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Cyclically and structurally attractive

Siemens (SIEM) posted a stable set of P&L with execution and order intake for Q4 largely at pre-covid levels. Revenues are in line, but EBITDA missed consensus with adverse input cost/overhead impact.

For FY21, SIEM posted a strong comeback with revenue/EBITDA largely at FY19 levels; however, order intake grew at high single digit. SIEM translated a far superior OCF to PAT at 125% (versus 90% in FY20) for the year. Management commentary on private capex and infra remains optimistic for coming quarters. With wider private sector participation and improving new order outlook, SIEM’s earning trajectory should get better in line with peers such as ABB. Retain ‘BUY’.

Exits FY21 on a stable P&L and better orders; growth visibility higher

While Q4 for SIEM is largely in line on order intake and execution, it had some impact of increased cost from higher RM and overheads. For FY21, however, revenues across segments barring mobility scaled up materially (YoY), with short-cycle (digital industries) doing better versus FY19 levels on revenue/EBIT levels. Strong intake in Q3 had led to a healthy pick up in new orders for the year, reflecting a pickup in both infra/private sector orders—also visible at L&T, Thermax, ABB, etc. Despite significant cost pressure, SIEM managed to revive margins across Energy, Digital & smart infra (versus FY20), while digital margins scaled up to newer highs.

Way forward for SIEM over 12–24 months; key aspects for investors

SIEM’s leadership team has mastered the art of managing OPM volatility while keeping balance sheet quality at fore, both of which reflect in its annual results. New order inflow commentary is in sync with peers like ABB, Thermax on private sector and L&T etc on the infra outlook. As SIEM enjoys a better capex cycle going ahead, what remains key is how it plays and manages the competitive dynamics across conventional and new segments. Also, scale up in C&S where it invested a major portion of its cash beyond domestic market remains key. We expect the overall pace of new orders and revenues to stay healthy going ahead with better EBITDA growth.

Outlook and valuation: Healthy growth visibility; retain ‘BUY’

SIEM’s addressable market opportunity has been expanding led by improving private capex spending and larger manufacturing footprint. Unlike peers, SIEM is a play on both public infra, private capex revival with additional upside from new segments. Retain ‘BUY/SO’ with a TP of INR2,660 (earlier INR2,360) on a rollover to Mar-23E.

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