The results present a mixed picture for the German engineering giant's Indian subsidiary. Whilst topline growth remains robust—driven by strong order execution across infrastructure and industrial segments—the company faces persistent margin compression that has raised questions about pricing power and cost management in an increasingly competitive landscape. The sharp year-on-year profitability decline, despite healthy revenue expansion, underscores the challenges facing the heavy electrical equipment sector.
Siemens' performance comes against the backdrop of India's capital expenditure-driven growth story, where infrastructure development and industrial modernisation have created substantial opportunities. However, the company's inability to translate revenue growth into proportionate profit expansion suggests structural headwinds that merit closer examination by investors.
Financial Performance: Growth Without Profitability Leverage
Siemens Ltd. delivered net sales of ₹5,171.20 crores in Q2 FY2026, representing sequential growth of 18.97% from ₹4,346.80 crores in Q1 FY2026 and year-on-year expansion of 16.02% from ₹4,457.00 crores in Q2 FY2025. This marked the highest quarterly revenue in the company's recent history, reflecting strong order book execution and robust demand across key segments.
| Quarter | Revenue (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Sep'25 | 5,171.20 | +18.97% | 484.90 | +14.66% | 11.93% | 9.39% |
| Jun'25 | 4,346.80 | +2.06% | 422.90 | -27.34% | 12.00% | 9.74% |
| Mar'25 | 4,259.00 | +18.73% | 582.00 | -5.26% | 10.98% | 9.58% |
| Dec'24 | 3,587.20 | -19.52% | 614.30 | -26.05% | 11.18% | 10.37% |
| Sep'24 | 4,457.00 | +18.46% | 830.70 | +43.79% | 12.22% | 11.72% |
| Jun'24 | 3,762.60 | -9.39% | 577.70 | -28.02% | 12.90% | 11.61% |
| Mar'24 | 4,152.40 | — | 802.60 | — | 15.34% | 15.63% |
However, the margin story reveals concerning trends. Operating profit (excluding other income) stood at ₹617.10 crores with a margin of 11.93%, down 7 basis points sequentially from 12.00% and 29 basis points year-on-year from 12.22%. More alarmingly, operating margins have compressed substantially from the 15.34% achieved in March 2024, indicating persistent pressure on core business profitability.
The profit after tax margin deteriorated to 9.39% in Q2 FY2026 from 9.74% in Q1 FY2026 and 11.72% in Q2 FY2025—a decline of 233 basis points year-on-year. This margin compression has resulted in the consolidated net profit declining 41.63% year-on-year despite 16.02% revenue growth, highlighting the company's struggle to maintain profitability leverage.
Employee costs rose to ₹445.00 crores in Q2 FY2026 from ₹417.90 crores in Q1 FY2026 and ₹406.80 crores in Q2 FY2025, reflecting wage inflation and talent retention challenges in a competitive engineering services market. The tax rate remained stable at 26.83%, marginally higher than the 25.65% in the previous quarter.
Other income declined sharply to ₹122.40 crores in Q2 FY2026 from ₹235.50 crores in Q2 FY2025, representing a 48.03% year-on-year drop. This reduction in treasury income has further pressured overall profitability, as the company's substantial cash reserves generate lower returns in the current interest rate environment.
Operational Challenges: Margin Compression Raises Concerns
The persistent margin erosion at Siemens Ltd. reflects deeper operational challenges that extend beyond cyclical factors. The company's return on equity (ROE) stands at 12.96%, significantly below the peer group average and indicating suboptimal capital efficiency. Whilst the return on capital employed (ROCE) of 31.29% appears healthy, the declining trend in operating margins suggests this metric may face pressure in coming quarters.
Margin Dynamics: A Deepening Concern
Key Issue: Operating margins (excluding other income) have compressed from 15.34% in March 2024 to 11.93% in September 2025—a decline of 341 basis points over six quarters. This sustained erosion suggests structural rather than temporary challenges.
Contributing Factors: Intense competition in the heavy electrical equipment sector, rising input costs, wage inflation, and potential pricing pressures in project execution are likely culprits. The company's inability to pass through cost increases to customers indicates weakening pricing power.
Impact: Despite achieving the highest quarterly revenue of ₹5,171.20 crores, net profit has declined 41.63% year-on-year, demonstrating the severe impact of margin compression on bottom-line performance.
From a balance sheet perspective, Siemens maintains a debt-free status with net cash, reflected in the negative net debt-to-equity ratio of -0.48. Shareholder funds stood at ₹15,356.70 crores as of September 2024, providing a solid foundation. However, the company's inability to deploy this capital productively—as evidenced by the modest 12.96% ROE—raises questions about capital allocation efficiency.
The debtors turnover ratio improved to its highest level of 5.82 times in H1 FY2026, indicating better working capital management. Current assets of ₹20,157.10 crores comfortably exceed current liabilities of ₹8,912.10 crores, ensuring strong liquidity. Fixed assets stood at ₹2,697.80 crores, representing relatively modest capital intensity for a manufacturing business of this scale.
Cash flow generation remains robust, with operating cash flow of ₹1,669.00 crores in FY2024, though this represents a deceleration from historical levels. The company's cash position improved to ₹1,835.00 crores by September 2024, providing ample resources for growth investments or shareholder returns. However, the modest dividend payout ratio of 15.73% suggests conservative capital allocation, leaving substantial retained earnings on the balance sheet.
Industry Context: Navigating Competitive Intensity
The heavy electrical equipment sector in India has witnessed significant transformation, driven by government infrastructure initiatives, renewable energy expansion, and industrial modernisation. However, this growth opportunity has attracted intense competition, compressing margins across the industry. Siemens operates in a market characterised by price-sensitive project bidding, long gestation periods, and execution risks.
The company's 5-year sales compound annual growth rate (CAGR) of 9.86% demonstrates consistent topline expansion, though this trails the more robust 18.04% EBIT growth over the same period. This divergence suggests that historical margin expansion has reversed in recent quarters, with the company now facing headwinds in maintaining profitability levels.
Competitive Landscape Intensifies
The heavy electrical equipment sector faces heightened competition from both domestic players and global manufacturers. Price-based competition in infrastructure projects, coupled with rising raw material costs and wage inflation, has created a challenging operating environment. Companies with superior execution capabilities, technological differentiation, and strong customer relationships are better positioned to navigate these headwinds.
Siemens' brand strength and technological expertise provide competitive advantages, but the margin compression suggests these moats may be narrowing. The company's ability to maintain market share whilst improving profitability will be critical for long-term value creation.
India's infrastructure development pipeline, including smart cities, metro rail projects, power transmission, and industrial automation, presents substantial opportunities. However, converting these opportunities into profitable growth requires disciplined project selection, efficient execution, and effective cost management—areas where Siemens appears to be facing challenges based on recent margin trends.
Peer Comparison: Premium Valuation Despite Weak Returns
Siemens Ltd. trades at a significant premium to its historical valuations but lags peers on key profitability metrics. The company's price-to-earnings (P/E) ratio of 57.80x represents a premium to the industry average of 39x, yet the return on equity of 12.96% trails competitors substantially.
| Company | P/E (TTM) | Price/Book | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Siemens | 57.80 | 8.95 | 12.96 | 0.39 | -0.48 |
| CG Power & Ind | 109.59 | 15.69 | 86.01 | 0.17 | -0.17 |
| Siemens Energy Ind | 118.23 | 30.07 | 0.00 | — | 0.02 |
| ABB India | 59.51 | 14.61 | 18.91 | 0.87 | -0.72 |
| BHEL | 175.68 | 4.02 | 1.63 | 0.19 | 0.12 |
| Hitachi Energy | 133.40 | 20.88 | 12.00 | 0.03 | -1.00 |
The comparison reveals Siemens' valuation disconnect. Whilst the company trades at a P/E multiple of 57.80x—lower than several peers—its ROE of 12.96% significantly trails CG Power's exceptional 86.01% and ABB India's 18.91%. The price-to-book ratio of 8.95x appears reasonable relative to peers but seems elevated given the modest return on equity.
CG Power & Industrial Solutions has emerged as a standout performer with an ROE of 86.01%, justifying its premium valuation despite a P/E ratio exceeding 100x. ABB India, with an ROE of 18.91% and P/E of 59.51x, offers a closer comparison to Siemens but demonstrates superior capital efficiency. Siemens' dividend yield of 0.39% remains modest, reflecting the conservative payout policy.
The peer comparison underscores a critical challenge: Siemens commands a premium valuation based on brand equity and market position, but the underlying financial performance—particularly return on equity and margin trends—does not justify this premium. Investors paying 57.80 times earnings for a company generating 12.96% ROE with declining margins face an unfavourable risk-reward equation.
Valuation Analysis: Premium Pricing for Deteriorating Fundamentals
Siemens Ltd. trades at a price-to-earnings ratio of 57.80x based on trailing twelve-month earnings, representing a significant premium to the heavy electrical equipment industry average of 39x. The price-to-book ratio of 8.95x, whilst lower than several peers, appears elevated for a company generating 12.96% return on equity. The enterprise value-to-EBITDA multiple of 53.97x and EV/EBIT of 62.76x further underscore the premium valuation.
The company's valuation has been classified as "Very Expensive" since October 2020, with brief intermittent changes. The current stock price of ₹3,099 represents a 34.22% decline from the 52-week high of ₹4,711.26, indicating substantial value erosion over the past year. However, the stock remains 24.46% above its 52-week low of ₹2,490, suggesting some support at lower levels.
The PEG ratio of 1.15x, calculated using the 5-year earnings growth rate, suggests the stock is fairly valued on a growth-adjusted basis. However, this metric fails to capture the recent deterioration in profitability trends, where earnings have declined 41.63% year-on-year despite revenue growth. The dividend yield of 0.39% offers minimal income support, with the latest dividend of ₹12 per share representing a payout ratio of just 15.73%.
Considering the margin compression, declining year-on-year profitability, and premium valuation multiples, Siemens appears overvalued at current levels. A fair value estimate would place the stock around ₹2,600-₹2,800, representing potential downside of 12-16% from current levels. This estimate assumes stabilisation of margins at current levels and modest earnings recovery—both of which remain uncertain given recent trends.
Shareholding Pattern: Promoter Stake Surge Signals Strategic Shift
Siemens Ltd.'s shareholding structure witnessed a dramatic transformation in Q2 FY2026, with promoter holding surging to 75.00% from just 6.67% in the previous quarter—an increase of 68.33 percentage points. This substantial consolidation reflects the German parent's increased commitment to the Indian subsidiary and potentially signals confidence in long-term growth prospects despite near-term challenges.
| Quarter | Promoter | Change | FII | Change | MF | Change | Insurance | Change |
|---|---|---|---|---|---|---|---|---|
| Sep'25 | 75.00% | +68.33% | 7.00% | -0.66% | 3.69% | -0.04% | 3.05% | +0.65% |
| Jun'25 | 75.00% | +68.33% | 7.66% | -0.53% | 3.73% | -0.20% | 2.40% | +0.19% |
| Mar'25 | 6.67% | 0.00% | 8.19% | -0.58% | 3.93% | +0.46% | 2.21% | +0.02% |
| Dec'24 | 6.67% | 0.00% | 8.77% | +0.08% | 3.47% | +0.06% | 2.19% | -0.20% |
| Sep'24 | 6.67% | — | 8.69% | — | 3.41% | — | 2.39% | — |
The promoter group, led by Siemens International Holding B.V. (47.7%), Siemens Aktiengesellschaft Germany (18%), and Siemens Energy entities (6%), now controls three-quarters of the company's equity. This consolidation reduces free float and may impact liquidity, though it demonstrates the parent's long-term strategic commitment to the Indian market.
Foreign institutional investor (FII) holding declined to 7.00% in September 2025 from 8.69% a year earlier, reflecting sustained selling pressure from overseas investors. The sequential decline of 66 basis points from 7.66% in June 2025 indicates continued FII exodus, likely driven by concerns over margin compression and valuation premiums.
Mutual fund holding remained relatively stable at 3.69%, down marginally from 3.73% in the previous quarter. With 32 mutual fund schemes holding positions, domestic institutional interest remains modest. Insurance company holdings increased to 3.05% from 2.40%, representing one of the few bright spots in institutional activity. Non-institutional investors held 9.96%, down slightly from 10.08% in the previous quarter.
The shareholding pattern reveals a tale of divergent confidence: whilst the promoter group has dramatically increased its stake, signalling strategic commitment, foreign institutional investors have consistently reduced exposure over the past year. This divergence reflects differing perspectives on the company's ability to navigate current challenges and deliver long-term value.
Stock Performance: Significant Underperformance Across Timeframes
Siemens Ltd. has delivered disappointing returns across most relevant timeframes, significantly underperforming both the benchmark Sensex and its sector peers. The stock declined 21.86% over the past year, generating negative alpha of 30.86 percentage points relative to the Sensex's 9.00% gain. This underperformance accelerated in recent months, with the stock declining 2.20% over three months against the Sensex's 4.92% gain.
| Period | Stock Return | Sensex Return | Alpha | Sector Return |
|---|---|---|---|---|
| 1 Week | +2.11% | +1.62% | +0.49% | — |
| 1 Month | -0.23% | +3.09% | -3.32% | — |
| 3 Months | -2.20% | +4.92% | -7.12% | — |
| 6 Months | +3.08% | +3.97% | -0.89% | — |
| YTD | -19.32% | +8.22% | -27.54% | — |
| 1 Year | -21.86% | +9.00% | -30.86% | -1.17% |
| 2 Years | +54.45% | +30.23% | +24.22% | — |
| 3 Years | +81.96% | +37.22% | +44.74% | — |
| 5 Years | +285.27% | +93.78% | +191.49% | — |
The year-to-date (YTD) performance paints an even grimmer picture, with the stock declining 19.32% against the Sensex's 8.22% gain—negative alpha of 27.54 percentage points. The stock has underperformed its heavy electrical equipment sector by 20.69 percentage points over the past year, with the sector declining just 1.17% compared to Siemens' 21.86% fall.
However, longer-term returns remain impressive. The stock has delivered 54.45% returns over two years (alpha: +24.22%), 81.96% over three years (alpha: +44.74%), and an exceptional 285.27% over five years (alpha: +191.49%). These longer-term returns reflect the company's historical strength and the substantial re-rating it enjoyed during the post-pandemic infrastructure boom.
The stock's risk-adjusted return over the past year stands at -0.68, with volatility of 32.11%—substantially higher than the Sensex's 12.26% volatility. The beta of 0.63 suggests the stock is less volatile than the broader market, though recent price action indicates heightened volatility. The risk category classification of "Medium Risk Low Return" accurately captures the current investment profile.
Technical indicators paint a mixed picture. The stock is currently in a "Sideways" trend, having changed from "Mildly Bearish" on November 12, 2025. The stock trades below all key moving averages—5-day (₹3,060.72), 20-day (₹3,102.88), 50-day (₹3,154.63), 100-day (₹3,148.32), and 200-day (₹3,108.86)—indicating weak technical momentum. Immediate support lies at the 52-week low of ₹2,490, whilst resistance is clustered around the ₹3,100-₹3,150 zone.
"Siemens' stock performance reflects a fundamental disconnect: whilst long-term returns remain stellar, recent underperformance signals growing investor concerns about margin sustainability and competitive positioning in an evolving market landscape."
Investment Thesis: Quality Company Facing Execution Challenges
Siemens Ltd. presents a nuanced investment case. The company maintains "Good" quality fundamentals, supported by zero debt, strong cash generation, and a robust balance sheet. The average return on capital employed (ROCE) of 31.29% demonstrates efficient capital deployment, though the return on equity (ROE) of 12.96% remains modest and below peer benchmarks.
However, several concerns cloud the investment outlook. The financial trend is classified as "Flat," with recent quarterly results showing margin compression despite revenue growth. The company's inability to translate topline expansion into proportionate profit growth raises questions about pricing power and cost management. The technical trend remains "Sideways" with the stock trading below all major moving averages, indicating weak momentum.
The valuation grade of "Very Expensive" represents a critical headwind. At a P/E ratio of 57.80x—significantly above the industry average of 39x—investors are paying a substantial premium for a company facing near-term execution challenges. The price-to-book ratio of 8.95x appears elevated for a 12.96% ROE, suggesting limited margin of safety at current levels.
The company's Mojo Score of 48/100 places it in the "SELL" category, reflecting the combination of expensive valuation, flat financial performance, and weak technical momentum. The score declined from 58 (HOLD) on November 7, 2025, indicating deteriorating fundamentals. Key concerns limiting the score include flat financial performance, underperformance relative to the market, and expensive valuation despite operational challenges.
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Zero Debt Position: Completely debt-free with net cash position, providing financial flexibility and resilience during economic downturns
- Strong ROCE: Return on capital employed of 31.29% demonstrates efficient capital deployment and operational effectiveness
- Market Leadership: Strong brand equity and market position in heavy electrical equipment sector with established customer relationships
- Revenue Growth: Consistent topline expansion with Q2 FY26 revenue of ₹5,171.20 crores marking highest quarterly sales
- Robust Cash Generation: Operating cash flow of ₹1,669 crores in FY24 with closing cash position of ₹1,835 crores
- Promoter Commitment: Dramatic increase in promoter stake to 75% signals long-term strategic commitment to Indian operations
- Working Capital Efficiency: Debtors turnover ratio improved to 5.82 times, highest level achieved
KEY CONCERNS ⚠
- Severe Margin Compression: Operating margins declined from 15.34% to 11.93% over six quarters—341 basis points erosion
- Profitability Disconnect: Net profit declined 41.63% YoY despite 16.02% revenue growth, indicating operational inefficiency
- Weak ROE: Return on equity of 12.96% significantly trails peer average and indicates suboptimal capital efficiency
- Premium Valuation: P/E of 57.80x represents significant premium to industry average of 39x despite deteriorating fundamentals
- FII Exodus: Foreign institutional investors reduced holdings from 8.69% to 7.00% over past year, signalling concerns
- Stock Underperformance: 21.86% decline over past year with negative alpha of 30.86 percentage points vs Sensex
- Rising Costs: Employee costs increased 9.39% YoY, outpacing revenue growth and pressuring margins
Outlook: Critical Monitoring Points
POSITIVE CATALYSTS
- Margin Stabilisation: Operating margins stabilising at 11-12% range would halt profitability erosion
- Order Book Execution: Strong revenue growth continuing with improved project execution efficiency
- Infrastructure Spending: Government capital expenditure on railways, metros, and smart cities providing tailwinds
- Promoter Confidence: Increased promoter stake to 75% potentially signalling turnaround confidence
- Valuation Correction: Stock price correction to ₹2,600-₹2,800 range would improve risk-reward equation
RED FLAGS
- Further Margin Decline: Operating margins falling below 11% would signal deepening operational challenges
- Sustained Profitability Decline: Continued YoY profit decline despite revenue growth indicating structural issues
- Competitive Intensity: Increased price-based competition eroding pricing power in project bidding
- Institutional Selling: Continued FII and mutual fund selling indicating loss of institutional confidence
- Technical Breakdown: Stock breaking below ₹2,490 (52-week low) would signal further downside potential
The outlook for Siemens Ltd. hinges critically on management's ability to arrest margin compression and restore profitability leverage. The company operates in structurally attractive end-markets with substantial growth opportunities, but execution challenges and competitive intensity threaten near-term performance. Investors should monitor quarterly margin trends, order book quality, and management commentary on pricing power closely.
The dramatic increase in promoter stake to 75% could signal confidence in a turnaround, but it may also reflect defensive positioning ahead of continued challenges. The company's strong balance sheet provides resilience, but the inability to deploy capital productively—as evidenced by the modest 12.96% ROE—remains a concern. For the stock to re-rate positively, Siemens must demonstrate sustainable margin improvement, accelerated earnings growth, and enhanced capital efficiency.
The Verdict: Avoid Until Margin Stabilisation Evident
Score: 48/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of expensive valuation (P/E: 57.80x), deteriorating margins, and weak profitability trends creates an unfavourable risk-reward equation. Wait for evidence of margin stabilisation and earnings recovery, or a meaningful valuation correction to the ₹2,600-₹2,800 range before considering entry.
For Existing Holders: Consider reducing positions and reallocating capital to better-positioned opportunities. Whilst the company's long-term fundamentals remain sound, near-term headwinds are likely to persist. The 21.86% decline over the past year may extend further if margin compression continues. Investors with long-term horizons and high risk tolerance may hold with strict stop-loss at ₹2,450 (52-week low area).
Fair Value Estimate: ₹2,700 (13% downside from current levels), based on 45x P/E applied to normalised earnings of ₹60 per share, assuming margin stabilisation at 11% operating margin levels.
Rationale: Despite strong brand equity, market leadership, and a debt-free balance sheet, Siemens faces significant near-term challenges. The 341 basis points margin compression over six quarters, coupled with a 41.63% year-on-year profit decline despite revenue growth, signals operational difficulties that may persist. The premium valuation of 57.80x P/E is unjustified given deteriorating fundamentals and 12.96% ROE. Technical weakness, FII selling, and a "Flat" financial trend further support a cautious stance. The stock requires evidence of sustainable margin improvement and earnings recovery before becoming investable at current or lower levels.
Note— ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. All investments carry risk, including the potential loss of principal. The views expressed herein are those of the author and do not necessarily reflect the views of any affiliated organisations.
