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Siemens (SIEM)
Industrials
Forex losses mar PAT; sub-segment performance volatile. Siemens reported strong
revenue growth of 19% yoy, broadly in line with expectations. However, sharp EBITDA
margin contraction (520 bps yoy to 8% on high forex loss of Rs1.6 bn) led to PAT
falling short of estimates (Rs1.7 bn, down 34% yoy). We note sharp volatility in subsegment
revenue as well as margin performance. Retain SELL (revised target price of
Rs640) led by a weak capex cycle, risks to margins, very high valuations.
Revenues in line, PAT down 34% yoy; forex loss likely led by forward cover on US$ receivables
Siemens reported revenues of Rs36.5 bn, strong 19.4% yoy growth – broadly in line. However,
EBITDA margin contracted sharply to 8% in 4QFY11 from 13.2% last year (our estimate of 11%)
on high forex losses of Rs1.6 bn (reflected in high other expenses of Rs3.2 bn in 4QFY11 versus
only Rs738 mn in 4QFY10) leading to low net PAT of Rs1.7 bn in 4QFY11, a decline of 34% yoy
Adjusted for this, the company would have reported EBITDA margin of about 12.5%. Forex loss is
probably led by MTM loss on forward contracts against future US$ receivables (overseas projects
and forex component of Indian projects – reflected in sharp sequential EBIT margin contraction in
transmission). Siemens (apart from occasional overseas projects) is a net importer and hedges all
forex risks and thus forward cover for imports should have resulted in MTM gain rather than loss.
Strong fossil power and O&G revenues drive power segment (up 18%); industrials grows at 12%
Power sales grow 18% on back of fossil power generation (307% growth) and O&G
(84%+ yoy growth), transmission marginally declines. Power sales grew 18% yoy to Rs19.3
bn though transmission segment sales at Rs10 bn (accounts for half of power sales) declined
4% yoy. Power Transmission sales had grown 56% during 1HFY11. Fossil power generation
may have grown on the back of execution of large orders from Torrent group.
Industry grows 12.3% as mobility continues to decline; industry solutions also declines
17.5% yoy. Industry sales growth (12.3% to Rs15.5 bn) was led by building technologies
(84%), Industry automation (21%) and Drive technologies (17%). Mobility sales declined by
12.4% and industry solutions segment also reported a yoy decline of 17.5%.
Sharp see-saw in sub-segment level margin continues (on a yoy as well as sequential basis).
Revise earnings estimates, target price to Rs640/share; retain SELL
We revise estimates to Rs27.2 and Rs30.5 from Rs30.7 and Rs33.9 for FY2011E-12E. Retain SELL
with a revised TP of Rs640 from Rs830 based on 22X March 13E EPS versus 24X earlier based on
(1) weak capex cycle (2) potentially unsustainably high margins currently and (3) high valuations,
particularly considering volatile performance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Siemens (SIEM)
Industrials
Forex losses mar PAT; sub-segment performance volatile. Siemens reported strong
revenue growth of 19% yoy, broadly in line with expectations. However, sharp EBITDA
margin contraction (520 bps yoy to 8% on high forex loss of Rs1.6 bn) led to PAT
falling short of estimates (Rs1.7 bn, down 34% yoy). We note sharp volatility in subsegment
revenue as well as margin performance. Retain SELL (revised target price of
Rs640) led by a weak capex cycle, risks to margins, very high valuations.
Revenues in line, PAT down 34% yoy; forex loss likely led by forward cover on US$ receivables
Siemens reported revenues of Rs36.5 bn, strong 19.4% yoy growth – broadly in line. However,
EBITDA margin contracted sharply to 8% in 4QFY11 from 13.2% last year (our estimate of 11%)
on high forex losses of Rs1.6 bn (reflected in high other expenses of Rs3.2 bn in 4QFY11 versus
only Rs738 mn in 4QFY10) leading to low net PAT of Rs1.7 bn in 4QFY11, a decline of 34% yoy
Adjusted for this, the company would have reported EBITDA margin of about 12.5%. Forex loss is
probably led by MTM loss on forward contracts against future US$ receivables (overseas projects
and forex component of Indian projects – reflected in sharp sequential EBIT margin contraction in
transmission). Siemens (apart from occasional overseas projects) is a net importer and hedges all
forex risks and thus forward cover for imports should have resulted in MTM gain rather than loss.
Strong fossil power and O&G revenues drive power segment (up 18%); industrials grows at 12%
Power sales grow 18% on back of fossil power generation (307% growth) and O&G
(84%+ yoy growth), transmission marginally declines. Power sales grew 18% yoy to Rs19.3
bn though transmission segment sales at Rs10 bn (accounts for half of power sales) declined
4% yoy. Power Transmission sales had grown 56% during 1HFY11. Fossil power generation
may have grown on the back of execution of large orders from Torrent group.
Industry grows 12.3% as mobility continues to decline; industry solutions also declines
17.5% yoy. Industry sales growth (12.3% to Rs15.5 bn) was led by building technologies
(84%), Industry automation (21%) and Drive technologies (17%). Mobility sales declined by
12.4% and industry solutions segment also reported a yoy decline of 17.5%.
Sharp see-saw in sub-segment level margin continues (on a yoy as well as sequential basis).
Revise earnings estimates, target price to Rs640/share; retain SELL
We revise estimates to Rs27.2 and Rs30.5 from Rs30.7 and Rs33.9 for FY2011E-12E. Retain SELL
with a revised TP of Rs640 from Rs830 based on 22X March 13E EPS versus 24X earlier based on
(1) weak capex cycle (2) potentially unsustainably high margins currently and (3) high valuations,
particularly considering volatile performance.
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