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 maintaining the demand momentum for 6-12 months.
Siemens’ management said in its H1FY11 analysts’ meeting on June 10 that demand growth across all verticals has been strong and the company does not face any slowdown risk. The firm follows October to September fiscal year. The optimism stems from the strong order flow. For 1HFY22, on new order 10,640 crore, up 63% year-on-year. order backlog of 17,170 crore was the highest ever. This was aided by short- and medium-cycle orders as well as large orders for Pune Metro and Vande Bharat train services.
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Management said that with strong growth in digitization, tendering remains strong in both the government and private sectors. Siemens is expecting positive momentum on greenfield capex in areas such as warehousing, data center and e-mobility. Brownfield capex is being driven by decarbonisation as companies from different sectors move towards reducing their carbon footprint.
Implicit order inflow is enough for Siemens to exceed 18,000 crore for FY22, also excluding 900 crore Pune Metro orders, said analysts at Nomura Financial Advisory and Securities (India) Pvt Ltd. Ltd.
On the other hand, according to Siemens management, issues related to the supply chain such as sourcing of semiconductors, higher freight charges and higher raw material prices will continue in the short term. Analysts cautioned that supply chain issues could impact the company’s execution capabilities in the short term. This means that the flow of strong order flow on revenue may be limited.
“Given the current challenges on inflation, the June quarter may see some contraction in Siemens’ margins. That said, the demand comment is comfortable 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 improved product mix, Anwani he said .
Meanwhile, over the past year, Siemens’ stock has given 16% returns, beating ABB India Ltd’s shares, which have gained 40%.
In a report dated June 13, analysts at Kotak Institutional Equities said Siemens stock trades at a nearly 20% discount to ABB on a two-year basis. The gap is likely to remain.
“While the price-to-earnings ratio gap between Siemens and ABB has narrowed over the medium term (the last 12-18 months), the latter continues to trade at a premium to Siemens given its relatively higher products, services contribution. Will keep.” Anwani said.