Siemens’ Growth Potential Fueled by Energy, Railways, and Data Centers

Siemens Ltd is set to benefit from increased spending on energy and railway infrastructure, with its stock price reaching a 52-week high of ₹4,499.80 per share last week. In the December quarter of fiscal year 2024 (Q1FY24), the company secured new orders worth ₹5,971 crore, nearly a 10% increase from the previous year. The growth was primarily led by the energy business, particularly the transmission segment.

The smart infrastructure segment, which includes data centers and constituted the largest portion of Siemens’ revenue last quarter at nearly 38%, saw a 22% growth year-on-year. The energy segment also saw strong demand and transition to sustainable energy sources. Additionally, the mobility business saw a strong 72% growth, with prospects in e-locomotives, propulsion systems, trainsets, metro projects, and bogies.

However, Siemens experienced a decrease in its EBITDA margin by 257 basis points to 12.4% in Q1, attributed to a lower gross margin and increased other expenses. Over the past year, Siemens’ shares have surged 38%, underperforming peers like Bharat Heavy Electricals Ltd, and Bharat Electronics Ltd. Valuations are also considered pricey, with the stock trading at 58 times the projected FY25 earnings.

Analysts from Nomura Financial Advisory and Securities (India) have pointed out key overhangs in the near term, including lack of clarity on the LV motors business and the demerger of the energy business. Investors should keep an eye on large orders in railways, hydrocarbon, and power transmission and distribution. Despite potential disruptions from general elections, Siemens has assured investors that it will not disrupt its long-term growth trajectory.

In conclusion, Siemens Ltd is well-positioned to capitalize on the growing infrastructure spending in the energy and railway sectors, though challenges such as pricing and potential disruptions from general elections may impact its near-term performance.

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