Siemens Energy India Ltd (SEL) captures the maximum value among its peers as it has products/solutions covering a larger market size, viz., decarbonization, power generation, power evacuation, grid automation, EPC services, and clean energy like green hydrogen and battery storage. Over the years, this has been a highly profitable business for Siemens India which has clocked 22.6% EBITDA margin during H1FY25 (5 months). With the demerger, SEL becomes a power pureplay with exclusive rights for some South Asia countries (Bhutan, Nepal, Sri Lanka, and Maldives). New business lines viz. PEM electrolyzer, hydrogen blend fired gas turbines, and battery storage solutions will aid long-term growth as parent company has developed these technologies. SEL’s robust order backlog of INR 150bn (2.1x FY25E revenue) lends strong growth visibility; we model 30% FY25-27E PAT CAGR. Given the strong cash flows, robust order book, limited competitive intensity, and export opportunities, we rate SEL as a BUY with a TP of INR 3,000/sh (60x Sep-27E EPS, P/E in line with our Hitachi Energy multiple).
▪ Demerged entity to help decarbonize energy: SEL benefits from India’s decarbonization story as, post de-merger, the focus will be to introduce new products and services under the parent Siemens Energy’s umbrella. Some of the use cases or proof of concepts may be too early to adopt to large-scale manufacturing or localization; still, SEL has access to global technology, viz., battery storage, proton membrane exchange (PEM) electrolyser for green hydrogen production at scale, hydrogen blend fired gas turbines, etc.
▪ T&D play to remain dominant in the near to mid-term: Indian T&D investments have significantly picked up over the last two years, which has benefited sectoral incumbents. This has largely been driven by big renewable push and investment in capacities for renewable power evacuation. India requires about INR 1.2trn in HVDC equipment investment, of which only INR 250bn has been awarded until now and won by consortium of Hitachi-BHEL. We have a pipeline of INR 0.9trn yet to be awarded. SEL’s total addressable market in this may be INR 0.3trn under the VSC-based (voltage source converter technology) HVDC technology as it doesn’t bid under LCC (line commutated converter) based HVDC technology, which is balance INR 0.6trn.
▪ T&D high voltage market has grown 2.5x vs. pre-Covid: Base T&D equipment, the total addressable market used to be INR 250bn pre-Covid. With new demand drivers, increase in prices, and under-investment in global and local capacity, the base TAM has increased to INR 300bn/annum. On top of this HVDC may add INR 200bn annually for next five years, with exports of INR 100bn per annum, and with new drivers like data center, large private capex, battery storage, pump hydro, and grid automation, another INR 100bn/annum. This shall take the annual ordering to INR 600-700bn/annum vs. INR 250bn/annum pre-Covid or 2.5x. These investments are coming at the high voltage end where globally the technology resides largely with top MNC players, viz., Hitachi Energy, Siemens Energy and GE Vernova, which creates a big entry barrier for competition.
▪ EPC solutions, turbine and services to add to growth: Under power generation, SEL supplies products like large gas and steam turbines, large generators to customers like power utilities, IPPs, EPC firms, and industrial customers. This is further augmented by O&M services and digitalization solutions. For industries, portfolio includes steam turbines (10KW to 250MW) and waste heat recovery solutions. SEL’s key focus is the delivery of integrated industrial decarbonization solutions based on electrification, automation and digitalization, and aiding sustainability through carbon optimized energy solutions and hydrogen generation.