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  1. Resilient showing: Siemens reported 22% revenue growth for Q3FY17

Resilient showing: Siemens reported 22% revenue growth for Q3FY17

For 9MFY17, SIEM’s order intake grew 25% led by certain big ticket size contracts.

By: | Updated: August 8, 2017 4:05 AM
For 9MFY17, SIEM’s order intake grew 25% led by certain big ticket size contracts.

Siemens (SIEM) reported 22% revenue growth for Q3FY17 in continuing business operations (Healthcare was sold recently), led by Energy vertical. For 9MFY17, SIEM’s order intake grew 25% led by certain big ticket size contracts. We expect SIEM to benefit from the broad-based pickup in high-value orders across key sectors, and estimate 19% earnings CAGR over FY16-19, with RoE of ~12-13%. We prefer ABB India and Cummins, given better OPM and cash flow profiles. Rolling over to FY19 valuation estimates, we maintain Hold with a revised target price of Rs 1,450 (Rs 1,322 earlier). Revenue traction strong; 9MFY17 order intake surges: SIEM reported flat revenue growth, even as continuing business operations (exhealthcare) reported 22% revenue growth. Overall, Ebitda margin remained stable q-o-q at 8.5% (excluding Healthcare from the base quarter it would have been ~100bps higher), which is broadly in line with consensus.

In Q3FY17, order intake in ongoing business operations was muted, while it grew 25% for 9MFY17 led by large jobs in HVDC (T&D), oil & gas (ONGC) and railways. While private sector slowdown is due to low capex (more by opex), management cited strong visibility in railways, metro rail and state T&D capex. We expect ~Rs 35 bn orders (~45% y-o-y growth) in Q4FY17. Focus on digitisation sprucing up infrastructure: SIEM is transforming from being an equipment manufacturer/projects player to a highly customised solutions provider with its digitisation platform at the core of each vertical.

Basically, the company will drive value-added products across industries—pharma, oil & gas, thermal plants, T&D—with higher share of digitisation to make overall infrastructure more efficient. Outlook and valuations: Growth priced in; maintain Hold. While we are positive on SIEM’s order book and top-line growth over next 2-3 years, we believe OPM scale-up will be a key challenge, given project volatility and competition. We estimate 19% earnings CAGR over FY16-19 with RoE of ~13%. At CMP, the stock trades at 57x & 48x FY18/19e P/E. We maintain ‘HOLD/SP’ with a target price of Rs 1,450 (based on 50x FY19e PE, which is at 20% discount to ABB India).

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