You mentioned that few of the large orders were deferred in this quarter. Is it fair to say that these orders were for locomotives and HVDC you are referring to, or does it pertains to something else? Sir, the question is that you mentioned that some large orders got deferred to H2. Right. So, the question is which are the large orders, can you give some segmental color?
So, no it pertains to something else. It does not pertain to locomotives or HVDC, there have been no tendering out for those products. So, there are some orders in the energy area, there are some orders in the smart infrastructure and some orders in the mobility area.
Coming to the energy part of the business, two questions here. First is it possible to share the broad split of the energy business between grid equipment and solutions and power gen solutions either in terms of revenue or order backlog. And second would be on the export portfolio within the energy traditionally has focused more on Middle East, Africa, South East Asian subcontinents. In the current context if we see grid equipment globally especially from Europe and US have seen massive shortages. So, is the India portfolio qualified for these developed economies and do we have the required PQs in terms of catering to these markets.
Not at this point in time, Renu, once we start doing the sub-segmental over there in the new company you will get that data. Let me put it this way transmission business is the major driver there. While there are upcoming technologies where business is also working on, but currently transmission is the major driver of that business. Absolutely, Renu. The intent is very clearly and that was part of the reason for the announcement of the transformer factory of the.... in November where essentially the intent is to use these factories also as part of the global supply chain of Siemens Energy. Already the energy business in India is already exporting to multiple markets as you said, and the intent is to expand that also further in the transmission space. Primarily, because global? markets on transmission our capacity utilizations are already maxxed out and it makes sense for Siemens Energy at a global level to use India as a manufacturing base to serve their global requirements as well.
You are doing additional CapEx of about 500 crore rupees, taking the total CapEx to almost 1000 crore rupees. Can you talk about the peak revenue that this additional CapEx can potentially add to the company's existing revenue. And connected with the same question, I understand digital infra is largely catered through imports. Is there any plan to do CapEx or have manufacturing capabilities in order to cater to the digital infra space?
Digital is not infrastructure, it is the digital industry's business which is the products business that supplies PLCs and technologies for process and discrete manufacturing. No current plans. I don't want to go out with numbers at this point in time but suffice to say that this means our hurdles, our investment hurdles in the Company and yeah, more than that I cannot say at this point in time.
Sir, this last bit is on the interest cost which was increased materially in this particular quarter. Given you have a very clean balance sheet in terms of debt, can you just talk about what is this interest cost which is sitting in the second quarter financials?
We don't have that data right now, we will send it to you subsequently.
The first question that I had was more on the employee cost kind of declining on a Y-o-Y basis, at least at a console level. It seems as if the employee expense for the quarter is down on a Y-o-Y basis. I wanted to check if there is an element of productivity gains sitting over there that can be sustained. Or, should one think through that line item?
I mean, again, this is specific. There's definitely a productivity gain, but if you want specific answer, we can send that to you later.
Okay. Is there a number that you can put to this? Say for instance, last year, FY23 over 22, the pipeline would have grown at probably 15% or 20%. This year it would have grown at 15%. Is there a number like that that you can share so that we will get a perspective?
No, it's difficult to give that number because I'd be giving the average temperature in a hospital sort of thing because there's nothing in comparison, nothing to compare my low voltage business with my transmission business or my mobility business with my smart infrastructure business. So it varies from, as you rightly mentioned, government business to private business, sector by sector as well.
How will energy transition, clean energy like hydrogen battery storage, play out between two companies?
So, I mean, this is, as you're aware, Siemens Energy Global is virtually the only integrated energy company in the world. And they have all these technologies with them. And they and the new management and Board of Siemens Energy India Limited will, at the right time, review how big the market here is, what the right time to invest, and technology will then be available to Siemens Energy India Limited at the right point in time.
On HVDC. There are three, four projects on the horizon in India. Are we geared up in terms of manufacturing capacities for converter stations? What is our localized content in an HVDC project vis-à-vis imported content from or global factories?
So a lot of it depends on what technology of HVDC is being requested for. And we look at all the HVDC projects, we examine them from a technology perspective, we examine them from a realization perspective. But we also need to acknowledge the HVDC market globally is booming. And therefore, we have got to look at it and along with the parent company, Siemens Energy AG, on whom we are dependent for technology, and for some products as well, we've got to work together with them to see where the priority lie in terms of the bidding process. How realistic our orders over here in actually materializing in the short term versus the realization at a global level? So there are a lot of factors that play into HVDC projects. We are geared to do them, but we take them on a very selective basis, taking into account the technologies, the customer, the payment terms, the availability of resources, engineering resources, etc. We are building up resources here in the country on the HVDC side in particular as well, in terms of technologies.
How do you see the inquiry for the Siemens Energy, especially given that we are seeing a large number of bidding which are happened in the transmission sector. And the related question is, are you interested in bidding for .....are you interested in supplying for HVDC projects? And we expect this will materialize in this fiscal year, is that right? Most of the projects were bid out for the private parties in FY24, but we haven't seen that translating into an order inflow for players like us. So, I am trying to say to see that most of this translating into an order inflow for the next 6 months. Is that a fair assumption?
So, you are right. We are seeing a very major increase in demand in the transmission sector and part of the announcement in CapEx that we made in November 2023 of 360 crores was towards to serving exactly that demand by adding capacities in power transformers. Yes, we are open also to bidding in HVDC. As you rightly said a lot of it depends on how the customers, how quickly customers will start taking decisions. At this point in time we don't know whether these orders will come in in this financial year or in the next. But suffice it to say that there - in the energy space there are transmission orders overall, the pipeline is good, we are following up and we are bidding for a lot of the pipeline over there. But finally depends on when the customers actually place orders.
First, on the performance if you look at the first half of performance, can we highlight what was the impact of effects of commodity gains during the first half given that second quarter we have seen a brilliant profitability performance. Any adjustments there or it is pure operational in terms of performance and margins.
Maybe I can answer here, yes, there has been of course the positive and negative impacts through FX and commodity hedging so I mention it. So if I look at the EBITDA? with order margins we have if I look at the H1 certain 0.6% and if I exclude EBITDA FX and commodity hedging impact it will go up to 13.4. If I look at Q2 numbers, 15% reporting in EBITDA? margin would be 15.4 excluding FX and commodities. So, we have 40 points in the quarter and 30 points in H1 of FX and commodities impact. Bulk of improvement was coming from operational performance based on volume increase, based on mix of products and businesses and as Sunil mentioned also based on productivity measures we have implemented.
If we look on the export part of our portfolio, traditionally bulk of most of Siemens exports typically tends to be housed in the energy business. In addition, we have seen with the recent announcements you have mentioned CapEx for metro projects where it will also be used for global export orders. So, is it possible to highlight that post this demerger what initiatives would Siemens Limited be taking to drive a much more broad based portfolio for the global markets apart from mobility which we have highlighted. Any other key areas you think which have opportunities to scale up for global markets or global supply chains.
Absolutely, Renu, I mentioned about the metro already. Our bogie factory on the mobility side is also doing predominantly export business. So, mobility is definitely very much a part of the global supply chains of Siemens. On the smart infrastructure side as well, we have our factory in Goa which is largely catering to export demand there, vacuum interrupters and so on, we raised vacuum interrupters and so on. They are definitely serving to a very large extent the export market. The investment that we are doing right now that we have announced today in the expansion of the facilities in Goa for GIS, one part of that is the Blue GIS and the driver for that is also export demand for Blue products globally driven by global customers' requirements for sustainable products. So, absolutely on the smart infrastructure side as well. On the energy and automation part of it as I mentioned over here the Goa business electrification will be explored. We will be expanding there. On our product portfolio on the low voltage product portfolio C&S is already stepping up and doing substantial exports. We see that expanding in line with the projections that we made actually faster than the projections that we made when we acquired the company. So, absolutely smart infrastructure and mobility will definitely be very largely focussing also as part of the global supply chains for exports.
And related to this if we see in the last few quarters there has been a visible change from the commentary from the Group with respect to leveraging India as a manufacturing base. And we have also seen that translate in terms of CapEx and investments dedicated for certain exports market as well. So, strategically while domestic may continue to grow at its own pace but do you think exports as a portfolio can see material ramp up for global markets and has it seen that incremental focus from the Group and from the Indian entity.
Absolutely, Renu. These details that I just gave earlier is demonstrating very clearly the intent of the group of the parent to expand their manufacturing activity in India not only for India but also for global. So, there is very clearly a much larger appetite globally for manufacturing in India. I mean the 1000 crores that we have announced in terms of CapEx, this is probably the largest CapEx announcement that we had ever made since I have been around, and you have been around a long time as well. So, you haven't...both of us not heard numbers of this magnitude. That basically demonstrates the focus that the parent company has on using India as a base for their global network.
First is on the Siemens Energy portfolio itself, you just now touched upon there are certain further technologies which will get added which are maybe in the Siemens parent energy portfolio, if you can touch upon those technologies which can come into Siemens Energy. And when parent has to take a call in terms of which technologies get moved into this particular entity, either Siemens Energy or Siemens Limited, then how does that decision finally get taken. That's my first question, sir.
So, let me answer the second question first. Very clearly the energy business is driven by Siemens Energy AG, and the technology owner for the energy business is Siemens Energy AG, and therefore all the technologies in the energy space will be available to Siemens Energy India Limited here in India. Siemens AG which is the prime shareholder of Siemens Limited does not have any portfolio in the energy space and therefore there is no overlap and there is no decision let's say decision making confusion. Siemens Energy India Limited will benefit from the technologies that Siemens Energy globally has, Siemens AG doesn't have any of those technologies. Which technologies will Siemens Energy India Limited focus on in the future and what technologies are available to them, we will have to wait until the new company is created. The new board or the new management will then define their strategies moving forward and present it to the board and at the right time will make the disclosures to the markets as well.
Sir, my second question is especially on the mobility business and in your interviews you have also talked about doubling down on the overall railways as a segment. If you can just give more clarity in terms of which parts of the value chain you are seeing more traction, is it propulsion, electrification, and any size to that overall opportunity which you would be keen to target and we have seen our success in the 9000 horse power locomotive order. And there was another 12000 horse power locomotive order which could have been transitioned to maybe 9000 horse power. So, what's the update on that, if you can touch upon these aspects of the mobility business.
The opportunities in the, so there are two parts of the mobility business, one is with the railways and one is the metros. When I look at the Railways we are in the complete spectrum of what the railways requires as technologies starting with signalling technologies to electrification to the entire rolling stock, that means bogies, locomotives, Vande Bharat trains for example, etc. As the government comes out, as the Railways come out with tenders in these areas we will definitely be participating in that space. On metros the fact that we are opening a factory right now basically demonstrates our view on the Indian market, but also the fact that we will use the factory over here to start catering also to global demand. And the factory will be a part of the global network but will also cater to the Indian market here. As you know every single city in the country at some point in time will need urban transportation. Metros not only one line but several lines will be required. We see a huge demand coming up in the future in the metro space. So, definitely that is the market that we see. So, I think we are looking at the entire spectrum of railways and metros in our mobility business here.
So, my second question is that certain companies have talked about heightened competition in certain areas. Can you talk about competitive intensity that you have seen in general in your area of operations.
So, yes, as the market grows competition grows. And all our competitors are active, we are active as well and our intent is to continue being a market leader and all the products that we are supplying and all the services and solutions that we provide to our customers. So, yes, competitive activity has substantially increased. But that's normal in a growing market.
The second question that I had was more on the weakness that one is seeing in the digital industries orders. It's been, I think, now two quarters, and now our revenue line is higher and our order inflows are lower for the first half. Does that have implications for margins, which have been fairly strong so far in that segment, to start kind of normalizing down? Or do you think that this is more of kind of a cyclical effect here and there, and margins can actually be sustained at the current levels incrementally as well?
So as Wolfgang mentioned to you, the main reason for the slowdown in the industrial automation business is primarily destocking, and this is resulting basically in channel partners running down their inventories. And until that point in time, there is a slowdown in the ordering. You've also seen, as you rightly mentioned, in the last two quarters, while there has been a slowdown, the profitability has been robust. And it is our intent to keep it that way. We still have a healthy backlog, and we expect the revenue development to continue.
One more question from my side. As we think through the demerger happening over time, you will eventually have two different sets of promoters, Siemens AG and Siemens Energy. Is there any thought process being shared on whether the related party transactions, specifically royalty, will start changing in any manner? Or should we expect these RPT terms or royalty terms to be quite consistent in spite of there being two different set of promoters incrementally?
I think you can expect consistency.
My first question is to get a sense on the business momentum at overall Company level that you are seeing. Just wanted to get a sense on how the enquiry pipeline is and how the bid pipelines are for you at a overall Company level. Are you seeing an acceleration in terms of demand or compared to, say, previous year or if you compare previous year with the previous year over that, are you seeing it moderating a bit from the high base? How the enquiry pipeline is panning out? If you can give your thought process across various categories like government, private, sub segments like say data centres, electronics and the various other categories, if you can talk about even the traditional sectors like steel, cement.
Okay. So, overall the enquiry pipeline is robust. Has it gone up over the prior year? I would not say so. Is it at the same high level as in the prior year? Definitely. In some parts of our business it has gone up. In terms of the pipeline there for example, in our energy transmission business, the pipeline is very, very strong. It has increased, demand has increased. In our e-vehicle business, it is going up, it has increased over there. In our electrification business, in smart infrastructure, there has been an increase. So overall, yes. Government spending in CapEx has definitely helped. That has been the driver. But private spending has also happened. As I mentioned earlier, data centres, pharma, chemicals, healthcare, all of these areas are looking for CapExt spending. Electronics areas, these are all the new areas, batteries, pipelines are definitely increasing over there. So I think overall, I would say, I mean, if I look at it at a Company level, I think overall the pipelines are robust. Some spikes in some parts of the business, not too much of a slowdown. Again, on the digital industries part that we talked about earlier on, I don't see this as a slowing down of the demand. The demand in the market is there. It is just a destocking that is happening at channel partner levels. So overall, I think it's robust and we've got a good visibility for the future, which has encouraged us to start looking at CapEx measures.
I had a question on the other income. It seems to be two times out of the previous quarter. Is there any specific reason why that is there? That is my first question. Second would be the current orders that have come in. Would you be able to give any colour on whether these orders are short cycle, long cycle orders? If there is a split that you could possibly give? And the third question is that we've seen this immense profitability this quarter. Is it something that would be sustainable long term or even for the next one or two quarters to come, or is this something that was, say, like a derivation of lumpy revenues?
Yeah, okay. So on your first question regarding other income, there are two topics we can mention. One is the gain on sale of properties in this quarter for within Siemens Limited and the second topic is the dividend payment of our subsidiaries. We have booked this under other income. You know, at the end of the day, you have seen over the last couple of quarters that we have focused on improving our profitability and we will continue to do so. As I mentioned, there are, of course, different factors impacting the profitability. It's one hand the volume growth and the business mix, and our focus is also on improving profitability by focusing on productivity measures. So we will continue to do so, and we expect that this will have impact on our margins going forward. On the order mix, again, it's a mixture of both short cycle and long cycle. It's a mixture also of government and private. So I think it's a good mix all round. We've seen a good growth on the private ordering and we've seen an equally good growth on the government ordering. There have been, as we mentioned, some deferrals of orders or spill overs from one quarter to the other. But I think that is pretty natural.
Second question is on mobility. On locomotives order, has the work started and revenue started occurring?
So, yes, work has started, very much started on the project overall. Revenue has started being booked. As I mentioned in one of my earlier meetings, this is a PoC project. And therefore, as costs get incurred, the revenue recognition is done accordingly. So the answer to your question is yes, revenue is being recognized on a continuous basis.
My first question is, you announced the capacity expansion for medium voltage GIS. Is it fair to say that medium voltage GIS use case is primarily for renewables? And is it possible define the market size for this product in India and globally?
So this GIS factory is not only for GIS, but it's also for our end use. For the GIS factory in particular yes, it is primarily for the Indian market. But as I mentioned, as we develop components for Blue GIS, these will be then supplied as part of the global supply chain into global customers, or Siemens globally, who will use them in the global markets. Right now, the Blue GIS is not really affordable at the Indian market. Over a period of time, we expect these prices to come to a level where Indian customers will afford them. But until that time, we will develop them for the global market. The size of the opportunity of the transmission market and distribution market, you are well aware of, we put it on the transmission side, 1800 GVA over there. On the distribution side, it is effectively every discom in the country is going to need it. So the size of the market is huge for GIS in totality. For Blue GIS, I'm a little bit more conservative.
My second question is on the block signalling opportunity from Indian railways. We expect this opportunity to accelerate over next twelve months. Given the government thrust on safety and speed, is it also right to say that we are one of the few who have the complete technology?
So let me put it this way. We do have the complete integrated portfolio for signalling, right? And this goes across the entire value chain on the signalling part. We do have it and we will offer it to the Indian Railways as and when tenders come. We are already bidding for many tenders on the signalling side. And it's not only to the Indian Railways, but also for metro projects.
Firstly, on C&S, it would be really great if you can highlight what we've done that in such a short period of time we've been able to scale up margins from single digits to now almost reaching mid-teens. And does this margin profile at an EBITDA level of almost 18-19% look sustainable to you given that exports have further room to grow? And just a joint to it, though, we've seen some bit of sales growth slowdown in the first half, as in we've still grown, but it's been around 8% in C&S versus the 20% that we were clocking for last four to six quarters.
So in terms of the growth, I'll answer the growth first and then maybe hand over to Wolfgang on the profitability. The growth that you see of 8% is strictly speaking, not really comparable to last year. Last year there were large order that we had received. If we take out that one large project that we had received in C&S, the growth would be more in the range of around 18%. So C&S is definitely growing. Our footprint, our export footprint is growing substantially as planned, actually ahead of plans as well. We are continuing to address new markets. We're continuing to get depth into additional global markets as well in the identified countries that we had done at the time of the acquisition. So I think the growth story is definitely good. The margins, as you say, are robust as well. I believe in C&S Electric, we have done a lot to improve the competitiveness of the Company, which at the end of the day resulted in the mid teen margin corridor. And so we will continue to focus on profitability of course driven by a strong revenue growth. Yes, you said it's slowing down a little bit, but we will continue to grow going forward, expanding also in the global market. So I believe the marching of mid teen? is at a reasonable level.
So my second question was to understand this one business of industrial drives, LV and MV drives. So, how has that business performed for you in the recent past and what are the localization levels in that business? Is it as large as your maybe LV motor business, the outgoing LV motor business? If you can talk about the industry dynamics there, what is our market positioning, etc. So on the industrial drives that will be helpful. And, is it fair to say that the localization levels here are similar to that of PLC or they are at least slightly better in terms of localization?
Yeah. So the industrial drives is a part of the motion control business that we have. That business is doing well. Industry is growing. Of course, they are partly also impacted through the destocking story over there. But the demand is robust. We see that business growing. It may take some time before it completely bounces back from the destocking scenario. Our projection is in the October-December quarter. They should start bouncing back there. But the demand in the market is pretty robust. So PLC we have no localization. So it's all imported in terms of the PLC. On the industrial drive, we have a mix. Some are imported, some are outsourced here to local suppliers.
And just a tied in question, sir. I was just trying to understand or better appreciate what's happening with the digital industries margins. So one hand, we've been talking of destocking and it's reflective in our both order inflows and sales growth, and was partly reflective in margins also, if we see the second half margins of last year. But then in the last two quarters, again, 16% this time around and 12.7 in the first quarter. For a business that is traded in nature, where there's a lot of imports, where there are only trading margins with hardly any value at margins, what brings in this sort of volatility in margins, particularly on the upside, sir?
As I mentioned in my presentation, there has been some major impact from FX and commodity hedging in the DI business. Last year saw significant positive impact on margin, which we didn't see this first half of the year. And on the other hand, we have a robust service business, which is value add and also supporting the development of our margin quality. Last year we had a significant gain and this year, it is much less.
Sir, if I look at mobility business, it's likely to scale up significantly from here onwards. But if I look at the margin profile of this business, not only it has been volatile, it has been a lot lower than the portfolio margin for Siemens. So would it be possible to share some colour on the likely trajectory of this business as the scale up of this business happens? And what I'm really looking at is, are double digit margins are possible as revenue ramp up happens?
So traditionally, and this business until about two or three years ago, was in double digit margins while we were concentrating on electrification and signalling. As the market became more attractive on the rolling stock, we decided to invest in rolling stock as well with the reopening of the bogie factory, with expansion of Nasik, and with the metro project that we've just announced. Those are heavy investments that have gone in to the business which have naturally had impacts on the profitability. They will continue to have impacts on the profitability for the next couple of years as we continue to invest in these projects, land, building machineries and so on. However, we do expect, as the volumes start coming up, the margins will start improving as well. And I expect in a couple of years we will slowly get up to the same levels that we were prior. But of course, a lot of it first depends on our...we've got to build the factories, we got to fill the factories, and that's when the margins will start growing up.
Sir it is heartening to see capacity expansion on electrification as well as mobility segment. But sir, it seems like a lot of these capacities are coming on stream two to three years down the line and you're operating at almost 100% capacity utilization in all these product categories. So wondering, will it constraint in order taking as well as revenue execution for Siemens over next couple of years particularly?
No, we are not. We haven't waited until we have reached 100% capacity to start thinking about adding capacities. So we've got capacities that will beat our requirements for until the new capacities come into place. We're betting on the fact that the economy will continue to grow, and grow robustly, and based on that we are adding capacities. But it doesn't mean that we are at overcapacities right now.