Siemens India - Good show continues ::Macquarie Research

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Siemens India
Good show continues
Event
 Siemens India reported its 2QFY11 results (Sep-ending financial year) which
were ahead of our and street’s estimates. Revenues at Rs30.4bn were up
37% and PAT at Rs2.8bn was up 53%. Margins have started normalising at
11.5-12.5% levels. Order inflow pick up indicates activity level remains strong.
 We revise our earnings estimates for FY11-13 by 6-7% to factor in higher
revenue growth. We roll forward our target price to Sept-12 and revise our
target price from Rs717 to Rs842, retaining our Neutral rating.
Impact
 Stellar performance on revenue front driven primarily by power and
automation: Siemens delivered 73% YoY growth in the power segment,
within which T&D was the key driver for growth, followed by the Oil & Gas
sub-segment. Traction in revenues was due to execution of the Qatar T&D
and Torrent gas-based power plant order secured in FY10. Growth in the
automation division (34% growth) indicates some pickup in industrial
investment activity.
Revising our revenue estimates for FY11-13: We increase our revenue
forecasts for FY11-13 by 6-7% to factor in strong execution. We now
estimate 27% and 21% revenue growth in FY11 and FY12, respectively.
 Current margins are sustainable, factored in our numbers: Margins at
11.5-12% have normalised, as Siemens had made adequate provisions in
FY10. We have already built normalised margins of 12.4% into our numbers.
 Order inflow for short cycle projects picking up: Order inflow has started
picking up after a soft FY10. Order inflow at Rs33bn was up 47% YoY,
leading to 15% growth in the order book. Commentary from managements of
ABB (ABB IN, Rs864, UP, TP: Rs488), Thermax (TMX IN, Rs600, Not rated)
and Crompton Greaves (CRG IN, Rs244, OP, TP: Rs344) earlier this month
also indicated continued order inflows from short cycle projects.
Earnings and target price revision
 We increase our EPS estimates for FY11-13 by 6-7%. We roll forward our
target price basis to FY12 EPS and hence, increase it from Rs717 to Rs842.
Price catalyst
 12-month price target: Rs842.00 based on a PER methodology.
 Catalyst: further pickup in order inflows
Action and recommendation
 Earnings growth profile much superior in Siemens; we prefer it over
ABB India: Strong revenue growth cycle for Siemens is likely to play out in
FY11. With order inflows picking up, growth is likely to sustain well into FY12.
We prefer Siemens over ABB India, as it has a better earnings and revenue
growth profile and yet trades at much lower valuations of 22x FY12 EPS (ABB
is trading at 40x CY12 EPS).