Sell Siemens; target of Rs 502: Nirmal Bang

Nirmal Bang is bearish on Siemens and has recommended sell rating on the stock with a target of Rs 502 in its August 13, 2012 research report.

“Siemens reported 3QFY12 revenue of Rs28.4bn, up 2.2% YoY, in line with our estimate of Rs28.8bn but 5.2% lower than Bloomberg consensus estimate of Rs30bn. However, the decline in profitability was steeper than expected due to cost over-run and delay in project off-take by customers. EBITDA fell 61.5% YoY to Rs966mn while PAT declined 76.5% YoY to Rs364mn. EBITDA/PAT were 63.2%/76.9% below our estimates and 61.5%/78.7% below Bloomberg consensus estimates, respectively. The performance was also impacted by upward revision in provisions for project costs related to the previous year, amounting to Rs240mn. Consequently, we downgrade our earnings estimates for FY12E/FY13E by 10.6%/5.9%, respectively, to factor in increased pricing pressure. We retain our Sell rating on Siemens with a revised target price of Rs502 (from Rs531 earlier) based on 21xFY13E EPS.”

“Order inflow during the quarter stood at Rs27bn, in line with our estimate, posting 18% YoY growth. Total order intake during the 9MFY12 period stood at Rs73bn and therefore we retain our order inflow assumptions of Rs100bn for FY12E and Rs110bn for FY13E. Consequently, our revenue estimates for FY12E/FY13E remain unchanged. Revenue growth in 3QFY12 was modest at 2.2% YoY due to execution delay in long-cycle projects. Energy (39.5% of revenue) and industry (29.3% of revenue) segments were primarily affected as they witnessed a slump in sales growth at (1.1%) and 3.8% YoY, respectively. For the 9MFY12 period, top-line grew at a muted pace of 6.1% YoY. We expect the slowdown in revenue traction to continue with only a 1.7% CAGR likely over FY11-FY13E.”

“The order backlog to TTM sales ratio of Siemens has fallen from 1.5x to 1x over the past two years, thereby substantially deteriorating its earnings visibility. Affected by rising competition in the power transmission segment, slowdown in corporate capex in the industrial segment and no large-sized orders likely in the near term, we expect earnings visibility for Siemens to remain weak,” says Nirmal Bang research report.

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