Jefferies has downgraded Siemens Limited to a "hold" from "buy", pointing to a material fall in profitability that drove second-quarter earnings before interest and tax (EBIT) materially below forecasts. The brokerage said EBIT from continuing operations missed estimates by 31.7%, a shortfall it attributes to weakening gross margins amid commodity inflation and Indian rupee depreciation.
In its update, Jefferies reduced its earnings per share (EPS) forecasts for FY26 and FY27 by 34% and 23%, respectively, to 35.6 rupees and 53 rupees. That compares with its earlier FY26 projection of 53.87 rupees.
The firm set a revised 12-month price target of 4,000 rupees, up from 3,800 rupees, which it noted represents roughly 3% upside from the May 28 closing price of 3,880.55 rupees.
Operationally, Jefferies reported that EBIT from continuing segments was 3.17 billion rupees in the March quarter, versus its estimate of 4.63 billion rupees. The corresponding EBIT margin contracted to 7.6% from 10.7% a year earlier.
Gross margin deteriorated by 415 basis points year-on-year to 25.7% for the quarter, while gross margin for the first half of FY26 declined 400 basis points to 26.7%. Management attributed the margin pressure principally to higher copper and silver costs and INR depreciation, according to the brokerage note.
"Company has taken price hikes in short-cycle products under Smart Infra (SI) and Digital Industries, which they expect to yield results with a 3-4 month lag, though this has not entirely stuck with customers," Jefferies said.
Jefferies lowered its FY26 EBITDA margin estimate to 9% from 12.3%, projecting EBITDA of 14.72 billion rupees versus 17.05 billion rupees in FY25. The brokerage models a rebound in margins, forecasting 11.1% in FY27 and 13.2% in FY28, conditional on execution against a 450 billion rupee order book equivalent to 3.1 times FY25 sales.
On orders and backlog, Jefferies noted a 33% year-on-year rise in order flow, led by Mobility which increased 42% and included an 18 billion rupee export order from the parent. During the March quarter, the company delivered the first 40 units of a 1,200-locomotive programme under a 263 billion rupee electric locomotive contract. Smart Infrastructure accounted for 51% of sales in the first half of FY26 and contributed 81% of EBIT.
The brokerage derived its price target by applying a 60 times price-to-earnings multiple to March 2028 EPS of 67 rupees, up from a 55 times multiple previously, and preserved a 10% premium to peer ABB India, which Jefferies rates "underperform" with a target of 5,915 rupees.
Jefferies' FY26 revenue estimate of 162.75 billion rupees sits 20% below consensus of 203.45 billion rupees, and its FY26 EPS estimate is 43% below consensus of 62 rupees, highlighting a material divergence from street expectations.
The brokerage outlined upside and downside scenarios for its valuation. The upside case of 5,005 rupees assumes a quicker gross margin recovery delivering better than 25% compound annual EPS growth for FY25-28 and applies a 65 times multiple to March 2028 EPS of 77 rupees. The downside case of 3,000 rupees assumes further margin weakness and a softer capital expenditure cycle, using a 50 times multiple on EPS of 60 rupees.
Summary
Jefferies downgraded Siemens Limited to "hold" after a sharp margin contraction caused a significant EBIT miss in the March quarter. The broker trimmed near-term EPS and EBITDA margin forecasts, set a modestly higher price target that implies limited upside from current prices, and outlined scenarios that hinge on margin recovery and order execution.
Key points
- Jefferies lowered FY26 and FY27 EPS forecasts to 35.6 rupees and 53 rupees respectively, cutting FY26 by 34% and FY27 by 23%.
- March-quarter EBIT from continuing segments came in at 3.17 billion rupees, missing the 4.63 billion rupee estimate and compressing the EBIT margin to 7.6% from 10.7% a year earlier.
- Order flow rose 33% year-on-year, led by Mobility's 42% increase and a notable 18 billion rupee export order from the parent; Smart Infra represented 51% of first-half sales and 81% of EBIT.
Risks and uncertainties
- Ongoing commodity cost inflation - notably copper and silver - and further INR depreciation could continue to pressure gross and EBIT margins, affecting industrial and infrastructure sectors.
- Price increases in short-cycle product lines may not be fully passed through to customers, delaying or limiting margin recovery in Smart Infrastructure and Digital Industries.
- Execution risk around the 450 billion rupee order book is central to Jefferies' recovery assumptions; failure to convert orders at expected margins would weigh on the broker's FY27-FY28 forecasts.