Siemens is well-placed to capture the recovery in capex cycle based on (1) alignment of its business interests with the Prime Minister’s growth vision and (2) higher localisation-led improvement in competitive positioning. Broad-based weakness in capex, though, is reflecting its expectations of at least a year’s wait for business recovery. Its margin has benefitted from internal cost improvements; incremental upside would depend on volumes. For 25x exit multiple two years from now, the stock needs to deliver R41 EPS in September 2017e to cover 14% cost of equity. We revise target price to R 600 from R550.
Siemens, in its analyst meet, mentioned broad-based weakness in capex. They expect a year’s wait before business starts turning around. The lack of overall demand is possibly leading to Siemens not planning any major capex despite operating at good utilisation levels.
Siemens hinted at execution headwinds in FY2015 based on impending closure of large projects in energy and infrastructure segments and larger share of projects versus products in backlog. On margins, it has benefitted from internal improvements although it believes that any incremental upside will come only from demand-led volume improvement.
Kotak Institutional Equities