Fundamental Analysis of Siemens: Beginner investors sometimes invest in large, well-diversified companies blindly with blind expectations of gradual returns in the future. But it does not take a lot of effort to know how a large business is doing. In this article, we’ll read about one such large company in detail. We’ll conduct a fundamental analysis of Siemens to know if it is worth putting money in.
Fundamental Analysis of Siemens
We’ll start with a brief description of the company, its business segments, and their respective share in the income. Thereafter, we’ll read about the industries in which Siemens operates. Then a few sections are devoted to covering the financials. A highlight of the future plans and a summary conclude the article at the end.
Company Overview
Siemens Ltd is a large-cap industrial products manufacturer and services provider with a market capitalization of Rs 110,000 crore. It is a subsidiary of Siemens AG, a German industrial manufacturing MNC. The parent holds the maximum permitted 75% stake in the Indian subsidiary.
The history of Siemens in India dates back to the late 19th century and early 20th century. After running a communication network and trading business, von Rziha incorporated Siemens (India) Ltd. finally on November 8, 1922.
Fast forward to today, Siemens offers integrated products, solutions, and services for industrial applications across a broad range of industries: digital solutions, automotive, railways, digital grid, power transmission, distribution, chemicals, steel, food & beverage (F&B), data centers, pharmaceuticals, and more.
The company’s operations are broadly categorized into 4 segments: energy, smart infrastructure, mobility, and digital industries. We’ll read more on this in the next section of ‘Business Segments’ as part of our fundamental analysis of Siemens Ltd.
Business Segments
A brief description of products, solutions, and services of Siemens and the respective revenue shares of the four operating segments of Siemens India is presented below:
- The energy (33.17%) segment covers the whole value chain of oil & gas production, power generation, utilities, power generation, and EPC companies.
- The smart infrastructure (35.48%) division provides voltage distribution, smart power grids, power supply systems, etc. solutions to utility companies and commercial buildings.
- Mobility (8.85%) supplies rail vehicles, rail automation systems, rail electrification, road traffic technologies, and more.
- Digital Industries’ (21.85%) portfolio encompasses leading automation, drives, and software technologies across the entire product life cycle from design to execution.
As for the geographical segments, the company earned 82.26% of its revenues within India in the financial year 2021-22.
Industry Overview
The company is directly involved in industries that are linked with the economic and industrial growth of the country: energy, transportation, infrastructure, and manufacturing. Siemens caters to so many industries that it is not feasible to assess the growth rate for each sector specifically.
Broadly, the government’s initiatives such as Atmanirbhar Bharat, Make in India, PLI schemes, smart grids, smart metering, modernization of rail infrastructure and more will result in higher order inflow to the company.
Similarly in the private sector, digitalization, adoption of newer technologies such as AI, Edge, 5G, and IIoT, rapid urbanization, and other such things will be beneficial for Siemens in the long run.
Siemens – Financials
Revenue & Net Profit
So far we tediously read about the company and industry. In this section and ahead, we’ll race through the financials of the company.
Excluding FY21 growth because of a low base, the revenues of Siemens have increased only in two fiscal years: FY22 (by 22.27%) and FY18 (by 23.37%). As a result, operating profit and net profit also grew in the range of 15% to 28% for these two years.
On an interesting note, the net profit increased by 26.01% to Rs 1,136 crore in FY19 despite a 6.27% decline in operating profit. It was primarily due to an increase in interest income.
The table below shows the operating revenue, operating profit, and net profit of Siemens for the last six years.
| Fiscal Year | Operating revenue | Operating profit | Net profit |
| 2022 | 16,138 | 1,715 | 1,262 |
| 2021 | 13,199 | 1,497 | 1,030 |
| 2020 | 9,947 | 1,113 | 770 |
| 2019 | 13,084 | 1,381 | 1,136 |
| 2018 | 12,795 | 1,473 | 901 |
| 2017 | 11,403 | 1,194 | 706( exc. sale of assets) |
Operating & Net Profit Margins
Taking a quick note from the table below, we can see that the operating profit margins have largely hovered around 10% for the company. Although the net profit margin has improved over the years, the gain is primarily led by a decline in the net tax rate.
| Fiscal Year | OPM (%) | NPM (%) |
| 2022 | 9.6 | 8.6 |
| 2021 | 9.8 | 8.5 |
| 2020 | 7.7 | 7.9 |
| 2019 | 10.4 | 8.9 |
| 2018 | 11.5 | 7.0 |
| 2017 | 10.5 | 6.2 |
Let us see how the bottom line has behaved from the point of view of business profitability by analyzing the return ratios of Siemens.
Return Ratios: RoE & RoCE
The return ratios, RoE, and RoCE of Siemens were 11.49% and 15.91% respectively in FY22 after adjusting for proceeds from the sale of its wind power business and property in Worli.
Furthermore, not using leverage has impacted the company’s and its investors’ return on equity. Thus, we can say that Siemens is not a very attractive business from the point of view of return on equity. This is also because the net worth of the company has increased faster than the management has been able to reinvest profits.
The table below presents the return on equity and return on capital employed by Siemens for the previous six financial years.
| Fiscal Year | RoE (%) | RoCE (%) |
| 2022 | 11.49 | 15.91 |
| 2021 | 10.38 | 14.28 |
| 2020 | 8.30 | 11.50 |
| 2019 | 13.09 | 19.89 |
| 2018 | 11.27 | 17.63 |
| 2017 | 9.91 | 15.57 |
Debt / Equity & Interest Coverage Ratio
Siemens Ltd. is a debt-free company with nil debt. It has maintained almost zero debt-to-equity ratio for a number of years. Its interest coverage ratio was at the height of 56.89 times for FY22.
Future Plans of Siemens
So far we looked only at past years’ data for our Siemens Ltd. fundamental analysis. In this section, we’ll learn what lies ahead for the company and its shareholders.
- During FY22, Siemens won multiple orders independently and as part of a consortium for various works from Pune IT City Metro Rail, Rail Vikas Nigam, and Indian Railways. The delivery of these orders will result in steady revenue growth in the future.
- The company recently acquired C&S Electric for Rs 2,100 crore. It manufactures electrical products such as switchgear, power protection, and electrical distribution products. The investment will help Siemens tap demand in India’s growing low-voltage power distribution market.
Fundamental Analysis of Siemens – Key Metrics
We are almost at the end of our fundamental analysis of Siemens. Let us take a look at some of the key metrics of the stock.
| CMP | ₹3,109 | Market Cap (Cr.) | ₹110,000 |
| EPS | ₹43.3 | Stock P/E | 87.7 |
| RoCE | 15.91% | RoE | 11.49% |
| Promoter Holding | 75% | Book Value | ₹326 |
| Debt to Equity | 0.00 | Price to Book Value | 9.54 |
| Net Profit Margin | 8.6% | Operating Profit Margin | 9.6% |
In Conclusion
The stock of Siemens Ltd. has generated a compounded return of 20.50% every year over the past five years. It has maintained a dividend payout ratio of around an average of 25% for the last six financial years. Overall, Siemens seems balanced with adequate reinvestment levels, dividend distribution, and earnings growth.
Presently at 87.7, the price-to-earnings ratio of the company is near its all-time high. Thus, there will be increased pressure on earnings growth if it were to continue its stellar returns to the shareholders.
Going forward, a steady rise in the top line and bottom line will likely bring more shareholder gains in the future. Do you think the business will be above to improve its return on equity and increase earnings steadily in the coming quarters? How about you enlighten us with your perspective of the company in the comments below?
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