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Reasonable performance…

About the stock: Siemens Ltd (Siemens) is a leader in technology solutions for smart, intelligent, building technologies, mobility, digital industries and power T&D.

* It operates mainly in five key segments including energy/gas & power (34%), smart infrastructure (33%), digital industries (22%), mobility (7%)

* Well placed to gain from the overall energy market transformation from electrification to automation and digitisation

Q3FY22 Results: Siemens reported reasonable Q3FY22* results.

* Consolidated revenue was at | 4198 crore, up 50.5% YoY

* EBITDA came in at | 412.2 crore with margins of 9.7%, supported by stable gross margins

* Consequently, PAT came in at | 300.7 crore, up 112.1%

* Order inflow for Q3FY22 was decent at ~| 4992 crore, up 20% YoY

What should investors do? Overall, further penetration of automation & digitisation products and services across segments to drive long term growth.

* We remain long term positive and retain our BUY rating on the stock

Target Price and Valuation: We value Siemens at | 3040 on an SoTP basis

Key triggers for future price performance:

* Strong focus on technology leadership in digitisation and automation products to further strengthen its market share

* Strong demand for short cycle products with clear traction from steel, cement, chemical, pharma, fertiliser industries to drive strong growth and margin expansion in smart infrastructure and digital industries segments

* Expect revenue, EBITDA to grow at CAGR of ~15.7%, 20.1%, respectively, in FY21-23E owing to strong traction in short cycle products and services

Alternate Stock Idea: We also like L&T in our coverage.

* Focus on asset monetisation to further strengthen the balance sheet and improve return ratios. Strong b/s, controlled working capital and strong cash generation

*  BUY with target price of | 2175Key

takeaways of recent quarter & conference call highlights

Q3FY22 Results: Reasonable quarter

* Siemens reported consolidated revenue at | 4198 crore, up 50.5% on a YoY basis. Gas & power (energy) segment grew 52.3% to | 1454.4 crore; smart infrastructure segment grew 40.5% to | 1506 crore, mobility segment revenue grew 171.4% YoY to | 391.1 crore and digital industries segment revenue grew 45.7% to | 996.2 crore. Gas & power, smart infrastructure, digital industries, mobility segments contributed ~32%, ~33%, 22%, 9% respectively

* Order inflows wins were decent at | 4992 crore, registering growth of 20% on a YoY basis led by all business segments. This resulted in order backlog at | 17856 crore, which indicates a clear upswing in both public and private capex spending

* EBITDA came in at | 412.2 crore with EBITDA margin of 9.7% (vs. 8.4% in Q3FY21). Gross margins de-grew 150 bps to 32.2% on a YoY basis and was flat on a QoQ basis. Gas & power reported EBIT margin of 8.5%, which marginally improved 50 bps YoY, digital industries and smart infrastructure reported EBIT margins at 8.3% (vs. 4.6% in Q3FY21) and 7.1% (vs. 1.5% in Q3FY21), respectively. Mobility segment EBIT margin came in at 4.7% (vs. 11.7% in Q3FY21)

* Reported PAT came in at | 300.7 crore, up 112.1% YoY

* Board of Directors approved the sale and transfer of the holding company's large drives applications (LDA) business (portfolio companies segment) to Siemens Large Drives India Pvt Ltd (a subsidiary of Siemens Large Drives GmbH, which, in turn, is a subsidiary of Siemens AG), as a going concern on a slump sale basis, with effect from July 1, 2022, for a cash consideration of | 4,40 crore. The said transaction is subject to receipt of requisite statutory and regulatory approvals, as applicable. Subsequently, the LDA business has been sold and transferred by the holding company to Siemens Large Drives India Pvt Ltd on July 1, 2022

* Outlook: Short cycle business is witnessing strong demand with clear traction from steel, cement, chemical, pharma, fertiliser for short cycle projects/ products. While on long cycle projects, transmission projects from government, utilities are getting deferred due to pandemic though longer term pipeline remains intact with visible demand for GIS substations. On the generation side, waste heat recovery (WHR) plants largely from steel, cement, chemical, fertiliser players are seeing lot of demand and conversions. In smart infrastructure segment, lot of traction is seen in data centres, hospitals, building management systems, low voltage products with fairly visible opportunity pipeline. A 20% growth in order book with order backlog at an all-time high at | 17856 crore is seen improving growth visibility, going ahead. However, global headwinds may impact demand, which could result in a slowdown in capex spending

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