Siemens - 3QFY12 Results Update - Motilal Oswal

3QFY12 (Sep year-end) results significantly below estimates: Revenues at INR28.4b grew only 2% YoY v/s our estimate of INR31.6b, while EBITDA margins at 3.4% declined 560bp YoY v/s our estimate of 8.6%. PAT at INR364m, down 76%, was significantly below our estimates of INR1.6b. EBIT margins in Energy business at 2.1% again dropped and remained volatile. Industry and Healthcare business continued to post muted profit margins, due to significant slowdown in sales and slower offtake by customers.

Order intake remains comforting: Operating performance was impacted by slower execution, delay in offtake by customers and sluggish industrial capex due to the macro uncertainty and high cost of capital. Order intake bounced back to INR27b, up 18% YoY which is comforting, particularly on the back of low level of INR18b orders booked in 2QFY12 (lowest since beginning of FY08).

Exposure to early / mid cycle products: A large part of the business portfolio of SIEM comprises of early and mid cycle products; and hence the impact of slowdown has started becoming more pronounced. Key components of revenues include: Products 56%, Projects 31% and Services 12%. Within products, the key components are Drives / Motors (12.1% of SIEM's revenues) and Industrial Turbines (11.8%) where the sales have been impacted by industrial slowdown, Switchgear (10%, HV products impacted by poor SEB finances), etc.

Valuation and view: We have cut our EPS estimate for FY12/13 by 25%/21% to factor in deterioration in revenues and profitability. Maintain Neutral with price target of INR600 (26x FY13E EPS). SIEM is exposed to several segments of the Indian economy, and offers one of the best plays on long-term recovery. However, in the near term, valuations are demanding as the headwinds to earnings start building-up.

Source : Equity Bulls

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