Motilal Oswal neutral on Siemens; target Rs 746

"SIEM's 1QFY13 operating performance was a mixed bag. Revenue was flat YoY at INR24.8b (v/s our estimate of INR24.8b) and net profit was up 22% YoY at INR731m (v/s our estimate of INR723m). However, segmental working capital deteriorated significantly, raising concerns on project cash flows. EBITDA margin expanded 200bp YoY to 6.5%, marginally ahead of our estimate of 6%. Order intake declined 31% YoY to INR20b and is lower than the revenue of INR25b. Results for the quarter were also supported by the merger of Power Engineering and VAI Metals, the financials of which have not been separately disclosed.

Though reported numbers are broadly in line with our estimates, we are disappointed as (1) the in-line performance was not broadbased, (2) Infra & Cities has again posted losses, and (3) segmental working capital seems to be under pressure. Profitability remained subdued across segments, although Healthcare margins have been sustained on QoQ basis at 4.6% v/s 4.9%. Capital employed in all the business segments barring Healthcare has shown deterioration, indicating pressure on project cash flows. SIEM had been showing tight control over capital employed, indicating strict preference for project cash flows over revenues.

We have cut our earnings estimate by 13% for FY13 to factor in lower expectations on profitability improvement. The stock quotes at 41x FY13E and 29x FY14E EPS. Maintain Neutral with a price target of INR746 (30x FY14E EPS)," says Motilal Oswal research eport.

Institutional holding more than 40% in Indian cos

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