Home / Markets / Mark To Market /  The demand outlook of Siemens is on firm footing

When companies face severe cost pressures, they tend to postpone their capital expenditure (capex) decisions, which does not bode well for the capital goods sector. The capital goods company is confident of the demand momentum being sustained for 6-12 months.

Demand growth has been robust across verticals and the company does not perceive any risk of slowdown, the Siemens’s management said at its H1FY22 analysts meeting on 10 June. The firm follows the October to September financial year. The optimism stems from strong order inflows. For 1HFY22, new orders at 10,640 crore, rose 63% year-on-year. The order backlog of 17,170 crore was the highest ever. This was aided by short- and medium-cycle orders, as well as large orders from the Pune Metro and Vande Bharat train services.

On the firm footing 
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On the firm footing 

Tendering remains robust in both government and private segments, with a strong uptick in digitalisation, the management said. Siemens is expecting positive momentum on greenfield capex in areas such as warehousing, data centre, and e-mobility. Brownfield capex is being driven by decarbonisation as companies in various sectors move towards reducing their carbon footprint.

The underlying order inflows for Siemens are adequate to exceed 18,000 crore for FY22, even after excluding the 900 crore Pune Metro order, pointed out analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd.

On the flipside, issues related to supply chain such as sourcing of semiconductors, high freight and high raw material prices will continue in the near-term, according to the Siemens management. Analysts caution that supply chain issues could impact the company’s execution capabilities in the short-term. This means the flow-through of strong order inflows on revenues may be limited.

“Given the current challenges on inflation, Siemens’ margins in the June quarter may see some contraction. That said, the commentary on demand is comforting and the worst in terms of cost inflation is largely behind it," said Amit Anwani, research analyst at Prabhudas Lilladher. The company’s margin expansion is likely to be driven by a better product mix, Anwani said.

Meanwhile, in the last one year, the Siemens stock has given 16% returns, lagging ABB India Ltd’s shares, which have risen by 40%.

In a report on 13 June, analysts from Kotak Institutional Equities said the Siemens stock trades at about 20% discount on two-year forward basis to ABB. The gap is likely to persist.

“While the price-to-earnings ratio gap between Siemens and ABB has narrowed in the medium-term (past 12-18 months), the latter will continue to trade at a premium given the relatively higher products, services contribution than Siemens,“ Anwani said.

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