Stock corner: Maintain ‘accumulate’ on Siemens, target price Rs 1,221 – Prabhudas Lilladher

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Published: April 11, 2019 1:51:58 AM

Our management meeting with SIEM indicated the sustained thrust of the company to transform itself from being a product company (62-65% of sales) to a complete solution provider.

We arrive at target price of Rs 1,221 as we rollover target price to March21 EPS. We maintain ‘accumulate’.

Our management meeting with SIEM indicated the sustained thrust of the company to transform itself from being a product company (62-65% of sales) to a complete solution provider. SIEM is focused on 1) Digitization and localization 2) Creating smart infrastructure and 3) Increasing customer by leveraging its strong balance sheet and offering innovative financing.

SIEM will continue to focus on automation, signalling and electrification (railways) in the mobility division (10% of sales) post rejection of Siemens-Alstom mobility merger by EU.

The capex cycle is yet to show signs of any major revival, however demand for digit solutions/ automation across segments (auto,F&B, cement, oil & gas, sugar, etc) and cost control has enabled sales/PAT CAGR 4%/28% in last four years. We expect SIEM to deliver earnings CAGR of 14% over the next two years (FY18-20E).

We arrive at target price of Rs 1,221 as we rollover target price to March21 EPS. We maintain ‘accumulate’.

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SIEM’s order inflow was up 8% Y-o-Y in FY18 (adjusting for HVDC order) mainly on account of growth in base orders.

Historically, large orders were part of Power & Gas and Energy Management segments. However, both the segments witnessed a decline in order inflow during FY18 mainly due to lack of opportunities in thermal power generation and decline in Power Grid Capex in the transmission infrastructure.

SEB’s capex has been mainly in lower range 200-400 KV, resulting in growth of base orders. Also, private sector (75% of SIM’s sales) capex continues to be muted which makes large order opportunity elusive from near to medium term perspective. However, order inflow in other businesses is stabilizing which will continue to provide a steady visibility for SIEM.

SIEM’s management indicated that the mobility business (revenue contribution/EBIT Margin – 8%/10.3% in FY18) remains the same post EU commission blocked the proposed Siemen-Alstom’s mobility merger.

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