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1HFY22 analyst call – key takeaways

Siemens India (SIEM) hosted its H1FY22 (year ending September) analyst call yesterday. Management highlighted that although supply chain issues, especially related to semi-conductors, persist (though logistical challenges were broadly managed), medium- to long-term prospects are promising on the back of pick-up in public and private capex leading to higher tendering in large projects. Decarbonisation-led capex, mainly in sectors like cement, steel, oil & gas and sugar, augurs well for the energy business. The segment is also likely to see growth on the back of transmission capex led by renewable projects, ordering of which is expected to pick up from H2FY23. Mobility business (H1FY22 order inflow was up 391% YoY on a low base) is likely to see strong growth driven by pick-up in ordering from metro, electrification and signaling modernisation projects. While short-cycle orders continue to witness strong growth led by brownfield and maintenance capex, pick-up is also seen in large orders, which will drive the company’s project business. Order backlog stands at an all-time high of Rs170bn (1.3x TTM), providing strong revenue visibility. Greater demand for automation and digitisation bodes well for the company’s strong digital offerings. We are optimistic on private and public capex due to robust demand and the focus on infrastructure. Maintain ADD and our SoTP-based target price of Rs2,601.

Concall highlights

* Order intake for H1FY22 was up 60% YoY on the back of pick-up in capex, and management expects this momentum to continue. However, revenue growth was limited to 10% YoY mainly due to semiconductor-related supply chain challenges.

* Management is putting concerted efforts towards managing the supply chain and ensuring profitability is maintained/improved (with focus on cashflow) despite high commodity prices.

* Majority of the business verticals have seen real growth in the past six months, and management expects the trend to continue on the back of government capex in railway and transmission projects, and private capex in distribution.

* Headwinds: i) Delay in semiconductor availability; ii) commodity inflation (was managed in H1FY22 via cost initiatives); iii) high interest rates, which might impact future growth.

* With 61% YoY growth in order intake in Q2FY22, the company now has its higher-ever orderbook at Rs171bn, led largely by short- and medium-cycle orders. Intake of largesized projects has also started now after remaining subdued during FY17-FY19. Order intake from the projects business in H1FY22 was 36% of the total intake vs 29% in H1FY21, mainly due to a large project win in Q1FY22 (worth Rs9bn) related to the PuneHinjewadi metro station.

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