Buy Siemens; target of Rs 1402: Prabhudas Lilladher

Prabhudas Lilladher's research report on Siemens

Siemens Ltd (SIEM) reported weak set of numbers primarily led by deferment in offtake by customers, slowdown in short-cycle business and weak demand environment from large infrastructure projects. As per our estimates, order inflows came in at ~Rs19bn (down 37% YoY) on account of delay in ordering activity as orders deferred due to various reason such as re-negotiation of power T&D contracts on back of recent Govt. ban, deferment of private capex such as waste heat recovery and lower government spending, etc. Order backlog stands at ~Rs131bn providing revenue visibility going ahead. Management indicated that capex spending will continue to remain weak in the near term due to overall slowdown in the economic. Management continues to focus on its philosophy of improving profitability and would be highly selective in picking orders. We believe slowdown would continue in the near-term, but remain positive on SIEM from a long-term perspective and expect company to recover faster given its 1) Strong presence across industry 2) focus on Digitization and localization 3) Creating smart infrastructure and 4) Increasing customers by leveraging its strong balance sheet and offering innovative financing. We have marginally cut our estimates for SY20E by 3% to factor in higher than anticipated COVID-19 impact.

Outlook

The stock is currently trading at 39x/32.3x SY21E/22E earnings. We maintain BUY with TP of Rs1402 on 40x SY21E.

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