Siemens - Mixed Bag; Projects Recovery Awaited; Result Update Q1FY15 ::Edelweiss

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Siemens’ (SIEM) Q1FY15 operating performance was above ours and consensus estimates mainly due to better-than-expected EBITDA margins (up 240bps YoY), led by 370bps expansion in gross margin. We believe the combination of localisation benefits and fall in metal prices led to the expansion in gross margins. Order intake and order book remained flat at INR21bn and 132bn, respectively. Management had earlier indicated large-value projects, particularly power generation, metals, etc., remain elusive as customers are diffident in setting up fresh capacities. SIEM’s order inflow is greatly dependent on private sector and government’s willingness to start capex spending. In near term, SIEM anticipates to bag orders from T&D, smart grid, railways and healthcare sectors. The company has reclassified its segments into 9 new segments from 5 earlier.

Revenue traction weak; margin improves

Revenue slipped 9% YoY due to weak traction in large projects in the energy and power businesses. Healthcare business reported a sharp 43% decline. Volumes in metals business continued to be lacklustre. Margins expanded by 240bps to 8.6% as gross margins increased by 370bps. We believe the combination of localisation benefits and fall in metal prices led to the expansion in gross margins.

Big-ticket projects elusive; T&D, railways to drive order flow

The company’s order intake improved by 4% to INR21bn mainly due to absence of big-ticket projects. Order book was flat at INR132bn. However, in near term, order intake is expected to be driven by T&D and railways businesses led by electric locomotives, electrification, signaling and other infra-related projects.

LINK
https://www.edelweiss.in/research/Siemens--Mixed-Bag;-Projects-Recovery-Awaited;-Result-Update-Q1FY15/28180.html