Siemens' strong July-September quarter results fail to cheer markets

A near 10 per cent rally in November and restructuring of promoter holding are seen as reasons for the subdued reaction

Siemens reported solid results in the July-September quarter (fourth quarter, or Q4) of 2022-23 (FY23), with the top line growing 25 per cent year-on-year (Y-o-Y) to Rs 5,808 crore.

The operating profit margin stood at 12.1 per cent, led by lower employee costs and other operating expenses.

The company follows the October-September financial year.

Earnings before interest, tax, depreciation, and amortisation (Ebitda) rose to Rs 700 crore, marking a 36 per cent Y-o-Y growth, and earnings grew by 50 per cent Y-o-Y. Profit after tax (PAT) reached Rs 572 crore, up 49.8 per cent Y-o-Y.

Order inflow for the quarter was at Rs 4,500 crore, up 12 per cent Y-o-Y. Order inflow for FY23 (last four quarters from October 2022 to September 2023) increased by 136 per cent compared to 2021-22. The total order backlog was robust at Rs 45,500 crore.

Net working capital days reduced to 41 days (end-September 2023) from 58 days in the first half of FY23 (October 2022-March 2023). The company is debt-free.

Although gross margin has fallen, potentially causing concern, this could be attributed to the revenue mix. However, both PAT margins and Ebitda margins have expanded. The sequential performance was also strong, with revenue up 19 per cent quarter-on-quarter, Ebitda up 23.6 per cent, and PAT up 25.4 per cent.

Segment-wise, the energy division saw revenues grow 13 per cent Y-o-Y to Rs 1,850 crore. The smart infrastructure vertical saw revenues rise by 27 per cent Y-o-Y to Rs 2,100 crore. The mobility division’s revenue grew by 61 per cent Y-o-Y to Rs 710 crore, while the digital industries segment saw revenues grow by 26 per cent Y-o-Y to Rs 1,190 crore.

The board approved Rs 360 crore in capital expenditure (capex) to double transformers’ capacity from 15,000 megavolt amperes (MVA) currently to 30,000 MVA by December 2025, along with Rs 56 crore for vacuum interrupters by September 2026. This expansion is driven by demand from domestic as well as global clients in grid technology products, switchgear, etc. Future orders are spread across high-voltage direct current, transmission, and railways.

While the results are positive, the order backlog indicates stable revenue visibility, and the capex is expected to pay off quickly. However, there is a noteworthy activity in the shareholding of promoters that demands attention.

The holding company Siemens Energy, which owns 24 per cent of Siemens India, is looking to sell 18 per cent to the parent Siemens AG for a cash consideration of €2.1 billion (roughly a 15 per cent discount to current prices).

Siemens AG has permitted Siemens Energy to use 5 per cent of its shareholding in Siemens India as collateral for guarantees.

Siemens India is also contemplating the demerger of its grid and power division from the existing business. Investors will need to adjust to these developments.

Siemens has consistently been highly valued as a multinational subsidiary with an excellent balance sheet, broad portfolio, and high order inflow.

Most analysts are bullish on the stock. The stock fell 0.4 per cent to close at Rs 3,630.55 on Wednesday on the BSE, post-results the previous evening, partly due to the recent rally (up 7 per cent in the past month).

According to Bloomberg, all seven analysts polled after the results have an ‘accumulate’/’add’/’buy’/’outperform’ rating on the stock, with an average target price of Rs 4,379.