German industrial giant Siemens' Indian subsidiary is facing significant headwinds in justifying its premium valuation, with the stock declining 7% this calendar year while the broader capital goods sector continues to deliver positive returns.
Order Inflow Momentum Shows Signs of Strain
The company reported order inflows of ₹4,800 crore during the September quarter, representing a 10% year-on-year increase but showing sequential decline. This performance fell short of JM Financial Institutional Securities' estimate of ₹5,100 crore, raising concerns about sustained momentum.
Analysts noted that while Siemens continues to outperform peer ABB India in order inflows, the high levels of mobility orders seen in previous quarters may not have sustained. The company's order backlog remains substantial at ₹42,200 crore – approximately 2.4 times its trailing 12-month revenue.
Segmental Performance Reveals Mixed Picture
Siemens' consolidated revenue grew 16% year-on-year to ₹5,200 crore, driven primarily by its Mobility and Smart Infrastructure divisions. The mobility segment emerged as the star performer with 29% revenue growth and Ebit margin improvement of nearly 300 basis points to 11.1%.
Smart Infrastructure, contributing over half of total revenue, maintained its dominance with strong 20% growth, though competitive pressures caused a slight margin dip to 13.1%. The segment includes buildings automation, fire safety, and security solutions.
Digital Industries proved to be the weak link, managing only 1% growth with Ebit margin declining 234 basis points to 7%. Management attributed this underperformance to weak existing order backlog and delays in private capital expenditure recovery.
Railway Capex Offers Silver Lining
Siemens has set an ambitious target to grow its topline at twice India's real GDP growth, with the mobility segment expected to be the primary driver. The company stands to benefit significantly from Indian Railways' capital expenditure plans.
A major tender for Vande Metro coaches valued at ₹21,000 crore opens next month, presenting substantial opportunity. Additionally, Siemens expects to begin executing its 9,000 HP locomotive order worth ₹13,000 crore (excluding maintenance) after prototype approval by early 2026.
This locomotive contract alone constitutes about 30% of Siemens' total order book, and revenue recognition from this project could meaningfully boost earnings in the coming years.
Margin Pressures and Valuation Concerns
While Siemens reported a 17% year-on-year increase in adjusted Ebitda to ₹640 crore, marking a strong rebound after three consecutive quarters of decline, margin pressures remain a concern. The company faces intense competition in project-based businesses, impacting profitability.
Antique Stock Broking has trimmed its Ebitda margin estimates by 50-80 basis points for FY26 and FY27. The stock currently trades at 55 times one-year forward earnings, representing a premium to its long-term average multiples.
Key downside risks include slower-than-expected margin recovery, weaker execution capabilities, and continued softness in the digital industries segment. The company's transition from an October-September financial year to April-March means FY26 will comprise six quarters, with the September quarter serving as FY26's fourth quarter.
Despite near-term challenges, HDFC Securities believes the worst may be over for the struggling Digital Industries segment, with early signs of recovery becoming visible. The company's ability to capitalize on upcoming railway tenders and navigate margin pressures will be crucial for justifying its current valuation premium.
