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Engineering & Construction - India
Takeaways from Siemens
analyst meet
Products and localization are underlying themes
We attended Siemens India (SIEM, not rated) year-end analyst meeting which we
believe has implications for the sector. We understand that a diversified business
model with greater product sales and higher indigenization should be focus areas for
capital goods companies for the next year as per mgt. Sector wide orders from metals,
mining, hydrocarbon and cement sectors lag whereas railways could be the outlier
next year as factories for locos and coaches are awarded. Mgt highlighted energy
efficiency products (drives, motors, relays) will benefit from greenfield capex
slowdown, a theme that has played out in FY11 as well, also cost savings on back of
increasing localization to help it negate risks to margins as price competition, raw
materials prices, and forex are areas of concern for the company.
Key takeaways: Short cycle orders drive flat order backlog
SIEM inflows FY11 (Rs123bn) flat YoY, driven by higher short cycle product
orders industry automation, drives, building tech and healthcare (40% of total,
35%YoY) as lack of mega orders dragged energy (-23% YoY). Base level
products showed tangible benefits as they contributed 10% of inflows in FY11
versus 5% in FY10, part of the SMART product strategy. Revenues up 28% YoY
(Rs119bn), aided again by higher products sales and execution of KAHRAAMA
(Rs 25bn Qatar sub-stations) and SUGEN (Torrent Power–BoP for GT 400MW).
Global factories and new product vertical focus areas
Capex plans of Rs16bn FY10-13 are on track. SIEM expects to launch two
factories for medium voltage products and power relays in 2QFY12, they will be
used as global sourcing for Siemens group. Its 2.3MW wind turbine facility is likely
operational by 4QFY13 (delayed), per mgt. New vertical to be created in FY12,
‘Infrastructure & Cities’ to increase product focus will include mobility and rail
systems, Low and medium voltage products, smart grid and building technologies.
Mgt speak. Margin sustenance will be key as projects slow
Management highlighted slowdown in projects, and uncertainty in pick of capex given
the overall macro environment in India. The company said they will continue to
introduce low cost (base) products, and will manage margin pressures by cost savings
from increased localization by new factories and tech transfer from parent.
Margins impacted. Cost over-runs was a new addition
Cost over-runs (Industry solutions, Oil & Gas); price competition (T&D), higher
raw material prices and new employee addition contributed to 300bp margin
decline 9.9%. Rs800mn forex gain for FY11 despite a Rs1.6bn loss in 4QFY11.
Provisions in FY11 at FY10 levels of about Rs4-4.5bn. Due to lower margins
e arnings remained flat YoY at Rs8.5bn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Engineering & Construction - India
Takeaways from Siemens
analyst meet
Products and localization are underlying themes
We attended Siemens India (SIEM, not rated) year-end analyst meeting which we
believe has implications for the sector. We understand that a diversified business
model with greater product sales and higher indigenization should be focus areas for
capital goods companies for the next year as per mgt. Sector wide orders from metals,
mining, hydrocarbon and cement sectors lag whereas railways could be the outlier
next year as factories for locos and coaches are awarded. Mgt highlighted energy
efficiency products (drives, motors, relays) will benefit from greenfield capex
slowdown, a theme that has played out in FY11 as well, also cost savings on back of
increasing localization to help it negate risks to margins as price competition, raw
materials prices, and forex are areas of concern for the company.
Key takeaways: Short cycle orders drive flat order backlog
SIEM inflows FY11 (Rs123bn) flat YoY, driven by higher short cycle product
orders industry automation, drives, building tech and healthcare (40% of total,
35%YoY) as lack of mega orders dragged energy (-23% YoY). Base level
products showed tangible benefits as they contributed 10% of inflows in FY11
versus 5% in FY10, part of the SMART product strategy. Revenues up 28% YoY
(Rs119bn), aided again by higher products sales and execution of KAHRAAMA
(Rs 25bn Qatar sub-stations) and SUGEN (Torrent Power–BoP for GT 400MW).
Global factories and new product vertical focus areas
Capex plans of Rs16bn FY10-13 are on track. SIEM expects to launch two
factories for medium voltage products and power relays in 2QFY12, they will be
used as global sourcing for Siemens group. Its 2.3MW wind turbine facility is likely
operational by 4QFY13 (delayed), per mgt. New vertical to be created in FY12,
‘Infrastructure & Cities’ to increase product focus will include mobility and rail
systems, Low and medium voltage products, smart grid and building technologies.
Mgt speak. Margin sustenance will be key as projects slow
Management highlighted slowdown in projects, and uncertainty in pick of capex given
the overall macro environment in India. The company said they will continue to
introduce low cost (base) products, and will manage margin pressures by cost savings
from increased localization by new factories and tech transfer from parent.
Margins impacted. Cost over-runs was a new addition
Cost over-runs (Industry solutions, Oil & Gas); price competition (T&D), higher
raw material prices and new employee addition contributed to 300bp margin
decline 9.9%. Rs800mn forex gain for FY11 despite a Rs1.6bn loss in 4QFY11.
Provisions in FY11 at FY10 levels of about Rs4-4.5bn. Due to lower margins
e arnings remained flat YoY at Rs8.5bn.
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