Sell Siemens; target of Rs 531: Nirmal Bang

Nirmal Bang is bearish on Siemens and has recommended sell rating on the stock with a target of Rs 531 in its April 30, 2012 research report.

“Siemens reported a mixed set of numbers for 2QFY12, highlighted by strong order execution but marred by declining profitability and a sharp fall in order intake. Order inflow fell 45% YoY to Rs18bn, the lowest since 4QFY07, leading to a 18% YoY decline in order backlog at Rs126bn. The company also revised its estimated revenue, costs and provisions made for certain projects, resulting in over-statement of PBT by Rs2.1bn. As a result, even though reported PBT of Rs4.5bn was 45.1%/55.8% higher than our/Bloomberg consensus, adjusted PBT of Rs2.4bn was 22.7%/17.0% lower, respectively. We reduce our order inflow estimate for FY12E to Rs100bn (from Rs110bn) and downgrade our earnings estimates for FY12E/13E by 6.4%/6.1%, respectively, to factor in increased pricing pressure. We retain our Sell rating on Siemens with a revised target price of Rs531 (Rs567) based on 21xFY13E EPS.”

“Net revenue for 2QFY12 rose 21.7% YoY to Rs38bn, led by stronger order execution in segments like Infrastructure & Cities (33% YoY growth, 22.5% of total revenue) and Energy (23.4% YoY growth, 46.3% of total revenue). Top-line was 24.2%/20.5% higher than our/Bloomberg consensus estimates, respectively. However, the declining order book will lead to slowdown in revenue traction, with only 1.3% CAGR likely over FY11-13E. We cut our FY12E/13E revenue estimates by 1.0%/5.3%, respectively, post reduction in order inflow assumption. Escalating costs along with increased pricing pressure led to contraction in margins during the quarter. Reported EBITDA margin fell 70bps YoY to 13%. However, after deducting write-backs, adjusted operating margin stood at only 7.4%. Infrastructure & Cities and Industry segments reported 90bps and 310bps YoY decline, respectively, in EBIT margin while the Healthcare segment reported an operating loss. Over the 1HFY12 period, operating profit margin declined sharply by 390bps YoY, from 14% to 10.1%. To factor in higher-than-expected pricing pressure, we cut our EBITDA estimates for FY12E/FY13E by 6.0%/6.2%, respectively. Consequently, our PAT estimates stand reduced by 6.4%/6.1% for FY12E/FY13E, respectively.”

“With the current order book of Rs126bn, the order backlog to TTM sales ratio has fallen from 1.5x to 1x over the past six quarters. Also, declining order intake has adversely affected the working capital cycle due to lower customer advances. Payable days fell from 183 days to 168 days YoY over 1HFY12, leading to 35% YoY decline in cash balance from Rs6bn to Rs3.9bn over the same period. We retain our negative outlook on the power T&D sector and Sell rating on Siemens,” says Nirmal Bang research report. 

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