Siemens Limited — Q4 FY24 earnings call

Call held 14 May 2024

Management summary

Siemens Limited reported a robust Q2 FY24 with revenue growth of 19.3% and EBITDA margin expanding to 15%, driven by strong backlog conversion and productivity. The company announced significant CAPEX exceeding ₹1,000 crore for capacity expansion in Smart Infrastructure and Mobility, reinforcing its commitment to growth. A major strategic decision was the board's approval for the demerger of its Energy Business into a separate listed entity, Siemens Energy India Limited, aiming to unlock shareholder value and create two focused companies by CY 2025.

Highlights

  • Q2 FY24 Revenue grew 19.3% driven by all businesses, with Smart Infrastructure at 29% and Mobility at 59%.

  • Q2 FY24 EBITDA at 15%, representing an increase of 240 bps vs. prior year quarter, due to volume increase, positive product mix, and productivity measures.

  • H1 FY24 Revenue is up 20.6% vs. prior year, with EBITDA margin improving by 340 bps on a comparable basis (excluding FX and Commodity Hedging impact).

  • Total CAPEX investment expected to exceed ₹1,000 crore, including new investments of ₹333 crore in Smart Infrastructure and ₹186 crore in Mobility.

  • The proposed demerger of the Energy Business is expected to unlock shareholder value and create two strong, independent listed entities by CY 2025.

Concerns

  • New orders are below prior year level due to the large locomotive order booked in the previous year (over ₹250 billion).

  • A few orders slipped from Q2 into Q3, impacting current quarter order inflow.

  • Slowdown in ordering of industrial automation products due to normalization of demand and destocking effects.

  • Mobility EBITDA Margins were at 3.5% in FY23 due to large investments in manufacturing capacity.

Key financials

2 periods

Q2 FY24

  • Revenue Growth
    19.3%
  • EBITDA Margin
    15%
  • PBT Margin
    22.2%
  • PAT Margin
    17.1%
  • EPS
    ₹25.2

H1

  • FY24 Revenue Growth
    20.6%
  • FY24 EBITDA Margin
    13.6%
  • FY24 PBT Margin
    18.5%
  • FY24 PAT Margin
    14.1%

What they filed

Q1 FY27: revenue up 15.6%, net profit up 475.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,974 2,948 3,579 3,629 4,363 +10%3,398 +15%4,109 +15%4,195 +16%
EBITDA453 299 364 424 513 +13%275 −8%357 −2%383 −10%
Net profit775 563 674 369 420 −46%209 −63%311 −54%2,122 +475%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Sales
177 Bn Total
  • Energy Business (FY23) 59.9 Bn 33.8%
  • Smart Infrastructure (FY23) 54 Bn 30.5%
  • Digital Industries (FY23) 43.4 Bn 24.5%
  • Mobility (FY23) 19.7 Bn 11.1%

Order book

high confidence

Total value

₹370 Bn

as of 2024-03-31 quantified

Cancellations & deferrals

  • deferred: A few orders slipped from Q2 into Q3.
New orders are below prior year level due to a large locomotive order in the previous year, but the overall enquiry pipeline is robust.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹1,000 Cr
    • Smart Infrastructure Goa factory expansion (Gas Insulated Switchgear, Clean Air GIS) ₹333 Cr
    • Mobility Metro train manufacturing facility in Aurangabad ₹186 Cr
    • Power transmission capacity doubling (from 15 GVA to 30 GVA) ₹3,600 Mn
    • Power Transformer factory in Kalwa and Vacuum Interrupter factory in Goa (announced Nov 2023)
    With this, total CAPEX investment is expected to exceed Rs 1,000 crore.
  • Debt Debt disclosed
    We don't have that data right now, we will send it to you subsequently.
  • M&A Siemens Energy India Limited Divestment · Announced

    Creation of two strong and independent listed entities with sharper business focus, market focus, and capital allocation to unlock shareholder value.

    Shareholders of Siemens Limited will receive one share of Siemens Energy India Limited for every one share held in Siemens Limited.

    The Board of Directors of Siemens Limited today approved the proposal to demerge the Company's Energy Business into Siemens Energy India Limited, a wholly owned subsidiary of the Company currently, which will get listed pursuant to the proposed demerger, subject to requisite regulatory, statutory, shareholders and creditors approvals.
  • Liquidity Cash ₹4.3 Bn Cash from Operations increased by Rs. 1.3 billion to Rs. 4.3 billion compared to the previous year.
    Our focus on net working capital, especially inventory optimization and cash collections have paid off and we could increase our Cash from Operations vs. previous year by Rs. 1.3 billion to Rs. 4.3 billion.

Guidance & targets

Order Income

  • Year-end Order Income Growth Order Income · FY24 · High confidence intact
    Our year end Order Income growth plans remain intact.

    — Mr. Sunil Mathur

Energy Market Growth

  • Energy Market CAGR Energy Market Growth · till 2030 · High confidence 9%
    In line with the fast-growing economy, the Energy Market in India is expected to grow at a CAGR of 9% till 2030.

    — Mr. Sunil Mathur

Generation Capacity

  • Generation Capacity Generation Capacity · by 2030 · High confidence 820 Gigawatt

    From 434 Gigawatt today

    Generation capacity would almost double from the current 434 Gigawatt to 820 Gigawatt by 2030.

    — Mr. Sunil Mathur

Transmission Capacity

  • Transmission Capacity Transmission Capacity · by 2026-27 · High confidence 1,827 Giga-Volt Ampere (GVA)
    Transmission would grow to 1,827 Giga-Volt Ampere (GVA) by 2026-27.

    — Mr. Sunil Mathur

Power Transmission Capacity

  • Power Transmission Capacity Power Transmission Capacity · next 2-3 years · High confidence 30 GVA

    From 15 GVA today

    In November 2023, we announced plans to double the power transmission capacity from 15 GVA to 30 GVA with a CAPEX investment of Rs. 3,600 million over the next 2-3 years.

    — Mr. Sunil Mathur

Demerger Completion

  • Energy Business Demerger Demerger Completion · CY 2025 · High confidence completed
    We expect the entire process of demerger and listing to be completed in CY 2025.

    — Mr. Sunil Mathur

Market context

  • Mobility EBITDA Margins Mobility Margins · in a couple of years · Medium confidence double-digit

    From 3.5% (FY23) today

    And I expect in a couple of years we will slowly get up to the same levels that we were prior [double-digit margins].

    — Mr. Sunil Mathur

What to watch in Q1 FY25

Industrial Automation order recovery

October-December quarter (Q1 FY25)
Current Slowdown due to destocking
Target Bouncing back

Why it matters

Recovery in this segment is crucial for overall order inflow and growth, as it's currently impacted by destocking.

Our projection is in the October-December quarter. They should start bouncing back there. But the demand in the market is pretty robust.

Risks & concerns

  • Geo-political tensions

    medium

    Escalation in geo-political tensions poses downside risks to the economic scenario.

    Management acknowledged

  • Slowdown in industrial automation ordering due to destocking

    medium

    Normalization of demand and destocking by channel partners led to a slowdown in ordering for industrial automation products, though profitability remains robust.

    Management acknowledged

Q&A highlights

8 direct
Deferred large orders Direct
So, no it pertains to something else. It does not pertain to locomotives or HVDC, there have been no tendering out for those products.

Clarifies that deferred orders were not from the high-profile locomotive or HVDC segments, indicating broader deferrals across other business areas.

Asked by Mohit Kumar - ICICI Securities

Siemens Energy inquiry pipeline and HVDC bidding Direct
So, you are right. We are seeing a very major increase in demand in the transmission sector... Yes, we are open also to bidding in HVDC.

Confirms Siemens' active participation and interest in the growing HVDC market, a key area for energy transmission infrastructure.

Asked by Mohit Kumar - ICICI Securities

Export strategy post-demerger and India as a manufacturing base Direct
So, absolutely smart infrastructure and mobility will definitely be very largely focussing also as part of the global supply chains for exports.

Highlights the company's strategic intent to leverage India as a significant export hub for Smart Infrastructure and Mobility, beyond just the Energy business.

Asked by Renu Baid - IIFL Securities

Digital Industries orders weakness and margin sustainability Direct
the main reason for the slowdown in the industrial automation business is primarily destocking... the profitability has been robust. And it is our intent to keep it that way.

Explains the cause of the slowdown in Digital Industries orders (destocking) and management's confidence in sustaining profitability despite this temporary headwind.

Asked by Aditya Mongia - Kotak Institutional Equities

Overall enquiry pipeline and competitive intensity Direct
overall the enquiry pipeline is robust... competitive activity has substantially increased. But that's normal in a growing market.

Provides a holistic view of the demand environment, confirming a robust pipeline while acknowledging increased competition as a natural part of market growth.

Asked by Ravi Swaminathan – Avendus Spark / Rahul Gajare - Haitong International Securities

Mobility business margin trajectory Direct
I expect in a couple of years we will slowly get up to the same levels that we were prior [double-digit margins].

Clarifies that current margin pressure in Mobility is due to heavy investments and provides a timeline for recovery to double-digit margins as volumes scale up.

Asked by Shrinidhi Karlekar – HSBC

Capacity utilization and order taking constraint Direct
we've got capacities that will beat our requirements for until the new capacities come into place.

Reassures that current capacity is sufficient and new capacities are being planned ahead of demand, mitigating concerns about potential constraints on order execution.

Asked by Shrinidhi Karlekar – HSBC

Digital Industries margins volatility Direct
there has been some major impact from FX and commodity hedging in the DI business. Last year saw significant positive impact on margin, which we didn't see this first half of the year.

Explains the primary drivers of margin volatility in the Digital Industries segment, attributing it to FX and commodity hedging impacts, alongside the contribution of the service business.

Asked by Jonas Bhutta - Aditya Birla Capital

3 min read 6 chapters

Detailed narrative

Robust Q2 FY24 Performance and H1 Growth

Siemens Limited delivered a strong Q2 FY24, with revenue growing 19.3% driven by all businesses, notably Smart Infrastructure at 29% and Mobility at 59%. EBITDA reached 15%, marking a 240 bps increase year-on-year, attributed to volume growth, a positive product mix, and productivity measures. For the first half of FY24, revenue was up 20.6%, and the comparable EBITDA margin improved by 340 bps (excluding FX and Commodity Hedging impact). Profit before Tax for Q2 stood at 22.2%, with Profit after Tax at 17.1%, and Earnings per Share at Rs. 25.2.

Strategic CAPEX for Capacity Expansion

The company announced significant CAPEX totaling over ₹1,000 crore, reinforcing its commitment to growth and localization. This includes ₹333 crore for expanding the Smart Infrastructure factory in Goa to produce Gas Insulated Switchgear and Clean Air GIS, and ₹186 crore for a new Metro train manufacturing facility in Aurangabad for the Mobility business. These investments are in addition to the ₹3,600 million announced in November 2023 for doubling power transmission capacity from 15 GVA to 30 GVA over the next 2-3 years, aiming to serve both domestic and global markets.

Demerger of Energy Business to Unlock Value

The Board approved the demerger of the Energy Business into a separate listed entity, Siemens Energy India Limited, a move expected to be completed by CY 2025. Post-demerger, shareholders of Siemens Limited will receive one share of Siemens Energy India Limited for every share held. This strategic separation aims to create two strong, independent entities with sharper business and market focus, leveraging Siemens Energy AG's technology portfolio to support India's transition to a sustainable energy future, with Siemens Energy India Limited having a backlog of almost ₹100 billion.

Demand Environment and Competitive Landscape

Management described the overall enquiry pipeline as robust, with strong demand in energy transmission, e-vehicle, and smart infrastructure. While some large orders were deferred from Q2 to Q3, the company's year-end order income growth plans remain intact. The industrial automation segment experienced a slowdown in ordering due to channel partner destocking, but profitability remains robust. Increased competitive activity is noted as a natural consequence of market growth, with Siemens aiming to maintain its market leadership by focusing on product and service offerings.

Mobility Business Investments and Margin Outlook

The Mobility business, which recorded an EBITDA margin of 3.5% in FY23, is undergoing heavy investments in manufacturing capacity, including the new Metro train facility in Aurangabad. These investments are expected to impact profitability for the next couple of years. However, as volumes increase and new capacities come on stream, margins are projected to improve, with the company expecting to return to prior double-digit margin levels within a few years, driven by scaling up and operational efficiencies.

India as a Global Manufacturing and Export Hub

Siemens is increasingly leveraging India as a manufacturing base for its global supply chains, particularly for Smart Infrastructure and Mobility. The new investments in Goa (GIS) and Aurangabad (Metro trains) are partly driven by export demand for sustainable products and global market needs. The energy business in India already exports to multiple markets, and the intent is to further expand this, utilizing India's capacity to serve global requirements as global capacity utilization is maxed out, demonstrating a significant appetite for manufacturing in India.

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