Siemens shares fell 5.5% to Rs 2,152 each on BSE on Thursday as company profits missed Street’s estimates amid pressure on margins.
Still, most brokerages have a neutral, buy, or outperform recommendation, although cost pressures may continue in the short term. They believe Siemens is poised to benefit in the long term from improved private capital spending, with diversified end-market exposure and a product portfolio.
“The company’s addressable market opportunity has broadened, thanks to improved private capital spending and a larger manufacturing footprint. Unlike its peers, Siemens is playing both on public infrastructure, reviving private investment with an added advantage of new segments, ”said the Edelweiss report.
The company reported consolidated revenue of Rs 4,233 crore in the September quarter, up 23% year-on-year and 47% sequentially. Revenues from smart infrastructure and digital industries have grown significantly year over year, while revenues from mobility and energy segments have seen a significant sequential increase. Its consolidated net profit during the quarter stood at Rs 321 crore, up from Rs 138 crore in the previous quarter, but down from Rs 330 crore last year.
The September quarter is the last quarter of fiscal year 2020-21 (FY21) for Siemens as it follows an October-September fiscal year.
Despite a strong product portfolio, brokerage firms believe the company needs to surprise on order intake to meet revenue growth expectations.
“The order inflow increased 5% year-on-year in the September quarter to Rs 3,380 crore, but has moderated sequentially. Strong new orders are imperative for its future outlook, given the high valuations, ”Motilal Oswal Securities (MOSL) said in a report.
The company’s order book hit a record high of Rs 13,500 crore in September. “We expect the overall pace of new orders and revenues to remain strong with better EBITDA growth (earnings before interest, taxes, depreciation and amortization),” Edelweiss said in its report.
Although the company’s revenue is expected to increase in the coming months, brokers believe that rising commodity prices and high logistics costs could also impact margins in the coming quarters.
In the September quarter, the company reported a consolidated margin of 10.4%, down 280 basis points (bps) year-on-year.
“Siemens has the most diversified portfolio, with offerings in various end markets, allowing it to seize broader growth opportunities. The underlying margin weakened in various key segments, ”said MOSL.
The EBITDA margin missed Nomura’s estimate of 12 percent and the consensus estimate of 12.6 percent. Management pointed out that high pressures on commodity and logistics costs are the main reasons for declining margins, analysts at Nomura said.