Siemens Limited - No short-term gains! - Antique

Siemens' stock price has witnessed sharp correction in recent months, falling as much as 27% since the beginning of the calendar year 2013, before bouncing back by 15% in past few days. Though the company's earnings have been under pressure for the past few quarters, with little scope for significant improvement in the near-term, recent volatility (also partly attributed to stock going out of Nifty) has provided long-term investors to favorably look at the stock. In the near term, we see limited scope for optimism with FY13 earnings likely to fall by 13%. We maintain HOLD on the stock.

Orders remain weak; large orders missing

Siemens' order intake continues to remain weak. After reporting 17% decline in order-inflows in FY12, the company posted 30% decline in the same in 1QFY13. The biggest worry continues to be complete drying up of large orders. With elections due in early 2014, order-inflow visibility for 1HFY14 also remains bleak. Sluggish ordering will adversely impact revenue visibility going forward.

Margins will improve; though unlikely to touch FY10 peak

Siemens reported adjusted EBITDA margin of 6.9%, a YoY decline of 373 bps, in FY12. We expect the company to maintain margin at the 6.8% level in FY13 too. We believe profitability will progressively improve from FY14 onwards. We see EBITDA margin in FY14 at 8.9%, a 214bps YoY increase, which will boost earnings growth in that year. However, delay in demand recovery can keep product prices under pressure, which will limit margin recovery too.

Capabilities for long-term growth, remains a key partner in for Siemens AG

Siemens has invested over INR13 bn in past five years in bringing global technologies to India in T&D, industrial products, and other infrastructure spaces like metros and railways. We believe that Siemens is ideally placed to participate in India's growth story, and will remain the best bet in the space. Siemens India is also a key partner in Siemens AG's global footprint and will benefit from the Group's growing presence in Middle-East and North African markets.

Fairly priced, maintain HOLD

We have cut our FY12 and FY13 earnings estimates by 28% and 20%. Now we estimate earnings to fall by 13% in FY13, followed by 53% growth in FY14. Stock currently trades at 27 x FY14e earnings. Siemens has historically traded at high PEs, in 30-40x range, and will continue to trade at a premium due to strong brand equity, long-term growth outlook and widening presence in the country. We maintain HOLD on the stock with a target price of INR512 at 25 x FY14e earnings. However, we believe that the stock price at around 500-550, which is 40-50% lower than Siemens AG's open offer price in 2011, offer attractive entry point for long-term investors.

Source : Equity Bulls

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