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Siemens Ltd - Healthy margins with growth recovery - ICICI Securities

Posted On: 2021-05-12 05:40:35 (Time Zone: UTC)


Siemens' Q2FY21 earnings were supported by strong recovery in execution (up 28% YoY) and strong operating margins (13.2% EBITDA margin) in Jan-Mar quarter (Q2FY21). Despite macro headwinds, order intake grew 17% YoY to Rs33bn during the quarter and the orderbook remained strong at Rs127bn, lending growth visibility. Going ahead, the impact of second covid wave on operations is uncertain; however, we expect increased activity in certain segments like pharma, data centres, food & beverages, etc. Private sector is increasingly investing in automation and efficiency-related solutions. Factoring in better-than-expected performance, we raise earnings estimates by 16.3% and 11% for FY21E and FY22E, respectively. However, given the recent run-up in valuation and the uncertainty due to the second wave, we maintain HOLD with a revised SoTP-based target price of Rs1,860 (earlier: Rs1,768).

- Healthy execution and order intake: Revenues witnessed strong recovery, especially in digital industries (short-cycle orders) and 'smart' infrastructure segments. The order intake grew 16.9% YoY at Rs33bn and the orderbook stood strong at Rs127bn (+17% YoY), lending growth visibility. Booking of a large order under mobility and healthy orders under digital industries.

- Strong operational margins despite higher material costs: EBIDTA margin at 13.2% (up 480bps YoY) was supported by control over fixed overheads as other expense declined 32% YoY. This was despite 650bps YoY increase in material cost proportion to 68.6%. We believe this should be partly due to revenue mix and partly due to increase in commodity prices. We believe 32% YoY drop in other expense to Rs2.4bn is aided by forex gains.

- Maintain HOLD due to rich valuation & impact of second covid wave: Management is confident that economy is gradually moving back to normalcy driven by government thrust towards infrastructure as indicated in FY22 Budget. Green shoots in certain sectors like pharma, food & beverages, data centres, etc. will support base orders. However, we believe, the recent run-up in stock price has made valuations expensive; hence, we maintain HOLD. We value the stock using SoTP methodology assigning multiples to FY22E core PAT for each individual segment, post this, we add back the cash. We have also accounted for C&S and mechanical drives businesses separately. We arrive at an SoTP-based target price of Rs1,860 (previously: Rs1,768).

Shares of SIEMENS LTD. was last trading in BSE at Rs.1947 as compared to the previous close of Rs. 1882.6. The total number of shares traded during the day was 23435 in over 1726 trades.

The stock hit an intraday high of Rs. 1963.8 and intraday low of 1868.7. The net turnover during the day was Rs. 45187635.


Source: Equity Bulls

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