Siemens Energy shares rally over 3% after Jefferies initiates coverage with buy, sees 13% upside
Siemens Energy
India rose as much as 3.5% to Rs 3,105.95 on the BSE on Tuesday after
Jefferies
initiated coverage on the newly listed stock with a 'buy' rating and a price target of Rs 3,500, implying a potential upside of 12.7% from the current levels.
The rally follows a 4% gain on Monday, when the stock snapped a four-day losing streak after posting better-than-expected quarterly results.
In its initiation note, Jefferies termed Siemens Energy India a 'Power Capex Play,' forecasting a 50%
CAGR
in earnings per share between September 2024 and September 2027. The brokerage said it expects revenue to grow at a 34% CAGR over the same period, underpinned by a sharp increase in domestic power infrastructure spending.
'Siemens Energy revenues to rise at 34% CAGR in September 24-27,' Jefferies said, projecting India's
power capex
to more than double to over USD 280 billion during FY25–30, compared with FY18–24. The brokerage noted that transmission bids worth Rs 1.5 trillion were awarded in FY25, four times the Rs 395 billion seen the previous year.
The brokerage said that the company is spending Rs 4.6 billion to double transformer capacity and add large reactors to its product portfolio by December 2025, a move that 'reflects management's growth confidence.' Post-demerger, the company is '100% focused on the
energy business
and a key beneficiary of the USD 100 billion+ transmission capex pipeline.'
Jefferies also flagged the company's comprehensive energy portfolio and backing from its global parent as drivers of future market share gains.
Margin expansion led by operating leverage
Jefferies sees operating leverage as a key profitability lever that could drive a 460 basis point improvement in margins by FY27. The brokerage said that current margins reflect sub-60% utilisation at the company's transmission and distribution facilities.
Fixed overheads, which account for roughly 40% of other expenses, currently stand at 17% of revenues and are expected to decline to 11–12% by September 2027, enabling significant margin expansion. 'Gross margin expansion will add to margin upside. Our strong 30%+ revenue CAGR is at the crux of these estimates,' the brokerage said.
The company's order book rose 55% year-on-year to Rs 151 billion in March 2025, offering strong revenue visibility.
The Rs 3,500 price target values Siemens Energy India at 65x estimated Mar-2027 earnings, which Jefferies said is 'a 5% discount to Hitachi Energy.' Peer firms like GE Vernova T&D and Hitachi Energy currently trade at 55x and 68x forward earnings respectively.
Jefferies noted that Siemens Energy India, which demerged from Siemens on April 7 and was listed on June 19, is 'India's largest power equipment player by market cap at USD12 billion vs GE and Hitachi at USD7-10 billion.'
The brokerage flagged two downside risks: a scenario where fixed costs rise in line with or faster than revenues, and a slowdown in power capex due to weaker demand.
Strong quarter boosts momentum
The stock's recent gains also follow robust Q2FY25 results. Revenue rose 24% sequentially, while the EBITDA margin came in at a healthy 19.1%, driven by strong performance in the power transmission segment. Margins in the power generation business, however, remained soft.
The company has posted consistent EBITDA margin improvement over the past two quarters, even after accounting for one-off items.
Also read |
Siemens Energy shares list at Rs 2,850 on BSE after demerger; growth prospects bullish
(
Disclaimer
: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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