Buy Siemens - Happy and hungry for growth; Edelweiss

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Siemens (SIEM IN, INR 706, Buy)

We interacted recently with the Siemens India top brass. Excerpts:

Top management indicated its sustained focus to increase India's share in Siemens AG revenue pie by leveraging the domestic growth story and its position as a low cost hub. Short cycle businesses continue to grow while it is mega ticket projects that hold sway over both order inflow and profitability. Strong Balance Sheet and cash flow focus helps keep expansion plans intact. We remain positive on Siemens and reiterate our BUY with a target price of INR 849.

India remains key market for vibrant prospects, low cost mfg base

India remains a focus market for Siemens AG- the parent company of Siemens India for its dynamic domestic market and low cost manufacturing base. Contribution of India to the overall revenue has been steadily rising and would be sustained going ahead.

SMARTGRID products sales targeted at 1bn euros by 2020E

Siemens has taken the initiative to launch 60 new products over the long run in India as part of its global sourcing strategy - of which it has already launched ten products. The company, under this strategy, is starting two Greenfield locations at Goa for Medium Voltage (RMUs) products and Relay units by Jan, 2012E. As we see, this business, currently at INR12bn, is expected to touch over INR70bn by FY20E.

Outlook and valuations: Top pick, maintain ‘BUY’

A sustained focus by the German parent on Siemens India product portfolio over many years has made it the largest diversified industrial product company in the country. Our exchange with the top management further brightens our confidence in the long term growth prospects of Siemens India. While FY11 profitability was impacted by mega projects and cost overruns, we believe this could reverse going ahead given its focused product development. We maintain our ‘BUY/Sector Outperformer’ reco/rating on SIEM with our TP of INR 849.