Maintain Neutral on Siemens - Motilal Oswal

Reiterates growing importance of India for Siemens AG

Expansion plans on track

- Siemens AG has identified Siemens India as a key partner in its global footprint. Chairman, Mr Deepak Parekh says, "…the Indian market will play a greater role in Siemens worldwide."

- Healthy mix of long-cycle and short-cycle business, particularly in the Industry segment, has helped Siemens to sustain growth.

Expansion plans are on track. The company has maintained healthy return ratios despite ongoing capacity expansion.

- The stock trades at 23x FY12E and 18x FY13E EPS. Maintain Neutral. Chairman reiterates growing presence in parent's global footprint: Siemens has adopted an investment-led growth strategy in India. Its parent, Siemens AG has identified it as a key partner in its global footprint.

In the annual report, Siemens India's Chairman, Mr Deepak Parekh says, "It is significant to note that the company's parent Siemens AG increased its stake from 55% to 75% earlier in the year through an investment of approximately 1 billion Euros. This is a clear message that Siemens Ltd and the Indian market will play a greater role in Siemens worldwide."

New business verticals and base products to drive growth: The company is building on its SMART (simple-to-use, maintenance-friendly, affordable, reliable and timely-to-market) base-level product initiative. Increased local footprint, higher localization of products and increased outsourcing of base-level products from India remains its key strategy. It is setting up six new hubs in India, with a planned expenditure of INR12b-14b over the next 3-4 years. Four of these are for value-price products.

Diversified business mix helps sustain growth: Healthy mix of long-cycle and short-cycle business, particularly in the Industry segment, has helped Siemens to sustain growth. Its Product Business group, comprising of Building Technologies (BT), Drive Technologies (DT) and Industry Automation (IA) posted healthy growth, mitigating the sluggish growth in Industry Solutions. The Industry Solutions business saw sluggish demand, with customers postponing turnkey projects and new orders.

Working capital deteriorates due to fall in creditors: Cash flow from operations before capex declined sharply due to increase in working capital. Sundry creditors declined from 114 days in FY10 to 90 days in FY11, which we believe has resulted from deterioration in vendor credit due to tightening liquidity conditions. The company has maintained return ratios at healthy levels despite ongoing capacity expansion.

Valuation and view: With project award activity still not showing signs of meaningful pick-up, we see Siemens posting moderate order intake growth in FY12. Siemens is also a key partner in Siemens AG's global network, creating significant export opportunity. We believe that the company will continue to be Siemens AG's growth vehicle in the Middle East and North African markets due to cost advantage. The stock trades at 23x FY12E and 18x FY13E EPS. Our target price is INR743 (on 25x FY12E EPS). Maintain Neutral.

Source : Equity Bulls

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