Siemens Ltd - Lockdown impacts growth - ICICI Securities

Siemens witnessed 59% YoY drop in revenue in Q3FY20 due to weak demand on account of Covid-19 related lockdown. The company reported EBIDTA loss of Rs96mn; however, gross margin improved 300 bps YoY limiting the impact on EBIDTA. Private sector capex continues to remain muted in certain sectors like auto, which has been a major driver of discrete automation and is currently under stress. One of the major warehouses of the company in Bhiwandi, Maharashtra was shut and import shipments were delayed impacting digital industries execution. We believe government's focus on infrastructure, rail will support revival of demand offsetting weak private sector investment. Factoring weak execution, we cut earnings by 21% and 12.7% for FY20E and FY21E, respectively, and downgrade to ADD with a revised target price of Rs1,202 (earlier: Rs1,277).

- Weak execution due to lockdown, likely to continue in near term: The overall demand scenario has been weak impacted by lockdown resulting in 59% YoY drop in revenue. We believe near term revenue growth will be weak owing to extension of lockdown and is likely to be more pronounced under project segment, gas & power.

- Closure of factories, warehouses and delay in imports impact execution: In addition to the weak demand, major warehouse in Bhiwandi was shut for long impacting digital industries execution. Majority of Siemens factories were in Maharashtra during the lockdown, which again impacted execution.

- Challenging near-term growth outlook: Given the extension of lockdown scenario and slow gradient in terms of recovery, we believe, the overall execution will be under stress for the next six months. However, given the likely focus towards infrastructure investment from government and focus towards Make in India is likely to crank up long-term demand for the sector.

- Downgrade to ADD due to near term demand stress: There persists a challenging outlook in terms of slowdown of capex-related ordering and execution. Slowdown in automotive segments is impacting the overall growth under automation. However, the company has strong balance sheet with net cash of Rs45bn and diversified growth levers. Given slowdown and weak execution, we downgrade the stock to ADD from BUY with a revised target price of Rs1,202 (previously: Rs1,277). Focus on margins, predictable cashflows from digitisation and short-cycle demand is expected to support medium- to long-term growth.

Shares of SIEMENS LTD. was last trading in BSE at Rs.1158 as compared to the previous close of Rs. 1131.75. The total number of shares traded during the day was 63584 in over 2985 trades.

The stock hit an intraday high of Rs. 1173.4 and intraday low of 1127. The net turnover during the day was Rs. 73618445.

Source : Equity Bulls

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