Siemens Gets UBS' 'Buy' Upgrade On Better Business Mix, Strong Global Energy Cycle

Siemens' more diversified and resilient business mix than peers, along with the strong global energy cycle, which will potentially drive higher exports from capacity expansion and demerger, has had UBS upgrade its rating to a 'buy' from 'neutral'.

"We think recent correction makes Siemens look attractive given healthy ordering cycle and positioning in large tenders," the brokerage said. In the last 30 days, the stock has fallen nearly 12%.

UBS has an unchanged target price on the stock at Rs 8,000, implying an upside of 36%.

Siemens operates in four verticals in India — energy, smart infrastructure, mobility and digital industries. According to the brokerage's assessment of each segment, both electrification and mobility are in a strong upcycle, while digital industries are currently seeing some sluggishness led by channel inventory normalisation.

"From a longer-term perspective, we remain constructive on all Siemens' segments, but from a near-term perspective, 80% of Siemens' top line (mobility and electrification) remains in a strong upcycle, evident in recent order intake growth for each of the segments," it said.

The company's recent derating looks more linked to short-cycle industrial order weakness, and recent commentary by management on near-term visibility of HVDC and large mobility (locomotives) orders. "However, we believe HVDC and large locomotive orders do not appear to be factored in by consensus and Siemens' recent derating appears overdone by the street, particularly with respect to its medium-term demand drivers which we believe remain intact," it said.

In addition, the company's business is more exposed to electrification than peers, such as ABB, where business is more linked to industrial demand, said the brokerage. Across medium and high voltage, the demand cycle is far stronger in both domestic/export markets, reflected in orders/margin cycles across peers, it added.

In UBS' view, Siemens' parent has started investing more in India to expand both mobility and energy capacities, making India a manufacturing hub for these segments. "Versus peer ABB, SIEM is undergoing a wider TAM expansion, led by parent strategies across mobility/energy segments, that should aid better top-line/new order scalability, it said.

In a downside scenario, in which the stock can fall to Rs 5,000, the brokerage has assumed a delayed order cycle in the domestic market and much slower short- and long-cycle orderbook execution. "As a result, operating margin would be 300 bps lower than our base case and earnings would grow at a 10% CAGR between FY24-27," it said. "We assume a 15% CAGR in order intake in FY23-27."