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Siemens India -Shifting gears
Event
ƒ SIEM’s 1QFY11 results were better than our and the Street’s estimates. We
raise our target price from Rs542 to Rs716 as we increase our revenue and
margin estimates for FY11 and FY12. We upgrade SIEM to Neutral.
Impact
ƒ Strong revenue growth driven by power T&D space: SIEM reported 38%
YoY growth in revenues, primarily driven by power T&D space with 45% YoY
growth. We believe this growth is driven by the execution of the Rs25bn Qatar
order that the company won in 1QFY10.
⇒ We are revising our revenue estimates for FY11 and FY12: We are
now forecasting revenue growth of 19% and 21% in FY11 and FY12,
respectively, from 15% due to higher growth in the power segment from
execution of the Qatar order and the recently won order from Torrent
Power (TPW IN, Rs226, Not rated).
ƒ Margins correct to normalised levels of 12–13%: Margin in 1QFY11 was
13.9% (down 420bps YoY). However, margins in 1QFY10 were high due to
benefits from early commissioning in certain projects.
⇒ We are revising our margin estimates for FY11 and FY12: We believe
that the margins are sustainable at 12–13% levels as the company has
made adequate provisioning (at 3% of sales) in FY10.
⇒ Local procurement would aid sustenance of margins: Unlike prior
strategy of procurement from the Siemens parent, SIEM would now
localise procurement, which would aid margins and improve ROCEs.
ƒ Order inflow remains muted, likely to remain lumpy: Order inflow at
Rs39.9bn was down 23% YoY (1QFY10 had Rs25bn T&D order from Qatar).
SIEM bagged a major order from Torrent Power for its upcoming gas-fired
combined cycle power plant. Order book stands at Rs151bn (up 11% YoY).
ƒ SIEM to become global exporting hub: SIEM is spending Rs16bn in capex
to become a global exporting hub for Siemens AG (SIE GR, €93.79, Neutral,
TP: €90.00) for several products over next two to three years. This could be a
major growth driver in the medium term.
Earnings and target price revision
ƒ We have increased our FY11 and FY12 EPS by 13% and 26% to factor in
higher revenue and margin estimates. We have increased our target price to
Rs716 from Rs542.
Price catalyst
ƒ 12-month price target: Rs716.00 based on a PER methodology.
ƒ Catalyst: pickup in order inflows and improvement in margins
Action and recommendation
ƒ Strong near-term earnings growth, upgrade to Neutral: We believe that
the earnings growth will be strong in FY11–12E due to strong pickup in
execution and stable margins. We would view big order wins for the company
as a significant positive. We revise our target price from Rs542 to Rs716 (22x
Mar 12 EPS), in line with Larsen and Tubro’s (LT IN, Rs1,607, OP, TP:
Rs2,215) target multiple and upgrade the stock to Neutral
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Siemens India -Shifting gears
Event
ƒ SIEM’s 1QFY11 results were better than our and the Street’s estimates. We
raise our target price from Rs542 to Rs716 as we increase our revenue and
margin estimates for FY11 and FY12. We upgrade SIEM to Neutral.
Impact
ƒ Strong revenue growth driven by power T&D space: SIEM reported 38%
YoY growth in revenues, primarily driven by power T&D space with 45% YoY
growth. We believe this growth is driven by the execution of the Rs25bn Qatar
order that the company won in 1QFY10.
⇒ We are revising our revenue estimates for FY11 and FY12: We are
now forecasting revenue growth of 19% and 21% in FY11 and FY12,
respectively, from 15% due to higher growth in the power segment from
execution of the Qatar order and the recently won order from Torrent
Power (TPW IN, Rs226, Not rated).
ƒ Margins correct to normalised levels of 12–13%: Margin in 1QFY11 was
13.9% (down 420bps YoY). However, margins in 1QFY10 were high due to
benefits from early commissioning in certain projects.
⇒ We are revising our margin estimates for FY11 and FY12: We believe
that the margins are sustainable at 12–13% levels as the company has
made adequate provisioning (at 3% of sales) in FY10.
⇒ Local procurement would aid sustenance of margins: Unlike prior
strategy of procurement from the Siemens parent, SIEM would now
localise procurement, which would aid margins and improve ROCEs.
ƒ Order inflow remains muted, likely to remain lumpy: Order inflow at
Rs39.9bn was down 23% YoY (1QFY10 had Rs25bn T&D order from Qatar).
SIEM bagged a major order from Torrent Power for its upcoming gas-fired
combined cycle power plant. Order book stands at Rs151bn (up 11% YoY).
ƒ SIEM to become global exporting hub: SIEM is spending Rs16bn in capex
to become a global exporting hub for Siemens AG (SIE GR, €93.79, Neutral,
TP: €90.00) for several products over next two to three years. This could be a
major growth driver in the medium term.
Earnings and target price revision
ƒ We have increased our FY11 and FY12 EPS by 13% and 26% to factor in
higher revenue and margin estimates. We have increased our target price to
Rs716 from Rs542.
Price catalyst
ƒ 12-month price target: Rs716.00 based on a PER methodology.
ƒ Catalyst: pickup in order inflows and improvement in margins
Action and recommendation
ƒ Strong near-term earnings growth, upgrade to Neutral: We believe that
the earnings growth will be strong in FY11–12E due to strong pickup in
execution and stable margins. We would view big order wins for the company
as a significant positive. We revise our target price from Rs542 to Rs716 (22x
Mar 12 EPS), in line with Larsen and Tubro’s (LT IN, Rs1,607, OP, TP:
Rs2,215) target multiple and upgrade the stock to Neutral
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