs 1,100 crore to expand capacity to meet incremental domestic and export opportunities

Siemens’s share price has lost ground in the past few sessions following weak management commentary. The management indicated challenges to the growth outlook due to stagnant private capex and concerns over semiconductor shortages for digital industries.

 

Government infra-spending may regain momentum from January 2025. There could be pickups across energy transition, mobility, data centres, electronics, chemicals, pharma, food & beverages, as well as core areas like steel, auto, and cement. However, digital industries like factory automation, process automation, and motion control may face headwinds for the next six to nine months.

 

Siemens has capex plans of Rs 1,100 crore for expansion to meet incremental domestic and export opportunities. The key projects are Rs 460 crore to set up a factory in Goa to expand the capacity of ring main units by 22,000 feeders (18,000 feeders currently) and MV GIS (gas insulated switchgear) capacity addition of 1,500 panel (1,000 panel capacity currently). The facility is expected to be ready by FY27. Siemens also plans to spend Rs 190 crore to set up a metro train manufacturing facility at Aurangabad to cater to exports and a bogie factory in Aurangabad for domestic and export. It will also spend Rs 420 crore to expand the capacity of power transformers, and vacuum interrupters for medium voltage switchgears.

 

The necessary approvals to demerge the Siemens Energy business are in place and demerger will be completed in CY25 with a subsequent separate listing. Siemens Energy includes a portfolio of transmission utilities such as high voltage grid transmission technologies along with gas/steam turbines, turbo compressors and EPC solutions for oil & gas, T&D, metals, and cement sector.

 

Siemens saw volatility in FY24 across segments and quarters on margins and book-to-bill. There’s a lack of large pending orders and no apparent uptick in private sector demand. The stake transfer in the demerger adds to valuation complexity.

 

Adjusted for one-off support in the energy segment, and Other Income, the Q4 Ebitda (company’s year-end is September 30) was significantly lower than unadjusted reported results. Full-year orders grew 14 per cent, revenues grew 14 per cent and Ebitda rose 22 per cent and PBT was up 25 per cent (all year-on-year Y-o-Y). 

 

Book-to-bill and margins varied widely across segments. Digital industries and low voltage motors were at below 10 per cent margin by year-end after starting Q1 at healthy double digits. The energy segment rose above 15 per cent in Q4, after being single-digit for the first three quarters. Book-to-bill varied from 1.4x for the energy segment to 0.85x for the digital industries segment and averaged 1.13x for the consolidated business.

 

Management highlighted a lack of locomotive orders from railways. In HVDC, Siemens is focussed only on expensive Voltage Source Converter (VSC) technology while most Indian orders will be in LCC. Private sector demand is focused on new-age technologies (semiconductors, batteries, solar photovoltaic, electric vehicles). Private capex is slow in traditional verticals.

 

The company is hoping for orders in exports, energy transmission, and energy efficiency. Exports have marginally increased from 15.4 per cent to 15.6 per cent in FY24.

 

In digital, electronics, chemicals, pharma, and F&B are growth drivers with Siemens servicing factory automation, process automation, motion control, and customer services. In Smart Infra, data centres, industrial infra, power utilities and commercial buildings are growth drivers. In mobility, railways electrification, signalling and modernised transport are growth drivers.

 

The stock is up around 70 per cent Y-o-Y but has dropped 10 per cent since December 1. At Rs 6,831.15 currently, the stock is very highly valued at a trailing PE of 115x and an estimated 84x of FY25. Valuations have always been high, which makes the stock vulnerable to any perception of a slowdown. Analysts have generally cut estimates but target prices range from Rs 8,000-plus on the upside, to Rs 4,500 on the downside.