IGI Logo

Buy Siemens Ltd For Target Rs.2,210

Leading player in industrial automation market...

Siemens Ltd (Siemens) is a leader in technology solutions for smart, intelligent, sustainable cities, building technologies, mobility and power transmission & distribution (T&D). Siemens operates mainly in five key business verticals like energy/gas & power (40%), smart infrastructure (27%), digital industries (19%), mobility (9%), portfolio of companies (4%). Key products include transformers, turbines, medium/low voltage switchgears, motors, mechanical drives and railway electrification equipment & control systems. Siemens’s product portfolio, debt free status, highly underpenetrated market, strong global parentage (Siemens AG) augur well.

Digital industries, smart infra, mobility to drive future growth...

Siemens is well placed to gain from the overall energy market transformation from electrification to automation & digitisation across energy & industrial value chain. Increased contribution of renewable energy to the energy mix, grid stability & reliability with be main focus areas driving the products and services business in gas & power, smart infrastructure business. We believe digital industries (process, discrete) segment would benefit from expected revival of manufacturing capex driven by PLI scheme, from better demand for retrofit and modernisation in the industrials. Mobility would be driven by capex in railway modernisation, high speed rail, metro rail. Overall, we believe Siemen’s growth will be driven by digital industries, mobility, smart infrastructure, which are expected to grow at ~17%, ~13%, ~17% CAGR, respectively, in FY21E-23E.

Segment mix, operational efficiencies to drive superior margins

Siemens’ contribution to the products and services business has increased over the years aiding operating margins. The nature of services includes repairing & spare parts replacements, annual maintenance, etc. Siemens continues to focus on profits over revenue by range of rationalisation and enrichment efforts for product mix to enhance market share, operating margins and gain competitive advantage across key segments. EBIT margins have expanded in FY17-19 and are expected to further improve in the next two years from 9.9% in FY19 to 10.3% in FY23E.

Valuation & Outlook

Overall, the company is expected to further strengthen its leadership position through further penetration of automation and digitisation products & services across segments will drive growth. We believe it currently commands addressable revenue market share (digital industries, smart infrastructure, mobility, etc) of ~15% in India being leader in the industry Further, Siemens is currently trading at 42x P/E on FY23E (vs. forward median P/E band of 44x, up cycle and down cycle average TTM P/E of 25x and 80x, respectively). We value Siemens at | 2210/share with a BUY rating, implying multiple of 49x on FY23E EPS for core business and adding recently acquired C&S business valuing at 1.7x on FY23E sales.

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer