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Siemens (SIEM)
Industrials
Strong results but aided by low base and unreliable margins. Revenues of Rs25
bn, 12% ahead of estimates, were led by power on pick-up of execution of large orders
and favourable base. Industrials segment remained relatively moderate - likely reflection
of weak capex cycle. Inflows of Rs40 bn, though strong (led by Torrent order-execution
unlikely in near term), were significantly lower than indication from global results (of
Rs70 bn). Retain REDUCE on valuations as base effect wears off and margins normalize.
Strong revenue growth led by power segment on execution of certain large orders and low base
Siemens reported 1QFY10 revenues of Rs25.2 bn, 11.8% higher than estimates and up 37.7% yoy.
The strong revenue growth was primarily led by the power segment (up 59% yoy) likely on pickup
in execution of certain large order (Rs25 bn Qatar order) and favourable base effect. EBITDA
margin at 14.3% was significantly higher versus our estimate of 11% (yoy comparison may not be
valid). The higher-than-expected revenue growth and margins led to a net PAT of Rs2.4 bn, about
47.7% ahead of our estimate of Rs1.65 bn.
Industrial segment growth moderates; likely reflection of weak industrial capex cycle
The industrials segment recorded a 19% yoy growth in revenues to Rs9.5 bn from Rs8 bn in
1QFY10. The industry segment growth was primarily led by the Building technologies segment (up
61.8% yoy) aided by low base effect as well as merger of Siemens Building Technologies. The
drive technologies segment in fact recorded a 2.5% yoy decline in revenues. We believe that this
could be a reflection of weak industrial capex cycle momentum.
Strong inflows led by large Torrent power order; however, execution unlikely in the near term
Siemens reported relatively strong order inflows of Rs40 bn primarily due to inclusion of DGEN
order from Torrent Power for a combined cycle power plant. However, this was much lower versus
the indication from the global results; indicated that total inflows were to the tune of about Rs72
bn. We believe that execution of this order is unlikely to start in the near term and hence have
presently not included it in our revenue estimates. The 1QFY11-end order backlog of Rs151.3 bn,
up 11.2% yoy, provides a revenue visibility of about 1.3 years.
Retain estimates and target price of Rs735/share; reiterate REDUCE
While we have changed our underlying assumptions in the model, there is no material change to
our earnings estimates of Rs28.7 and Rs34 for FY2011E and FY2012E, respectively. We reiterate
our REDUCE rating (TP: Rs735) on (1) potential base effect which aided quarter performance,
(2) unreliable margins, (3) weak industrial business segments and industrial capex cycle momentum,
(4) execution of large Torrent Power order unlikely in the near term and (5) high valuations.
Strong results at revenue as well as margin levels - ahead of estimates
Siemens reported 1QFY11 (fiscal year-ends September 30, 2011) revenues of Rs25.4 bn
recording a strong growth of 36% yoy, from Rs18.7 bn in 1QFY10. The strong revenue
growth is likely led by pick-up in execution of the certain large orders (Rs25 bn order from
Qatar General Electricity & Water Corp.). The revenues were about 11.8% above our
estimates of Rs22.7 bn for the quarter and broadly in-line with the indication from Siemens
AG (Global) results. Siemens reported 1QFY11 EBITDA margin of 14.3% about 330 bps
ahead of our estimate of 11%. The higher-than-expected revenues and EBITDA margin led
to a net PAT of Rs2.4 bn, up 3% yoy and about 47.7% ahead of our estimate of Rs1.65 bn.
EBITDA margin not comparable on a yoy basis
Siemens reported EBITDA margin of 14.3% lower than 1QFY10 margins of 19.5% and
pervious quarter level of 13.2%. However we believe that the margins are not comparable
as the historical numbers are likely to have carried certain one-offs (not quantified). Siemens
has been reporting very volatile operating margins performance over the past two years. We
build in margin estimates based on 12.3% EBITDA margin for y/e September 2011E and
2012E. We believe Siemens is unlikely to be able to sustain higher margins based on peer
margin levels and historical trend.
Strong power growth while some disappointment in industrial numbers
1QFY11 revenue growth was primarily led by the power segment (recording a strong 59%
yoy growth) while some moderation was witnessed in the industrial segment results. The yoy
increase in total revenues, from Rs18.3 bn in 1QFY10 to Rs25.2 bn in 1QFY11 was primarily
led by the power T&D segment which contributed to about Rs3 bn of the incremental
revenues. Industrials and Oil & Gas segments contributed about Rs1.5 bn and Rs1.7 bn,
respectively, to the incremental revenues.
Industry segment revenues up 19% yoy but partially supported by merger of SBTPL
and base effects
The industry segment (comprising of Industry Automation, drive technologies, building
technologies and Industry Solutions) recorded a 19% yoy growth in revenues to Rs9.5 bn
from Rs8 bn in 1QFY10. The industry segment growth was led by the Industry solutions
segment (up 23% yoy) and Building technologies segment (up 61.8% yoy, also aided by low
base effect as well as merger of Siemens Building Technologies). The drive technologies
segment reported a yoy revenue decline of about 2.5% in 1QFY11.
Strong power segment revenue growth
The power segment of Siemens also recorded a strong revenue growth of 59.3% to Rs13.5
bn in 1QFY11 from Rs8.5 bn in 1QFY10. The growth of the power segment was led by the
power T&D segment (revenues up 46% yoy) and the oil & gas segment (revenues up 108%
yoy). The strong power T&D segment growth was likely led by (1) execution of the large
order won in Qatar last year (Rs25 bn) in 1Q which has picked momentum in last one or two
quarters and result in making the yoy numbers appear strong, and (2) favourable base effect
as last year as power T&D segment had relatively lower execution in Siemens.
Margins surprise positively particularly in dominant power T&D segment
The power segment margins recorded a 130 bps expansion on a sequential basis led by the
power T&D segment (partially offset by lower margins in the oil & gas) segment. Margins
may not be comparable on a yoy basis as last year. Siemens reported margins of 22.3% in
the power T&D segment in 1QFY10 and has reported margins of 15.4% in 1QFY11. Industry
segment margin recorded a 350 bps sequential decline in margins led by lower industry
automation & drives and building technology margins.
Inflows led by large Torrent order; however, much lower than what seemed to
be the case from Global results
Siemens reported strong order inflows of Rs39.87 bn in this quarter. This quarter’s inflows
include the order for DGEN from Torrent Power for a combined cycle power plant. This
order for a 1,200 MW power plant may have been of the order of Rs25-30 bn. Adjusted for
this order Siemens order inflows (about Rs15-20 bn) are in line or actually lower than our
trend based expectation of Rs20-22 bn. Order inflow was Rs30 bn (supported by UnoSugen
plant order from Torrent) in 4QFY10 and Rs51.7 bn (Supported by Qatar order) in 1QFY10.
The total order backlog of the company stood at Rs151.3 bn at the end of December 2010,
up 11.2% yoy, which provides a revenue visibility of about 1.3 years based on forward four
quarter revenues.
From global results it appeared as if order inflows are to the tune of Rs72 bn for Siemens in
1QFY11.
Base effect aided industrial inflow growth in 2HFY10, but still below 2HFY08
Industrials segment reported a 35% yoy growth in order inflows in 2HFY10 to Rs20.8 bn
versus Rs15.3 bn in 2HFY09. This growth was primarily led by low base effect of FY2009 as
industrial orders had declined by about 28% yoy in 2HFY09. In fact, the industrial order
inflows still remain below the 2HFY08 levels of Rs21.2 bn. Industrial short-cycle sales (sum of
industrial automation & drives and building technologies) grew by only 6% on a yoy basis in
4QFY10 highlighting that near-term momentum is yet to build up fully. This was a bit of a
surprise post the strong growth recorded by these segments in 9MFY10—Industry
Automation & Drives segment revenues growth by 28% yoy. However, we note that the
9MFY10 growth would have been aided by low base effect; segment had witnessed a
revenue decline of 19% in 9MFY09.
Decline in share of projects business in total revenues; may imply higher margins
Share of project business of Siemens to the total revenues declined to 38% in FY2010 versus
almost 50% in FY2008. The decline in contribution of the project segment business may
imply potential higher margins for Siemens as project business margins are, on an average,
lower than the product business margins.
Overseas projects business also much smaller
Overseas projects contributed Rs13.5 bn in FY2010 to revenues v/s Rs17.3 bn in FY2009.
Turbines (7%), electric motors (5%), medical equipment (7%) have increased contribution
by about 2% each.
No change to net estimates and target price of Rs735/share; reiterate REDUCE
While we have changed our underlying assumptions in the model, there is no material
change to our earnings estimates. We highlight that our assumptions presently do not build
in revenues from the large orders from Torrent Power. We retain our estimates of Rs28.7
and Rs34 for September year ending 2011E and 2012E, respectively. We correspondingly
retain our target price to Rs735/share based on 23.5X March-12E earnings.
We reiterate our REDUCE rating on the stock based on (1) potential base effect which has
helped performance in the quarter, (2) margins may be unreliable, (3) slower-than-expected
pick-up in industrial business segments, (4) weak industrial capex cycle momentum, (5)
execution of large Torrent Power order unlikely in the near term and (6) high valuations
unjustifiable given volatile nature of business performance.
Key upside risks arise from better-than-expected order booking, revenue growth and
margins leading to positive earnings surprise.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Siemens (SIEM)
Industrials
Strong results but aided by low base and unreliable margins. Revenues of Rs25
bn, 12% ahead of estimates, were led by power on pick-up of execution of large orders
and favourable base. Industrials segment remained relatively moderate - likely reflection
of weak capex cycle. Inflows of Rs40 bn, though strong (led by Torrent order-execution
unlikely in near term), were significantly lower than indication from global results (of
Rs70 bn). Retain REDUCE on valuations as base effect wears off and margins normalize.
Strong revenue growth led by power segment on execution of certain large orders and low base
Siemens reported 1QFY10 revenues of Rs25.2 bn, 11.8% higher than estimates and up 37.7% yoy.
The strong revenue growth was primarily led by the power segment (up 59% yoy) likely on pickup
in execution of certain large order (Rs25 bn Qatar order) and favourable base effect. EBITDA
margin at 14.3% was significantly higher versus our estimate of 11% (yoy comparison may not be
valid). The higher-than-expected revenue growth and margins led to a net PAT of Rs2.4 bn, about
47.7% ahead of our estimate of Rs1.65 bn.
Industrial segment growth moderates; likely reflection of weak industrial capex cycle
The industrials segment recorded a 19% yoy growth in revenues to Rs9.5 bn from Rs8 bn in
1QFY10. The industry segment growth was primarily led by the Building technologies segment (up
61.8% yoy) aided by low base effect as well as merger of Siemens Building Technologies. The
drive technologies segment in fact recorded a 2.5% yoy decline in revenues. We believe that this
could be a reflection of weak industrial capex cycle momentum.
Strong inflows led by large Torrent power order; however, execution unlikely in the near term
Siemens reported relatively strong order inflows of Rs40 bn primarily due to inclusion of DGEN
order from Torrent Power for a combined cycle power plant. However, this was much lower versus
the indication from the global results; indicated that total inflows were to the tune of about Rs72
bn. We believe that execution of this order is unlikely to start in the near term and hence have
presently not included it in our revenue estimates. The 1QFY11-end order backlog of Rs151.3 bn,
up 11.2% yoy, provides a revenue visibility of about 1.3 years.
Retain estimates and target price of Rs735/share; reiterate REDUCE
While we have changed our underlying assumptions in the model, there is no material change to
our earnings estimates of Rs28.7 and Rs34 for FY2011E and FY2012E, respectively. We reiterate
our REDUCE rating (TP: Rs735) on (1) potential base effect which aided quarter performance,
(2) unreliable margins, (3) weak industrial business segments and industrial capex cycle momentum,
(4) execution of large Torrent Power order unlikely in the near term and (5) high valuations.
Strong results at revenue as well as margin levels - ahead of estimates
Siemens reported 1QFY11 (fiscal year-ends September 30, 2011) revenues of Rs25.4 bn
recording a strong growth of 36% yoy, from Rs18.7 bn in 1QFY10. The strong revenue
growth is likely led by pick-up in execution of the certain large orders (Rs25 bn order from
Qatar General Electricity & Water Corp.). The revenues were about 11.8% above our
estimates of Rs22.7 bn for the quarter and broadly in-line with the indication from Siemens
AG (Global) results. Siemens reported 1QFY11 EBITDA margin of 14.3% about 330 bps
ahead of our estimate of 11%. The higher-than-expected revenues and EBITDA margin led
to a net PAT of Rs2.4 bn, up 3% yoy and about 47.7% ahead of our estimate of Rs1.65 bn.
EBITDA margin not comparable on a yoy basis
Siemens reported EBITDA margin of 14.3% lower than 1QFY10 margins of 19.5% and
pervious quarter level of 13.2%. However we believe that the margins are not comparable
as the historical numbers are likely to have carried certain one-offs (not quantified). Siemens
has been reporting very volatile operating margins performance over the past two years. We
build in margin estimates based on 12.3% EBITDA margin for y/e September 2011E and
2012E. We believe Siemens is unlikely to be able to sustain higher margins based on peer
margin levels and historical trend.
Strong power growth while some disappointment in industrial numbers
1QFY11 revenue growth was primarily led by the power segment (recording a strong 59%
yoy growth) while some moderation was witnessed in the industrial segment results. The yoy
increase in total revenues, from Rs18.3 bn in 1QFY10 to Rs25.2 bn in 1QFY11 was primarily
led by the power T&D segment which contributed to about Rs3 bn of the incremental
revenues. Industrials and Oil & Gas segments contributed about Rs1.5 bn and Rs1.7 bn,
respectively, to the incremental revenues.
Industry segment revenues up 19% yoy but partially supported by merger of SBTPL
and base effects
The industry segment (comprising of Industry Automation, drive technologies, building
technologies and Industry Solutions) recorded a 19% yoy growth in revenues to Rs9.5 bn
from Rs8 bn in 1QFY10. The industry segment growth was led by the Industry solutions
segment (up 23% yoy) and Building technologies segment (up 61.8% yoy, also aided by low
base effect as well as merger of Siemens Building Technologies). The drive technologies
segment reported a yoy revenue decline of about 2.5% in 1QFY11.
Strong power segment revenue growth
The power segment of Siemens also recorded a strong revenue growth of 59.3% to Rs13.5
bn in 1QFY11 from Rs8.5 bn in 1QFY10. The growth of the power segment was led by the
power T&D segment (revenues up 46% yoy) and the oil & gas segment (revenues up 108%
yoy). The strong power T&D segment growth was likely led by (1) execution of the large
order won in Qatar last year (Rs25 bn) in 1Q which has picked momentum in last one or two
quarters and result in making the yoy numbers appear strong, and (2) favourable base effect
as last year as power T&D segment had relatively lower execution in Siemens.
Margins surprise positively particularly in dominant power T&D segment
The power segment margins recorded a 130 bps expansion on a sequential basis led by the
power T&D segment (partially offset by lower margins in the oil & gas) segment. Margins
may not be comparable on a yoy basis as last year. Siemens reported margins of 22.3% in
the power T&D segment in 1QFY10 and has reported margins of 15.4% in 1QFY11. Industry
segment margin recorded a 350 bps sequential decline in margins led by lower industry
automation & drives and building technology margins.
Inflows led by large Torrent order; however, much lower than what seemed to
be the case from Global results
Siemens reported strong order inflows of Rs39.87 bn in this quarter. This quarter’s inflows
include the order for DGEN from Torrent Power for a combined cycle power plant. This
order for a 1,200 MW power plant may have been of the order of Rs25-30 bn. Adjusted for
this order Siemens order inflows (about Rs15-20 bn) are in line or actually lower than our
trend based expectation of Rs20-22 bn. Order inflow was Rs30 bn (supported by UnoSugen
plant order from Torrent) in 4QFY10 and Rs51.7 bn (Supported by Qatar order) in 1QFY10.
The total order backlog of the company stood at Rs151.3 bn at the end of December 2010,
up 11.2% yoy, which provides a revenue visibility of about 1.3 years based on forward four
quarter revenues.
From global results it appeared as if order inflows are to the tune of Rs72 bn for Siemens in
1QFY11.
Base effect aided industrial inflow growth in 2HFY10, but still below 2HFY08
Industrials segment reported a 35% yoy growth in order inflows in 2HFY10 to Rs20.8 bn
versus Rs15.3 bn in 2HFY09. This growth was primarily led by low base effect of FY2009 as
industrial orders had declined by about 28% yoy in 2HFY09. In fact, the industrial order
inflows still remain below the 2HFY08 levels of Rs21.2 bn. Industrial short-cycle sales (sum of
industrial automation & drives and building technologies) grew by only 6% on a yoy basis in
4QFY10 highlighting that near-term momentum is yet to build up fully. This was a bit of a
surprise post the strong growth recorded by these segments in 9MFY10—Industry
Automation & Drives segment revenues growth by 28% yoy. However, we note that the
9MFY10 growth would have been aided by low base effect; segment had witnessed a
revenue decline of 19% in 9MFY09.
Decline in share of projects business in total revenues; may imply higher margins
Share of project business of Siemens to the total revenues declined to 38% in FY2010 versus
almost 50% in FY2008. The decline in contribution of the project segment business may
imply potential higher margins for Siemens as project business margins are, on an average,
lower than the product business margins.
Overseas projects business also much smaller
Overseas projects contributed Rs13.5 bn in FY2010 to revenues v/s Rs17.3 bn in FY2009.
Turbines (7%), electric motors (5%), medical equipment (7%) have increased contribution
by about 2% each.
No change to net estimates and target price of Rs735/share; reiterate REDUCE
While we have changed our underlying assumptions in the model, there is no material
change to our earnings estimates. We highlight that our assumptions presently do not build
in revenues from the large orders from Torrent Power. We retain our estimates of Rs28.7
and Rs34 for September year ending 2011E and 2012E, respectively. We correspondingly
retain our target price to Rs735/share based on 23.5X March-12E earnings.
We reiterate our REDUCE rating on the stock based on (1) potential base effect which has
helped performance in the quarter, (2) margins may be unreliable, (3) slower-than-expected
pick-up in industrial business segments, (4) weak industrial capex cycle momentum, (5)
execution of large Torrent Power order unlikely in the near term and (6) high valuations
unjustifiable given volatile nature of business performance.
Key upside risks arise from better-than-expected order booking, revenue growth and
margins leading to positive earnings surprise.
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