‘Neutral’ on Siemens, target Rs 1,010: Motilal Oswal

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Published: February 3, 2016 12:54:55 AM

Seimens' (SIEM’s) 1Q FY16 operating performance was marginally below estimate, with revenue up 6% y-o-y (14% adjusted for sale of VAI Metals) to Rs 23 billion (above our estimate) and EBITDA margin at 8.4% v/s estimate of 9.1%. Margin disappointment was primarily on account of higher other expenses during the quarter. Adjusted net profit was Rs 1.14 billion (up 8% y-o-y) v/s estimate of Rs 1.18 billion.

Seimens’ (SIEM’s) 1Q FY16 operating performance was marginally below estimate, with revenue up 6% y-o-y (14% adjusted for sale of VAI Metals) to Rs 23 billion (above our estimate) and EBITDA margin at 8.4% v/s estimate of 9.1%. Margin disappointment was primarily on account of higher other expenses during the quarter. Adjusted net profit was Rs 1.14 billion (up 8% y-o-y) v/s estimate of Rs 1.18 billion.

Gross margin for SIEM improved 76bp y-o-y and 450bp q-o-q to 35.2% in 1QFY16; the improvement was led by execution of better margin orders, soft commodity prices, higher localisation content and better pricing policy followed by the company. A sharp 18% jump in SG&A costs led to EBITDA margin of 8.4%, a miss to our estimate of 9.1%.
Material costs for SIEM has declined by 106bps y-o-y to 65% in 1Q FY16. The y-o-y decline has been helped by higher localization, soft commodity prices and better pricing policy.

At CMP, SIEM trades at 45x/34x FY16E/17E EPS of Rs 22/29. WE maintain our target price of Rs 1,010 and upgrade our rating to ‘neutral’. Our target price is based on 35x FY17E EPS.

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