Accumulate Siemens; target of Rs 1230: Prabhudas Lilladher

Prabhudas Lilladher's research report on Siemens

SIEM reported revenues of Rs 30.9 bn in Q4CY16 above our estimates (PLe: Rs 29.6 bn). Adjusted for Sales of healthcare business, sales were up 11% YoY. EBITDA was down by 14% YoY to Rs2.4bn in Q4CY16 (PLe: Rs 2.8 bn) mainly on account of 9% rise in other expenses. EBITDA margins were down by 80bps to 7.8% (PLe: 9%), other income was up by 67% to Rs 683 m and PAT was up 15% YoY to Rs 1.7 bn in Q4CY16 (PLe: Rs 1.68 bn). In segments, Power and Gas de‐grew by 5.7% YoY, Energy Management/ Building Technologies /Mobility/Digital factory were up 8.5%/41%/8%/23%/16% respectively. Order intake for the quarter stood at Rs 24 bn, down 23% YoY, while order inflow for the year stood at Rs 120 bn up 19% YoY.

The stock is trading at 49.1x Sept‐17 earnings. We believe that once the economic recovery sets in, we will start to see significant order inflows leading to earnings upgrades. Focus on cost optimization and localization should help competitiveness, which, in turn, will help SIEM once the market recovers. Given its wide portfolio, the company is best placed to benefit from recovery in capex cycle as and when it happens. We expect the company to deliver earnings CAGR of 25% over FY16‐18E. Though at the stock may look expensive, once the order‐flow kicks in following economic improvement, the earnings growth is expected to be faster. We rate the stock as ‘Accumulate’.