Siemens Ltd - Healthy revival in orders and margins - ICICI Securities

Siemens reported better than expected earnings supported by healthy recovery of execution and strong operating margins in the Jul-Sep quarter (Q4FY20). Despite the macro headwinds, order intake grew 9% YoY to Rs32bn during the quarter lending growth visibility. Management indicated an overall improvement in order finalisation led by uptick from government sector and increased activity in certain segments like pharma, data centres, food & beverages, etc. Private sector is increasingly investing towards automation and efficiency-related solutions. Factoring-in the better than expected performance, we raise earnings estimates by 5% and 10% for FY21E and FY22E respectively. However, given the recent run-up in valuation, we downgrade to the stock to HOLD from Add with a revised SoTP-based target price of Rs1,447 (earlier: Rs1,202).

- Healthy recovery of execution; strong order intake: Revenues witnessed strong sequential recovery, especially in Digital Industries, gas & power, and 'smart' infrastructure segments. We believe, there should have been certain bunching up of orders from the prior quarter given certain logistical bottlenecks due to lockdown. Despite headwinds, order intake was strong at Rs32bn (+9% YoY) lending growth visibility. Management is confident of recovery in ordering going forward.

- Strong operational margins: EBIDTA margins improved 180bps YoY to 12.9% driven by control over fixed overheads and favourable revenue mix. Contribution from services has increased to 17.7% in FY20 vs 11.6% in FY19 and export contribution in revenues has increased to 22.4% from 18.5% in FY19. We believe, this has also supported overall margin improvement. Management is focused towards margin improvement and cashflows.

- Downgrade to HOLD due to rich valuation: Management is confident that the economy is gradually moving back to normalcy driven by government thrust towards infrastructure. 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 the valuations expensive, hence we downgrade it to HOLD. We have changed our valuation methodology to SoTP assigning multiples to FY22E core PAT for each individual segment; post this, we add back the cash; we have also accounted for C&S business and the mechanical drives businesses separately. We arrive at an SoTP based target price of Rs1,447 (previously: Rs1,202).

Shares of SIEMENS LTD. was last trading in BSE at Rs.1514 as compared to the previous close of Rs. 1520.9. The total number of shares traded during the day was 138205 in over 5871 trades.

The stock hit an intraday high of Rs. 1532.8 and intraday low of 1492. The net turnover during the day was Rs. 209129725.

Source : Equity Bulls

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