Digitalization key to growth, Capex recovery elusive
Siemens Ltd (SIEM) reported good set of numbers with PAT was up 21% YoY at Rs2.5 bn (PLe Rs2.8 bn). In-line with its vision 2020, the company has changed its segmental reporting structure. In the new structure, the revenue growth (+4% YoY) came mainly from Mobility (+17% YoY) and Portfolio of Companies (+30% YoY), respectively. Order inflow during the quarter was up 6.4% YoY at Rs30 bn, taking order backlog to ~Rs130 bn. Overall investment climate looks weak, however management is positive on Digital Industries and Mobility segments. Sectors which are expected to drive growth are Food & Beverage, Chemicals, Water, Smart Infrastructures (Data centers, Hospitals, Commercial offices and Airports), Captive Power and Railways. We expect SIEM to benefit from its strong focus on Digitalization/Automation opportunity due to very low penetration and industry’s drive to improve efficiency. We expect SIEM to deliver earning CAGR of 15% over the next two years (FY18- 20E). The stock has witnessed sharp correction in the recent past and currently trading at attractive valuations of 37x/33x FY19/FY20E. Hence, we upgrade the stock to BUY from Accumulate with TP of Rs1263.
Steady performance: Revenues were up 4% YoY to Rs32.2bn (PLe: Rs36.9bn) in the quarter. As per new segment reporting structure, the revenue growth came mainly from Mobility (+17% YoY) and Portfolio of Companies (+30% YoY), respectively. Gas & Power segment (35% of sales) revenue declined 1.1% YoY due to weak ordering activity by Power Grid. EBITDA was up 17% YoY to Rs3.6 bn. Margins improved by 120bps YoY to 11.2%. The staff expenses included Rs157 mn (exceptional item) due to on-going restructuring at Process Drives which is now part of Digital Industries and Portfolio of Companies. Forex loss during the quarter was lower at Rs40 mn compared to Rs640 mn in 3QFY18. PAT was up 21% YoY to Rs2.5 bn led by higher other income (+21% YoY).
Management commentary highlights slowdown across verticals: Order book at the end of 3QFY19 stood at ~Rs130bn (up ~11% YoY). Inflow for the quarter was up 6.4% YoY to Rs30bn. SIEM highlighted slowdown in capex related ordering by its customers, both public and private, and across the market verticals. As per management, liquidity is becoming a concern in the industry, with payments being delayed and inventory offtake slowing down. The management continues to focus on driving its short term and digitalization businesses with a clear focus on profitable growth and working capital management.
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