| Siemens India (SIEM IN) Topline disappoints, but margins better than expected, management still cautious on capex cycle revival | Underweight Price: Rs740.15 25 Apr 2014 Price Target: Rs460.00 PT End Date: 30 Sep 2014 | |
Siemens reported PAT of Rs883mn (Rs300mn in 2Q13), 3% ahead of JPM and 9.5% ahead of consensus estimate. Sales of Rs27bn was down 8.4% yoy and 6% below estimates with the decline in order backlog (-6% yoy) and slow project execution on account of the external environment as per management. OPM of 6.9% was better than JPM est. of 6% with Gross Margins holding steady at Dec-q level and other operating costs remaining sticky in absolute terms.
Margin improvement premised on: (1) Gross margin improvement (particularly in the energy segment) as there have been less cost provisions; also the company is making efforts to recover dues (2) INR stabilization in the Mar-q (3)New projects in the OB have higher margins, but industry pricing has not seen a revival. As per management, the gap between competitor bids for projects is still fairly high indicating aggressive pricing by a few. Management does not yet see a trigger for revival in pricing power (4) Cost reduction efforts bearing fruit.
Table 1: Siemens India: 2QFY14 results summary
Rs. in millions, year end September
2Q14
|
2Q14E
|
2Q13
|
% yoy
|
1Q14
|
% qoq
|
1HFY14
|
1HFY13
|
% yoy
| |
Sales
|
27,063
|
28,669
|
29,556
|
(8.4)
|
23,939
|
13.1
|
51,002
|
54,518
|
(6.4)
|
Expenses
|
(25,200)
|
(28,802)
|
(12.5)
|
(22,612)
|
11.4
|
(47,812)
|
(52,208)
|
(8.4)
| |
Stock
|
(810)
|
(1,528)
|
(47.0)
|
1,907
|
(142.5)
|
1,097
|
(343)
|
(419.4)
| |
RM
|
(17,956)
|
(21,018)
|
(14.6)
|
(18,480)
|
(2.8)
|
(36,436)
|
(40,122)
|
(9.2)
| |
Employee
|
(3,396)
|
(3,289)
|
3.3
|
(3,373)
|
0.7
|
(6,769)
|
(6,734)
|
0.5
| |
Other expenses
|
(3,038)
|
(2,968)
|
2.4
|
(2,667)
|
13.9
|
(5,705)
|
(5,009)
|
13.9
| |
Operating profit
|
1,863
|
1,720
|
753
|
147.3
|
1,327
|
40.4
|
3,190
|
2,309
|
38.1
|
Other income
|
88
|
100
|
125
|
76
|
163
|
194
| |||
Depreciation
|
(588)
|
(700)
|
(610)
|
(3.6)
|
(564)
|
4.4
|
(1,152)
|
(1,198)
|
(3.8)
|
EBIT
|
1,362
|
1,120
|
268
|
408.5
|
839
|
62.4
|
2,201
|
1,305
|
68.6
|
Interest
|
(24)
|
(50)
|
(84)
|
(71.7)
|
(17)
|
38.4
|
(41)
|
(170)
|
(76.1)
|
PBT
|
1,338
|
1,070
|
184
|
626.1
|
822
|
62.8
|
2,160
|
1,135
|
90.4
|
Tax
|
(456)
|
(214)
|
115
|
(495.8)
|
(334)
|
36.4
|
(790)
|
(199)
|
296.9
|
Net profit
|
883
|
856
|
299
|
194.8
|
488
|
81.0
|
1,371
|
936
|
46.4
|
Extraordinaries
|
0
|
0
|
0
|
164
|
164
|
0
| |||
Reported PAT
|
883
|
856
|
299
|
194.8
|
651
|
35.5
|
1,534
|
936
|
63.9
|
Key ratios (%)
| |||||||||
RM / Sales
|
69.3
|
76.3
|
69.2
|
69.3
|
74.2
| ||||
Empl / Sales
|
12.5
|
11.1
|
14.1
|
13.3
|
12.4
| ||||
Other exp / Sales
|
11.2
|
10.0
|
11.1
|
11.2
|
9.2
| ||||
OPM
|
6.9
|
6.0
|
2.5
|
433.5
|
5.5
|
134.0
|
6.3
|
4.2
|
201.9
|
EBIT margin
|
5.0
|
3.9
|
0.9
|
3.5
|
4.3
|
2.4
| |||
Tax rate
|
34.0
|
20.0
|
(62.5)
|
40.6
|
36.6
|
17.5
| |||
PAT margin
|
2.6
|
2.5
|
0.9
|
1.4
|
2.7
|
1.7
| |||
Order booking
|
26,201
|
26,662
|
28,065
|
(6.6)
|
20,058
|
30.6
|
46,259
|
48,093
|
(3.8)
|
Order backlog
|
121,800
|
125,866
|
129,283
|
(5.8)
|
125,383
|
(2.9)
|
121,800
|
129,283
|
(5.8)
|
Source: Company reports and J.P. Morgan estimates.
Ordering activity
Siemens remains selective in order booking, book to bill remains <1x .="" span=""> Siemens is booking orders based on profitability and is not inclined to get orders at any rate. The company has built internal processes for credit rating of clients, thus taking orders only from only credit worthy ones. As per management, competition is not being as selective in order booking as Siemens. In 1HFY14, order inflows declined 4% yoy (7% decline in the Mar-q), led by the infrastructure segment with the slowdown in metro projects. Energy and healthcare segments were flat yoy, while healthcare was up +39% yoy given a large order from Thyrocare.
Table 2: Siemens India: Order inflow and book to bill
Rs. in million, year-end September
Order inflow
|
Book to Bill
| ||||||||||
1HFY14
|
1HFY13
|
% YoY
|
FY13
|
FY12
|
% YoY
|
1HFY14
|
1HFY13
|
FY13
|
FY12
| ||
Infrastructure and cities
|
11.4
|
15.3
|
(25)
|
35.3
|
30.7
|
15
|
1.09
|
1.12
|
1.28
|
1.14
| |
Energy
|
14.4
|
14.5
|
(1)
|
31.1
|
27.0
|
15
|
0.91
|
0.75
|
0.79
|
0.52
| |
Industry
|
13.3
|
13.0
|
2
|
30.5
|
33.6
|
(9)
|
0.76
|
0.83
|
0.91
|
0.90
| |
Healthcare
|
7.1
|
5.1
|
39
|
12.4
|
10.6
|
17
|
1.11
|
1.00
|
1.12
|
0.98
| |
Total
|
46.3
|
48.1
|
(4)
|
109.6
|
102.4
|
7
|
0.92
|
0.89
|
0.98
|
0.81
| |
Source: Company reports.
Segment wise results and outlook
· Industry segment: In the Mar-q, revenue was flat at Rs10.7bn, the growth in product business offsetting the slowing of the project business affected by slower offtake by customers on funding issues. Margin was positive and improved qoq to 2.4% on a higher topline. Siemens continues to see stagnancy in the capex cycle particularly in the steel sector. Dealers not stocking up on inventory has increased uncertainty.
· Energy segment: 2Q revenue declined by a sharp 25% yoy as large projects near completion, while margin was positive (6.7%) with a reduction in cost provisions. As per management with power generation capex slowing, T&D segment is seeing reduced ordering as well. T&D can revive in the next 1 – 2 years, Powergrid seems to be done with 765kv ordering and the focus will be on 400kv. Siemens has largely been booking orders under the R-APRDP program.
· Infrastructure and cities: 20% yoy revenue decline in 2Q, margin declined by 40bps yoy to 4.3%. As per management there have been no new metro projects awarded in the past 2 years, while current projects are slow moving due to land acquisition issues. The metro OB used to be 15-20% of total, but is now <10 2="" a="" acquisition="" amp="" an="" and="" are="" areas="" as="" be="" being="" bit="" booking="" but="" cities="" dfc="" dmic="" execution="" expert="" from="" grid="" growing="" has="" however="" in="" individual="" is="" lagging="" land="" lot="" may="" of="" opportunity="" order="" other="" p="" particularly="" picked="" potential="" segment="" siemens="" signaling.="" smart="" states.="" still="" sub="" than="" the="" there="" tier="" two="" under="" up="" way.="" well="" which="" with="">
· Healthcare: This segment continues to grow (+39% yoy) with the addition of more private sector hospitals, however margins remain volatile due to currency fluctuations with the low level of local manufacturing.
Table 3: Siemens India: 2QFY14 segment-wise results
Rs. in millions, year end September
2QFY14
|
2QFY13
|
% YoY
|
1QFY14
|
% QoQ
|
1HFY14
|
1HFY13
|
% YoY
| |
Segment revenues
| ||||||||
Infrastructure and cities
|
6,136
|
7,624
|
(20)
|
5,555
|
10
|
11,691
|
12,984
|
(10)
|
Energy
|
7,700
|
10,257
|
(25)
|
8,261
|
(7)
|
15,962
|
19,586
|
(19)
|
Industry
|
10,697
|
10,716
|
(0)
|
9,198
|
16
|
19,894
|
20,196
|
(1)
|
Healthcare
|
4,018
|
2,887
|
39
|
2,493
|
61
|
6,511
|
5,131
|
27
|
Others
|
108
|
142
|
(24)
|
104
|
4
|
212
|
251
|
(15)
|
Total
|
28,659
|
31,626
|
(9)
|
25,611
|
12
|
54,270
|
58,147
|
(7)
|
Less: Intersegment revenue
|
1,596
|
2,070
|
(23)
|
1,672
|
(5)
|
3,268
|
3,630
|
(10)
|
Net Sales/ Income from operations
|
27,063
|
29,556
|
(8)
|
23,939
|
13
|
51,002
|
54,518
|
(6)
|
PBIT margin (%)
| ||||||||
Infrastructure and cities
|
4.3
|
4.7
|
1.0
|
2.7
|
2.7
| |||
Energy
|
6.7
|
(1.2)
|
11.9
|
9.4
|
1.3
| |||
Industry
|
2.4
|
(1.7)
|
1.0
|
1.7
|
0.9
| |||
Healthcare
|
6.5
|
0.9
|
(13.1)
|
(1.0)
|
2.5
| |||
Total
|
4.7
|
0.4
|
3.6
|
4.1
|
1.9
| |||
Capital Employed
| ||||||||
Infrastructure and cities
|
6,202
|
8,880
|
(30)
|
5,720
|
8
|
6,202
|
8,880
|
(30)
|
Energy
|
14,219
|
15,009
|
(5)
|
16,689
|
(15)
|
14,219
|
15,009
|
(5)
|
Industry
|
7,619
|
7,515
|
1
|
9,356
|
(19)
|
7,619
|
7,515
|
1
|
Healthcare
|
(1,268)
|
(122)
|
940
|
(200)
|
NM
|
(1,268)
|
(122)
|
940
|
Unallocated
|
15,013
|
10,087
|
49
|
9,369
|
60
|
15,013
|
10,087
|
49
|
Total
|
41,784
|
41,369
|
1
|
40,933
|
2
|
41,784
|
41,369
|
1
|
Source: Company reports and J.P. Morgan
· With the increase in current liabilities, net working capital days reduced compared to Mar 2013, however both inventory and debtor saw an increase yoy.
Table 4: Siemens India: 2QFY14 balance sheet summary
Rs. in millions, year end September
2QFY14
|
FY13
|
2QFY13
| |
Shareholders funds
|
41,784
|
40,303
|
41,369
|
Loan funds
|
0
|
0
|
3,198
|
Other Long term liabilities
|
680
|
837
|
989
|
Long Term Provisions
|
2,680
|
2,535
|
3,020
|
Total liabilities
|
45,144
|
43,675
|
48,576
|
Net fixed assets
|
14,148
|
14,678
|
15,788
|
Investments
|
389
|
432
|
407
|
Current assets
|
67,396
|
66,164
|
67,926
|
Inventories
|
9,816
|
9,334
|
10,095
|
Sundry debtors
|
38,799
|
37,668
|
40,709
|
Cash balances
|
5,041
|
6,038
|
3,444
|
Loans and advances
|
5,726
|
4,909
|
4,825
|
Other Current Assets
|
8,014
|
8,215
|
8,854
|
Current liabilities & Provisions
|
(52,987)
|
(54,765)
|
(51,953)
|
Net current assets ex cash
|
9,368
|
5,361
|
12,529
|
Deferred tax assets
|
4,140
|
4,297
|
3,617
|
Long Term Loans and Advances
|
6,002
|
6,184
|
5,581
|
Other non-current assets
|
6,055
|
6,705
|
7,211
|
Total assets
|
45,144
|
43,695
|
48,576
|
RoE
|
6.7
|
4.0
|
4.6
|
RoCE
|
10.1
|
4.7
|
4.8
|
BVPS
|
117.3
|
113.2
|
116.2
|
Working capital (days)
|
33.4
|
17.2
|
41.8
|
Inventories (days)
|
35.0
|
30.0
|
33.7
|
Debtors (days)
|
138.5
|
121.1
|
135.9
|
Loans & advances (days)
|
20.4
|
15.8
|
16.1
|
Current liabilities
|
(201.7)
|
(182.9)
|
(181.1)
|
Source: Company reports and J.P. Morgan
At the analyst meet management said they were on track to achieve the objectives set out in FY13 to achieve efficiency in operations and improve project cash flows (including working capital), also providing integrated solutions to clients across verticals to help improve margins. Efforts are on to increase localization and exports.
Investment Thesis
Our UW rating on Siemens is pinned on: (1) Weak demand outlook and low profitability of SIEM appears delinked with valuations. At 70x FY14E and 44x FY15E P/E and 14% FY15E RoE, we think the stock is expensive. The valuation is higher than pre-GFC peak. (2) Order backlog as of Mar-14 was down 6% YoY to Rs122bn. We model single digit top line growth over FY14-15 and optimistic margin improvements of ~300bps in FY14 and by another 200bps in FY15. (3) Low capacity utilization in factories contributed to sharp margin compression across segments.
Valuation
We estimate a FY13-18 revenue growth CAGR of 12% assuming a back-ended pick up in investment cycle. Our Sep-14 PT of Rs460 implies FY15 P/E (year-ending Sep-15) of 27x.
In Rs Mn
|
Rs/share
| |
Sum of free cash flow
|
28,218
|
79
|
Terminal value
|
129,705
|
364
|
Enterprise value
|
157,923
|
443
|
Net cash
|
6,038
|
17
|
Net present value-equity
|
163,961
|
460
|
Source: J.P. Morgan estimates
Risks to Rating and Price Target
Upside risks to our UW rating and PT include: Signs of investment cycle recovery ;. A resurgence in order inflows, especially large ones in the energy segment and improvement in margins.
No comments:
Post a Comment