Siemens - Weak Order Inflow To Moderate Growth ::nirmal bang,

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Weak Order Inflow To Moderate Growth
Siemens reported a mixed set of numbers for 2QFY12, highlighted by strong
order execution but marred by declining profitability and a sharp fall in order
intake. Order inflow fell 45% YoY to Rs18bn, the lowest since 4QFY07, leading to
a 18% YoY decline in order backlog at Rs126bn. The company also revised its
estimated revenue, costs and provisions made for certain projects, resulting in
over-statement of PBT by Rs2.1bn. As a result, even though reported PBT of
Rs4.5bn was 45.1%/55.8% higher than our/Bloomberg consensus, adjusted PBT
of Rs2.4bn was 22.7%/17.0% lower, respectively. We reduce our order inflow
estimate for FY12E to Rs100bn (from Rs110bn) and downgrade our earnings
estimates for FY12E/13E by 6.4%/6.1%, respectively, to factor in increased
pricing pressure. We retain our Sell rating on Siemens with a revised target price
of Rs531 (Rs567) based on 21xFY13E EPS.
Revenue growth to moderate: Net revenue for 2QFY12 rose 21.7% YoY to Rs38bn,
led by stronger order execution in segments like Infrastructure & Cities (33% YoY
growth, 22.5% of total revenue) and Energy (23.4% YoY growth, 46.3% of total
revenue). Top-line was 24.2%/20.5% higher than our/Bloomberg consensus estimates,
respectively. However, the declining order book will lead to slowdown in revenue
traction, with only 1.3% CAGR likely over FY11-13E. We cut our FY12E/13E revenue
estimates by 1.0%/5.3%, respectively, post reduction in order inflow assumption.
Pressure on margins to persist: Escalating costs along with increased pricing
pressure led to contraction in margins during the quarter. Reported EBITDA margin fell
70bps YoY to 13%. However, after deducting write-backs, adjusted operating margin
stood at only 7.4%. Infrastructure & Cities and Industry segments reported 90bps and
310bps YoY decline, respectively, in EBIT margin while the Healthcare segment
reported an operating loss. Over the 1HFY12 period, operating profit margin declined
sharply by 390bps YoY, from 14% to 10.1%. To factor in higher-than-expected pricing
pressure, we cut our EBITDA estimates for FY12E/FY13E by 6.0%/6.2%, respectively.
Consequently, our PAT estimates stand reduced by 6.4%/6.1% for FY12E/FY13E,
respectively.
Outlook: With the current order book of Rs126bn, the order backlog to TTM sales ratio
has fallen from 1.5x to 1x over the past six quarters. Also, declining order intake has
adversely affected the working capital cycle due to lower customer advances. Payable
days fell from 183 days to 168 days YoY over 1HFY12, leading to 35% YoY decline in
cash balance from Rs6bn to Rs3.9bn over the same period. We retain our negative
outlook on the power T&D sector and Sell rating on Siemens.