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SIEM has outperformed the sector significantly over the past year due to an open offer by the
parent and superior operating performance vs domestic peers. At 27x FY12F PE, the market
seems bullish on revenue growth and margin prospects, despite a weak macro environment. We
see high downside risk; Sell.
Order inflow growth has slowed
SIEM’s current unexecuted order book (UEOB) offers visibility for 1.1x FY12F revenue, which is
the best among our coverage universe. After a strong FY10, when order inflow (OI) rose 41% yoy
to Rs124bn, OI growth in 9MFY11 mellowed to 2%, largely due to a weaker macro environment
and greater competition in all the business segments. We assume a 15% OI CAGR for FY12-14,
and any miss would impact our earnings and valuation estimates.
Significant volatility in quarterly margin remains a concern
The last quarter (3QFY11) once again brought to the fore the question of margin volatility, with
revenue growing 24% yoy but the EBITDA margin declining 200bp yoy to 8.4%, which led to a
PAT level miss of 30% vs the consensus expectation. Historically, the variation has been driven
by higher provisions for project losses coupled with quarterly adjustments for cost variance in
projects vs initial estimates (as per the matching cost concept).
Our forecasts are below consensus
Our FY12-13F earnings are 6%/11% below consensus. Despite the weak macro environment,
consensus remains bullish on the outlook for SIEM’s revenue growth and margins. Accordingly,
we see high risk of downward revisions to consensus estimates.
Valuation seems to be building in significant growth expectations
Similar to ABB, we believe SIEM’s valuation partly reflects the stock’s low free float. Our DCFbased
target price for SIEM is Rs750, which assumes growth of 15% for the next eight years and
5% terminal growth (with a WACC of 12.5% and sustainable EBIT of 10%). Our target price
implies a target PE of 24x and EV/EBITDA of 14.5x for FY12F.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SIEM has outperformed the sector significantly over the past year due to an open offer by the
parent and superior operating performance vs domestic peers. At 27x FY12F PE, the market
seems bullish on revenue growth and margin prospects, despite a weak macro environment. We
see high downside risk; Sell.
Order inflow growth has slowed
SIEM’s current unexecuted order book (UEOB) offers visibility for 1.1x FY12F revenue, which is
the best among our coverage universe. After a strong FY10, when order inflow (OI) rose 41% yoy
to Rs124bn, OI growth in 9MFY11 mellowed to 2%, largely due to a weaker macro environment
and greater competition in all the business segments. We assume a 15% OI CAGR for FY12-14,
and any miss would impact our earnings and valuation estimates.
Significant volatility in quarterly margin remains a concern
The last quarter (3QFY11) once again brought to the fore the question of margin volatility, with
revenue growing 24% yoy but the EBITDA margin declining 200bp yoy to 8.4%, which led to a
PAT level miss of 30% vs the consensus expectation. Historically, the variation has been driven
by higher provisions for project losses coupled with quarterly adjustments for cost variance in
projects vs initial estimates (as per the matching cost concept).
Our forecasts are below consensus
Our FY12-13F earnings are 6%/11% below consensus. Despite the weak macro environment,
consensus remains bullish on the outlook for SIEM’s revenue growth and margins. Accordingly,
we see high risk of downward revisions to consensus estimates.
Valuation seems to be building in significant growth expectations
Similar to ABB, we believe SIEM’s valuation partly reflects the stock’s low free float. Our DCFbased
target price for SIEM is Rs750, which assumes growth of 15% for the next eight years and
5% terminal growth (with a WACC of 12.5% and sustainable EBIT of 10%). Our target price
implies a target PE of 24x and EV/EBITDA of 14.5x for FY12F.
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