PL Stock Report: Siemens (SIEM IN) - Analyst Meet Update – Strong domestic capex to drive long-term growth - ACCUMULATE

Siemens (SIEM IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt. Ltd.

Rating: ACCUMULATE | CMP: Rs3,956 | TP: Rs4,359

Analyst Meet Update – Strong domestic capex to drive long-term growth

§ SY23 order backlog stood at Rs455.2bn with new orders jumping 138.8% YoY to Rs463.9bn (including Rs263.1bn 9000HP locomotive order).

§ Products & services accounted for 69.4% of sales (services ~10-15%).

We recently attended Siemens India’s (SIEM) analyst meet where management highlighted that India is a core focus for the parent, Siemens AG, given it is their fastest growing market. Strong economic indicators, stable inflation & interest rates and softening commodity prices augur well for a healthy capex environment in the country. Robust public capex on infrastructure (with 70-80% of the budgeted outlays being implemented) will be augmented by a take-off in private capex, which will fully kick-in when capacity utilization reaches 80-85% (vs 75-80% currently and 52-53% pre-covid). PLI schemes further benefit the company by enabling customers to incur additional capex. Key opportunities lie in areas of digitalization & automation, cybersecurity, data centers, railways, renewable energy, power transmission & distribution.

We remain positive on SIEM from a long-term perspective given 1) its strong and diversified presence across industries through focus on electrification, digitalization & automation, 2) product localization, 3) strong balance sheet, 4) healthy public & private capex and 5) focus on cost efficiencies. The stock is currently trading at a PE of 63.0x/54.5x SY24/25E. We maintain our ‘Accumulate’ rating on the stock with a TP of Rs4,359 (Rs4,241 earlier), valuing it at PE of 60x SY25E (same as earlier).

Strong demand outlook in India due to rising capex across verticals: The government has incurred huge spending on infrastructure development (railways, roads & highways, energy, etc.) with 70-80% of the Rs10trn FY24 capital outlay budget being implemented. Additionally, private capex is set to enter an upcycle as capacity utilization approaches 80%+ with fresh capacity investments expected across Pharma, Data Centers, Auto, Electronics, Metals, Intralogistics, Chemicals, Water and Cement. Furthermore, growing power requirement in the country (including renewable) is driving demand in T&D and transformers. Lastly, new opportunities are arising out of emerging verticals such as semiconductors, batteries and EVs. Although elections may cause delays in some large tenders, the overall demand environment in India is expected to remain robust across SIEM’s business segments, especially in Energy, Smart Infra, and Mobility.

Opportunities in digitalization & automation continue to expand: In order to become a manufacturing hub, India cannot solely rely on labor arbitrage, whose value is diminishing as a result of digitalization. According to management, India’s factory productivity stands at 70-75% (versus 99.9% in Germany), and this gap must be bridged by greater adoption of digitalization & automation to improve manufacturing productivity and attain energy & cost efficiencies. Moreover, the cybersecurity space has significant potential as cyber risks grow with increasing levels of automation. SIEM’s Digital Industries and Smart Infra portfolios offer solutions in this space, and thus are expected to benefit in the long-run.

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