Growth expectations to support valuations of Siemens, ABB India stocks

Two engineering global majors reported strong quarterly performances in the April-June quarter of financial year 2023-24 (Q1FY24).

Engineering services company ABB India’s revenue came in at Rs 2,510 crore and was up 22 per cent over the year-ago period.

This was led by growth in the robotics segment at 154 per cent, followed by electrification, industrial automation and motion segments, which registered a growth of 10 per cent, 20 per cent, and 38 per cent respectively.

The operating profit was up 75 per cent YoY at Rs 350 crore, while operating margins were at 13.9 per cent (up by over 400 basis points).

The other income also increased 196 per cent year-on year (Y-o-Y).

Adjusted net profit was at Rs 290 crore (versus Rs 150 crore in the year-ago period).

Order inflows were at Rs 3,040 crore, up 10 per cent Y-o-Y. Order book is at Rs 7,730 crore, which is around 0.8 times of its annual revenues.

Siemens reported a consolidated revenue of Rs 4,873 crore up 14.4 per cent Y-o-Y.

Operating profit was at Rs 566 crore, up 37.5 per cent, and operating margin expanded 195 basis points to 11.6 per cent.

Net profit was Rs 455 crore, up 50.7 per cent Y-o-Y (down 3.4 per cent quarter-on-quarter or Q-o-Q).

Of its segments, smart infrastructure saw a revenue growth of 14 per cent, mobility was at 47.7 per cent, and digital grew 13 per cent.

Order inflows grew 5.9 per cent Y-o-Y to Rs 5,290 crore, and its order book is at an estimated Rs 45,300 crore (2.5 times its revenue).

The management guidance for ABB India points towards a strong momentum in automotive, electronics, data centres, railways, and metro. Indian auto companies are investing in robotics, which is a potential source of traction.

Positives are superior product mix, higher share of service revenues, and softening of commodity inflation which causes the reduction in costs.

The company’s cash flow of Rs 4,100 crore allows ABB India to scout for expansion – both organic and inorganic.

Siemens sees traction from railways, and public/private capacity expansion on infrastructure, steel, cement, data centres, intralogistics, and electric vehicles (EVs).

Customers’ focus on energy efficiency and digitalisation also enhances its business prospects.

The Munich-headquartered conglomerate is also focussed on fuel cells, semiconductor battery technology, and solar products -- where it can leverage the parent’s expertise.

With more orders expected from the railways, mobility is doing well, while the acquisition of the EV division of Mass-Tech Controls will help the company make an entry in the EV charging infrastructure.

Siemens’ planned sale of its low-voltage (LV) and geared-motors business to the parent Siemens AG for Rs 2,200 crore has been rejected by minority shareholders.

This has been concerning for the company.

The options are to revalue the transaction upwards to win approval or halt the transfer and continue to run the business as is.

The outcome would obviously affect the future valuations.

ABB India is also benefiting from global supply chain diversification and is acting as a major supplier to global markets.

ABB India plans to add more digital content and to focus on selling hardware with embedded algorithms.

Both companies are very highly valued, which is normal with their record.

The cyclical trends appear to be strong for their businesses and both companies have impeccable reputations for their technical skills.

They also have solid balance sheets to go with growth prospects.

Analysts have upgraded earnings expectations on the results.

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