Siemens Ltd. share price target

SIEM has well-diversified product offerings across power, infrastructure and industry verticals and the impact of economic slowdown is more profound compared to say ABB, which is now a pure play products & services company. Over FY14-19, the continued business segmental EBIT CAGR stood at 21% v/s revenue growth of 9%. Over FY19-22, we forecast continued business segmental EBIT CAGR at 15% v/s revenue CAGR of 9%. We attribute margin expansion to (a) better sales mix, (b) rising share of services and (c) operating leverage in industrial automation segment of the business. There is scope of margin expansion in mobility segment as well given benign competition as the established player CG Power is struggling. economic slowdown impacting top-line growth, the company did well on working capital management. Adjusted for L&A; to related parties, the working capital cycle stood at 47 days in FY19 v/s 59 days in FY18.

SIL 1QFY20 start is weak on back of muted public/private capex. EBIDTA margin expansion was a positive surprise. Growth headwinds remain with limited visibility on Infrastructure ordering. Tight liquidity environment makes it further challenging to maintain NWC. Whilst ex GP (highly cyclical), less cyclical segments like Digital Industries & Mobility continue to see traction, large ordering is still awaited. While Mobility business sale was earlier put on hold we await clarity on highest revenue contributing segment-Power & Gas. Exports segment is also stagnant owing to weak global demand. We maintain NEU. Key risks (1) Delays in Government capex recovery, (2) Slowdown in private investments, (3) INR depreciation, and (4) Any adverse corporate action. Slowdown in capex and delayed customer off-take has resulted in a muted 1QFY20 Rev performance. SIL delivered Rev/EBIDTA/APAT beat/(miss) of (12)/3/(4)%. Our FY20/21E EPS is unchanged. Maintain NEU on Siemens India Ltd. (SIL) with a TP of Rs 1,463/sh.

Our view: The deal is negative in the near term as SILs PBT will reduce by Rs 1.2bn (at 6% income yield on Rs 21bn cash outgo) whilst new business PBT of Rs 664mn will accrue. Net basis PAT will be lower by Rs 314mn (Value - Rs 11.1bn at 35x target P/E, 1.9% Mkt cap). Over longer term with better visibility emerging on Public/Private electrification capex, improving liquidity scenario in the overall market & relative easing of global trade tensions, this acquisition will gear the company to cater to local as well as global markets. EVENT: Siemens has entered into a definitive agreement for an all cash debt free acquisition of 99.22% stake in Delhi based C&S; Electric Ltd. at an EV of ~Rs 21bn ($297 million). Revenue/PAT of the C&S; for FY2019 was Rs 12,411/329.3mn. As on Mar-19, C&S; had networth of Rs 5,100mn and total debt outstanding of Rs 2,668mn.

25 January 2020 announced the acquisition of 99.22% stake in C&S; Electric Ltd at an EV of INR21b. C&S; Electric is engaged in the business of low-voltage/medium- voltage switchgears, busbars, diesel gensets, solar and EPC; the company has been in the Indian market for over 50 years. Electric, such as MV switchgears and package sub-station, lighting, diesel generating sets, EPC and the Etacom busbars will be retained by the In FY19, the company clocked revenue of INR12.4b. EBITDA stood at INR1.2b with EBITDA margin at 9.5%. Adjusted PAT stood at INR527m, while reported PAT at INR329m was due to impairment of INR197m. Net D/E stood at 0.4x as the company had gross debt of INR2.1b; RoE/RoCE ratio stood at 10.3%/9.7%. However, as Siemens is acquiring C&S; Electrics product business, the financial profile of the acquired portfolio could be different than that of the entire company.

Siemens India, a flagship company of Siemens AG (Germany), is an integrated technology provider and a leading powerhouse in electronics and electrical engineering. Siemens is strongly placed in Energy and Infrastructure...

SIL growth headwinds remain with limited visibility on Pvt./Public capex. Tight liquidity environment makes it further challenging to maintain NWC. Whilst ex GP (highly cyclical), less cyclical segments like Digital Infrastructure & Mobility continue to see traction, large ordering is still awaited. While Mobility business sale was earlier put on hold we await clarity on highest revenue contributing segment-Power & Gas. Exports segment is also stagnant owing to weak global demand. We maintain NEU. Key risks (1) Delays in Government capex recovery, (2) Slowdown in private investments, (3) INR depreciation, and (4) Any adverse corporate action. Slow Private/Public capex and high competitive intensity has resulted in muted 4QFY19 YoY growth. SIL delivered Rev/EBIDTA/APAT (beat)/miss of (0.4)/10/15%. Our FY20/21E EPS is unchanged. Maintain NEU on Siemens India Ltd. (SIL) with a TP of Rs 1,463/sh.

continues to focus on base orders (80-90% of order backlog for FY19). Management has increased its focus on states capex due to slowdown witnessed by center government, which we believe can take more time due to weak financials of states. While there are visible signs of slowdown in the near-term, we remain positive on SIEM from a long-term positive as the company remain focused on 1) Digitization and localization 2) Creating smart infrastructure and 3) Increasing customer by leveraging its strong balance sheet (more than Rs50 bn of cash) and offering innovative financing. SIEM...

(a) Gas & Power revenue grew 11.9% YoY to INR16.3b; PBIT margin expanded 40bp YoY to 10.8%. (b) Smart Infrastructure revenue was down 9.2% YoY to INR11b; PBIT margin was at 9.3% (+230bp YoY). (c) Mobility revenue was flattish at INR3.6b; PBIT margin shrank 510bp YoY to 10.5%. (d) Digital Industries revenue grew at a paltry 3.8% to INR7.2b; PBIT margin expanded 140bp YoY to 7.8%. (e) Portfolio of Companies revenue grew 17.6% YoY to INR3.9b, but PBIT margin was at - 6.2% v/s +6.3% last year due to one-off employee expense (led by VRS and YoY to INR31.9b in 4QFY19. SIEM let go some large orders which would have affected profitability. New orders were up 10.6% YoY (INR26.5) in FY19. New orders were up 10.6% YoY (INR26.5) in FY19. In FY18, there were two large orders worth INR2.6b. New orders in FY19 were up 31.7% YoY (INR13b).

SIL faces headwinds on back of slowing Pvt/Public capex and tight liquidity environment. The company needs to bank on less cyclical segments like Smart Infrastructure. Government investment in Gas & Power is expected to recover as the installed base ages and upgrades are needed. Meanwhile, Metro projects will drive the Mobility segment. While Mobility business sale being put on hold for time is a minor reprieve we await clarity on highest revenue contributing segment Power & Gas. We maintain NEU. Key risks (1) Delays in Government capex recovery, (2) Slowdown in private investments, (3) INR depreciation, and (4) Any adverse corporate action. Owing to slowing Private/Public capex and tight liquidity environment, SIL delivered 8/7/5% Rev/EBIDTA/APAT miss. We have upgraded FY19/20E EPS by (1)/3.7%. Maintain NEU on Siemens India Ltd. (SIL) with a TP of Rs 1,197/sh (vs. Rs 1,165/sh earlier).

Siemens India, a flagship company of Siemens AG (Germany), is an integrated technology provider and a leading powerhouse in electronics and...