PL Stock Report: Siemens (SIEM IN) - Analyst Meet Update – Focus on Digitalization & Decarbonization - Accumulate

Siemens (SIEM IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs3,559 | TP: Rs4,241

Analyst Meet Update – Focus on Digitalization & Decarbonization

We attended Siemens India's Innovation Day, where the management emphasized on digitalization and decarbonization as an emerging theme playing major role in the upcoming capex across sectors such as industries, power grids, mobility, buildings, data centers etc. India has a huge potential to adopt digitalization in manufacturing processes backed with government emphasis on increasing share of manufacturing in GDP from 15% to 25% over next 5 years and likely revival in private capex with capacity utilization levels reaching ~75%. Siemens sees opportunities arising though current trends such as 1) public capex, 2) private capex and 3) focus on decarbonization.

We remain positive on SIEM from a long-term perspective given 1) strong and diversified presence across industries through focus on electrification, digitization & automation products, 2) product localization, 3) strong balance sheet, 4) healthy public & private capex and 5) focus on cost efficiencies. The stock is currently trading at PE of 65.6x/59.7x/50.3x SY23/24/25E. We maintain ‘Accumulate’ rating on stock with TP of Rs4,241 (same as earlier), valuing it at PE of 60x SY25E.

Digitalization adoption to bring traction across sectors: Government's thrust on ‘Make in India’ and making India the manufacturing hub for global markets, will boost manufacturing capacity and will require the efficiency and productivity to be at par with global standards (99.9% efficiency in country like Germany vs 70-75% in India). This will likely drive investment in digital infrastructure. Traction has been witnessed in key areas such as supply chain digitalization, energy saving, cyber security, remote management and operation optimization. Industry 4.0 is likely to witness increasing adoption in coming years to make manufacturing process more energy efficient and for cost optimization. Shift is likely to be seen from fixed digitalization process to adoptive process, driven by various data and command programmed in process.

Industrial Decarbonization - Next big theme to be played out: Decarbonization is likely to be next big theme, driven by countries taking step to fight climate change, global warming and achieving carbon neutrality target. Over a period of time Siemens has developed products/technologies for a) Energy efficiency solutions, b) Fuel shift/ hybridization, and c) Deep decarbonization, to help customers achieve their carbon neutrality targets.

Increasing data consumption and 5G to drive Data Center demand: Increasing data consumption and adoption of 5G will drive demand for data center. Currently ~35% of energy in data center is utilized for cooling purpose which is expected to go up to 50% by 2030. Siemens emphasized on use of Hydrogen based power as an alternate to renewable power which is currently being used. Additionally, Siemens also partnered with NxtGen for implementation of building management including fire safety, physical security, energy management and HVAC monitoring.

Siemens launched Xcelerator platform to boost digitalization: With a view to accelerate digital adoption in India across sectors such as power grid, mobility, industry etc., Siemens launched Xcelerator platform in India last year. Xcelerator comprises of Internet of Things (IoT) enabled hardware, software, and digital services.

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