Analyst Corner: Derating of Siemens stock to continue, retain ‘sell’

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Published: November 30, 2018 3:54:54 AM

The company aims to gradually move away from a pure play equipment/ services supplier to a complete solutions provider, driving productivity and efficiency improvement for customers by leveraging IoT-based technologies.

Derating of Siemens stock to continue, retain ‘sell’

At its analyst meet, Siemens reiterated digitisation as the key growth driver over medium to long term. The company aims to gradually move away from a pure play equipment/ services supplier to a complete solutions provider, driving productivity and efficiency improvement for customers by leveraging IoT-based technologies. While these emerging technologies will drive growth over longer term, the benefits are likely to appear gradually. Further, regular sale of strong and growing businesses (healthcare in 2016, mobility and mechanical drives in 2018, etc) creates uncertainty over the stock as a play on these emerging areas. Near-term order intake outlook remains muted due to weak pipeline of large orders. Given these concerns, derating of the stock will continue. Retain ‘sell’.

Management expects the FY19 intake to be driven by base orders due to weak order pipeline for large orders. Power T&D orders are gradually shifting from PGCIL to states (largely 400/220kV) as focus shifts towards strengthening intra-state T&D. While thermal power generation continues to be weak, captive generation is improving led by sugar and fertiliser industries. Private capex is picking up in some areas like auto, pharma, and food & beverages; however, a full-blown recovery is some time away. Exports continue to see strong traction rising to 20% of sales in FY18 (18.5% in FY17).

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Siemens plans to leverage its strong balance sheet to extend financing to the prospects for efficiency/productivity improvement projects to increase its attractiveness. It has started ‘Pay as you save’ model wherein customer makes annuity payments based on savings from Siemens’ solutions. Revenue for FY18 grew 19% y-o-y led by execution of large HVDC order won in FY17. Margin improved 75 bps y-o-y on positive operating leverage.

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