Siemens Ltd - Healthy margins and growth recovery - ICICI Securities

Siemens' earnings were supported by healthy recovery in execution (up 16% YoY) and strong operating margins (12.4% EBITDA margins) in Sep-Dec quarter (Q1FY21). Despite macro headwinds, order intake grew 6.3% YoY to Rs32bn during the quarter and the orderbook remained strong at Rs128bn lending growth visibility. Going ahead, we expect an improvement in order finalisation led by an uptick in government sector and increased activity in certain segments like pharma, data centres, food & beverages, etc. Private sector is increasingly investing towards automation and efficiency-related solutions. Factoring in better-than-expected performance, and impetus towards investments in FY22 Union Budget, we raise earnings estimates by 11.5% and 11.4% for FY21E and FY22E, respectively. However, given the recent run-up in valuation, we maintain HOLD with a revised SoTP-based target price of Rs1,768 (earlier: Rs1,462).

- Healthy execution and order intake: Revenues witnessed strong recovery, especially in digital industries (short-cycle orders) and 'smart' infrastructure segments. The order intake grew 6.3% YoY at Rs32bn and the orderbook stood strong at Rs128bn (+3% YoY) lending growth visibility. Booking of a large order under mobility and healthy orders under digital industries.

- Strong operational margins despite higher material costs: EBIDTA margin at 12.4% (down 30bps YoY) was supported by control over fixed overheads as other expense declined 32% YoY. This was despite 570bps YoY increase in material cost proportion to 68.3%. We believe this should be partly due to revenue mix and partly due to increase in commodity prices. Management is focused towards margin improvement and cashflow.

- Maintain HOLD due to rich valuation: Management is confident that economy is gradually moving back to normalcy driven by government thrust towards infrastructure as indicated in FY22 budget. Green shoots in certain sectors like pharma, food & beverages, data centres, etc. will support base orders. However, we believe, the recent run-up in stock price has made valuations expensive, hence, we maintain HOLD. We value the stock using SoTP methodology assigning multiples to FY22E core PAT for each individual segment; post this, we add back the cash; we have also accounted for C&S and mechanical drives businesses separately. We arrive at an SoTP-based target price of Rs1,768 (previously: Rs1,462).

Shares of SIEMENS LTD. was last trading in BSE at Rs.1874.9 as compared to the previous close of Rs. 1846.75. The total number of shares traded during the day was 31174 in over 2680 trades.

The stock hit an intraday high of Rs. 1892.95 and intraday low of 1826. The net turnover during the day was Rs. 57967743.

Source : Equity Bulls

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