Jefferies sees 28% upside for Siemens on railway, transmission capex thrust, energy biz spin-off

The management will examine a potential demerger of the company’s energy business.

Siemens reiterated plans to spin off its energy business, increase localisation across segments and drive growth in its latest analyst meet, leading brokerages to maintain their bullish stance on the firm on December 22.

Jefferies raised its target price on the player to Rs 5,000 apiece from Rs 4,520 earlier, implying an upside of 28 percent from its CMP of Rs 3,898.6. The global brokerage said, “We believe Siemens is a good play on power transmission and railways, where we are most optimistic on capex.”

Order book strong

The company’s order book at FY23-end stood at Rs 45,500 crore. The overall order inflows for the company rose by 139 percent on-year, including a large locomotive order that accounted for a large portion of its overall order book in FY23.

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So far in 2023, transmission bids of Rs 43,200 crore have been awarded in CY23 across India vs less than Rs 10,000 crore in CY22.

Capex to drive growth

Private sector capex is at an inflection point with enquiries converting to tenders, noted Jefferies. Siemens's management said a capex of Rs 416 crore has been approved for capacity addition for power transformers and vacuum interrupters.

The company also plans to improve localization across segments as demand is strong. “Localization levels are still better for the energy, smart infrastructure and mobility segments; however, for digital industries, the company will remain dependent on imports from its parent”, said Motilal Oswal.

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Siemens would still have near-term dependence on traded goods for the mobility segment but has already embarked on localization of component manufacturing for traction components for the mobility segment at its Nashik factory. This, along with the other initiatives, should drive margin improvement.

Siemens energy business demerger

On December 18, the board of directors authorised the management to begin the first steps required to examine a potential demerger of the company’s energy business. The move came after promoters requested the board to consider hiving off the energy business into a separate entity.

Siemens Energy accounted for 31 percent of the revenue, and its market for the energy segment is expected to see a boost from transmission capex, and HVDC projects, along with its positioning as the second-best player in the domestic small-sized turbine market, which is also growing, per Motilal Oswal. “We believe that this entire process of demerger and listing can take 2-3 years,” added the domestic brokerage.

Outlook

Motilal Oswal expects revenue growth of 16 percent over FY23-26, issuing a price target of Rs 4,600 per share, valued at 55x P/E on two-year forward earnings.

“We believe that the company’s increased dependence on traded goods for the digital industries segment will limit improvements in gross and EBITDA margins,” added the brokerage.

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