Siemens Ltd’s shares have plummeted about 10% in the past two trading sessions. Investor sentiment took a beating after management offered a bleak outlook at the FY24 analyst meet on Friday. Siemens follows an October-to-September financial year.
In short, the capital goods company is bracing for a challenging FY25. In the energy vertical, the transmission & distribution business is doing well, but Siemens is not bidding for line commutated converter (LCC)-based high-voltage direct current (HVDC) projects as it does not offer LCC technology. It will participate only in voltage source converter (VSC) technology-based HVDC orders as it believes VSC is a superior technology that is being adopted globally. With most Indian government projects planned as LCC, this approach will reduce Siemens’s total addressable market in the category.
Also read: IT sector swings between hope and despair
Notably, Siemens is behind its peers on some parameters in this segment. According to a Nuvama Research report, Siemens’s energy business delivered an Ebit margin of 13.2% in FY24, adjusted for a ₹70-crore one-off in Q4FY24. Peers such as CG Power and Industrial Solutions Ltd, Transformers & Rectifiers (India) Ltd and GE Vernova T&D India Ltd registered 15-20% Ebitda margins.
Growth hinges on capex recovery
Siemens is looking to demerge its energy business and list it separately in the second half of 2025. Excluding the energy business, Siemens’s growth will hinge on capital expenditure recovery in both the public and private sectors. As of now, there is little good news here. Overall, management expects government spending to pick up in H2FY25 after a muted H1FY25. Private capital expenditure has so far been a mixed bag, with core sectors such as metals and automobiles seeing weak traction but new-age sectors such as data centres, renewables and semiconductors picking up the pace.
In the mobility business, orders for locomotives and train sets are also slow, with no major tenders on the horizon, management said. Its mobility portfolio mainly comprises Vande Bharat, train collision avoidance systems (Kavach), and railway signaling products.
Also read: With multifold gains, is GE Vernova T&D stock running ahead of its earnings?
In the digital industries segment (factory automation, process automation, motion control) the company faces headwinds due to inventory destocking at the customers’ end. Siemens expects this business to gain momentum in the next six to nine months. Earnings estimates have been trimmed. Nuvama has cut Siemens’s FY25 and FY26 earnings-per-share estimates by 9% and 15%, respectively.
Capex plans
Meanwhile, to boost local and overseas demand, Siemens has earmarked capex of around ₹1,100 crore across the energy, smart infra, and mobility verticals over the next two to three years. Of the total capex, it has spent nearly ₹320 crore in FY24. The company has a strategy to increase exports in transformers, HVDC projects with VSC technology, and switchgear equipment. But these positives may not be enough for investors at this point, given the 70% returns in 2024 so far. Plus, more pain may be in store ahead.
Also read: City gas distribution stocks climb the wall of worry
As Kotak Institutional Equities pointed out, there are difficulties in making predictions for FY25 due to sharp volatility in FY24 across segments and quarters on margin and book-to-bill (which are often correlated), a lack of near-term support from large orders, and the lack of a broad-based uptick in private-sector orders. “The endgame of stake transfer in the demerged energy entity is another variable that will play out in FY25 and beyond,” added the Kotak report dated 23 December.
Amid all this, it doesn’t help that valuations are expensive. The stock trades at about 80 times estimated FY25 earnings, showed Bloomberg data.
