Siemens order book strengthens as commodity and forex costs pressure margins

Investment View and Valuation

Prabhudas Lilladher described Siemens' Q1 FY27 performance as mixed. Execution and order inflows remained healthy, but commodity inflation, foreign-exchange volatility and higher input costs significantly affected profitability. The broker retained its HOLD rating, citing near-term margin pressure despite constructive long-term growth prospects.

The target price was increased to Rs3,831 from Rs3,750, based on an unchanged valuation of 51 times March 2028E price-to-earnings. Against the CMP of Rs4,011, the broker continues to maintain a HOLD recommendation.

Q1 FY27 Financial Performance

Siemens reported consolidated Q1 FY27 revenue of Rs47,137 million, up 14.8 per cent year on year and 2.2 per cent above Prabhudas Lilladher's estimate of Rs46,119 million. Adjusted EBITDA, after adjusting for a Rs390 million one-time Mobility gain in other expenses, declined 24.2 per cent year on year to Rs3,951 million, 28.0 per cent below the broker's estimate of Rs5,488 million.

EBITDA margin contracted 430 basis points year on year to 8.4 per cent from 12.7 per cent, reflecting lower gross margin, elevated commodity prices and rupee depreciation. Adjusted PAT declined 25.6 per cent year on year to Rs3,167 million, 30.6 per cent below the broker's estimate of Rs4,561 million. PBT excluding extraordinary items fell 25.3 per cent to Rs4,269 million and was also affected by a 6 per cent decline in other income. The quarter included Rs31 million of demerger-related extraordinary expenses and the Rs390 million one-time Mobility gain.

Segment Performance

Segmental revenue growth was broad based, although profitability in Smart Infrastructure and Digital Industries was affected by material-cost inflation and foreign-exchange headwinds. Mobility margins expanded, aided by the one-time gain.

Orders, Backlog and Strategic Developments

Order inflows were approximately Rs63,300 million, up about 16 per cent year on year. The order book increased 10 per cent year on year to Rs466,700 million, including locomotives. Prabhudas Lilladher views the backlog as providing healthy revenue visibility and supporting Siemens' medium-term outlook.

Siemens also completed the sale of its Low Voltage Motors business for cash consideration of Rs21,000 million.

Long-Term Growth Drivers

• Resilient domestic demand from private and public-sector customers.
• Continuing public capital expenditure in transmission and distribution, metro, railways and utilities.
• Diversified exposure to electrification, digitalisation and automation.
• Product localisation and a strong balance sheet.
• Potential value unlocking from the Energy and Low Voltage Motors demergers.

Earnings Estimates

The broker reduced FY27E EPS by 9.1 per cent to Rs55.8 to reflect the impact of commodity inflation, foreign-exchange volatility and higher input costs. It raised FY28E EPS by 2.2 per cent to Rs75.2.

Key Risks

• Supply-chain disruptions amid the Middle East conflict.
• Elevated input costs and commodity-price volatility.
• Continued currency pressure affecting margins.