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Bull vs Bear | Most analysts upbeat on Siemens but Nomura cuts rating on stock

Nomura has downgraded its rating on shares of Siemens to Neutral from Buy

November 25, 2022 / 08:12 PM IST
Nomura expects the core order inflow growth for Siemens to slow to 12-13 percent in FY23, as commodity deflation is no longer supportive of pricing

Nomura expects the core order inflow growth for Siemens to slow to 12-13 percent in FY23, as commodity deflation is no longer supportive of pricing

When most analysts are optimistic about Siemens, Nomura has turned cautious and has downgraded its rating on the company’s shares to Neutral from Buy.

The foreign brokerage expects the core order inflow growth to slow to 12-13 percent in FY23, as commodity deflation is no longer supportive of pricing. The brokerage note explained that this is based on the expectation that FY23 may witness a moderation in commodities like copper and aluminium, which may prevent the company from undertaking further price hikes.

Additionally, due to easing of commodity prices, Nomura expects operating margin to improve 60-70 bps over FY23-24.

“Prices of key commodities have witnessed declines, over 14 percent for copper and 17 percent for aluminium, since May-22, and this coupled with operating leverage impact leads to our higher EBITDA margin estimates,” it added.

Nomura is also of the view that the current valuation has baked in positives such as 15 percent sales and 23 percent compounded annual growth over FY22-27 on a relatively strong base of FY22.

But the global brokerage firm has hiked its target price on the stock. “We value SIEM (Siemens) at 50 times (unchanged) Dec-24F EPS of Rs 59.8 and add related party loans to arrive at a TP (target price) of Rs 3,008 (Rs 2,770 previously), implying around 7 percent upside…”

The stock settled 1.4 percent lower at Rs 2,778.7 on the BSE today.

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What do other brokerage firms say?

Brokerage recommendation on Siemens

Nuvama Wealth Management pointed out that the key highlight for FY22 is the notable momentum in new orders, which have risen 43 percent YoY and high double-digit growth in smart infra, digital and mobility top lines led by large order-wins.

Despite the miss on P&L front, the domestic brokerage firm has retained its ‘buy’ rating on shares of Siemens factoring in its strong order pipeline.

“SIEM’s past few quarters of strong order momentum reflects traction in short cycle/long cycle, and while the latter still holds strong, we see new orders bunching up over the next 12–18 months, putting SIEM on a strong footing,” said Nuvama Wealth Management.

Meanwhile, ICICI Securities has maintained its ‘add’ rating on shares of the flagship listed company of Siemens AG in India, due to its consistent performance and favourable outlook on incremental capex.

The government’s impetus on infrastructure spend continues to translate into strong capital expenditure in the country, followed by investments in smart and green infrastructure, electrification, decarbonisation technologies, automation and digitisation. “We believe the company is in a strong position to leverage these growth opportunities given its capabilities across the verticals,” said ICICI Securities.

Prabhudas Lilladher is also positive on Siemens, from a long-term perspective though, taking into account its strong and diversified presence across industries, focus on digitisation and automation products, product localisation and healthy balance sheet.

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Financials and stock performance

Siemens reported a revenue of Rs 4,237 crore from continuing operations, which is an 11 percent increase over the same quarter in the preceding year.

New orders from continuing operations stood at Rs 4,009 crore, registering a 25 percent increase over the same period last year. Siemens’ order backlog from continuing operations is Rs 17,183 crore. Profit after Tax came in at Rs 392 crore, up 23 percent over the corresponding period last year.

All revenue segments of the company-Energy, Smart Infrastructure, Mobility, Digital Industries and Others-reported healthy growth.

Sunil Mathur, Managing Director and Chief Executive Officer, Siemens, said, “We continue to see an increased pace of tendering for Capex by both public and private sectors with increasing interest in digital and sustainability solutions”.

The scrip has gained 83 percent in the past three years and is up 18 percent YTD.
Dipti Sharma
first published: Nov 25, 2022 06:06 pm