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Siemens India: Initiating Coverage – Neutral
Diversified play on infra and industrial capex
We expect Siemens India, a leading provider of industrial and infrastructure solutions, to
report major accretion to its order book, given that India is in the cusp of a new investment
cycle and infrastructure building. The company's industry segment spans across sectors and
supplies production, transportation and building technologies. The energy segment offers
an array of products, services and solutions to the power and oil & gas sectors.
Order inflow gains momentum - Revenue visibility improves
The company's consolidated order inflow in FY2010 stood at `12,813cr, up 27% vis-a-vis
the de-growth witnessed during the previous two years. Nearly 60% of the new orders
relate to the energy segment, including the `2,500cr order from Qatar General Electricity
and Water Corporation (Kahramaa). Consolidated order backlog, as on September 2010,
stood at `13,584cr, up 32%, providing improved revenue visibility for the next
5–6 quarters.
Outlook and valuation
After reporting sluggish growth in revenue during the past couple of years, going ahead
we expect Siemens India to post double-digit growth across its various business segments,
backed by a strong order backlog and improving outlook in the industrial and energy
segments. Its strategy to set up a global hub in India for sourcing value-priced products will
not only help it sustain healthy growth rates, but will also enable Siemens India gain access
to various products at low cost. Also, assured access to critical technologies and R&D
support from parent Siemens AG, will enable the company offer superior products in the
Indian markets, especially in the power sector. We expect the company to post CAGR of
21% and 18% in revenues and profit, respectively, over FY2010–12. On the valuation
front, at current levels, the stock trades at 29x and 24x FY2011E and FY2012E EPS,
respectively. Our fair value works out to `690. We Initiate Coverage on the stock with
a Neutral view.
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