
The double-engine model at Siemens

Summary
The share of digital industries segment has risen to 23% of the total revenue in the June quarter of 2023 from 14% in the June quarter of 2020. The company follows October to September financial year.At its Annual Innovation Day held recently, Siemens Ltd emphasized on digitization and decarbonization as key areas for growth opportunities driven by higher infrastructure spending and technology-led private capex.
Revenue from the digital industries segment has grown significantly for Siemens since the pandemic.
This division houses digitalization and automation. The share of digital industries segment has risen to 23% of the total revenue in the June quarter of 2023 from 14% in the June quarter of 2020. The company follows October to September financial year.
“This is the right time to capitalise on themes such as digitalisation and decarbonisation. Although it is difficult to quantify the benefit in the near term, these are margin accretive businesses," said Parikshit Kandpal of HDFC Securities.
Digitalisation and decarbonisation are crucial in upcoming investments across various sectors like industries, power, transport, buildings, and data centres. There is huge potential for India to boost manufacturing through digitalisation. The government aims to increase the share of manufacturing in GDP to 25% by 2025 from the current 17%, likely supported by a resurgence in private investments with average capacity utilisation being around 75%. Analysts noted that Siemens is experiencing strong interest from private companies and is hopeful that these inquiries will translate into orders.
Moreover, Siemens has created technologies such as energy-efficient solutions, fuel transition or hybridisation, and deep decarbonisation.
This way, Siemens can ride the decarbonisation wave. The share of revenue from the energy segment, which includes decarbonisation technology services stood at 31% in the quarter ended June.
Meanwhile, Antique Stock Broking believes Siemens is well prepared to reap the benefits of the upcoming capex cycle and deliver a CAGR growth of 15% in revenue over FY22-25 along with margin improving by more than 327 bps to 14.2% over the same period.
Investors seem to be factoring the optimism adequately, for now.
Siemens’ shares have outperformed the Nifty 500 index in the past one year. Based on Antique’s estimates, the stock trades at 56 times FY24 earnings.