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Healthy growth outlook

During Siemens post result analyst interaction, the management indicated recovery in industrial demand, which was weak for a prolonged period. Though covid second wave is likely to impact performance in the near term, the overall buoyancy of demand is expected to stay. The pandemic has accelerated adoption of automation and digitalisation solutions by industry. Segments that witness tailwinds currently are pharma, data centres, food & beverages, steel and chemicals. Private sector is increasingly investing in automation and efficiencyrelated solutions. The recent announcement of capacity expansion by steel companies is expected to support medium to long term growth. Hence, despite the recent run-up in valuation and uncertainty due to the second wave, we maintain HOLD with a revised SoTP-based target price of Rs2,156 (earlier: Rs1,860). We roll forward our valuation to FY23E earnings.

Strong order intake under digital industries:

While overall order intake grew 15% YoY to Rs65bn, digital industries witnessed 36% YoY growth to Rs15.4bn, Siemens Energy grew 7% YoY to Rs23bn, mobility grew 8% YoY to Rs4bn while smart infrastructure orders were flat at Rs19.6bn. The implied order intake for portfolio of companies segment stood at Rs3bn.

Forex gains supported overall EBIDTA margin:

During H1FY21, the company had Rs500mn as forex gain vs Rs900mn forex loss in H1FY20. Overall gains on exports due to merchandise from India Scheme (MEIS) had decreased to Rs200mn in H1FY21 vs Rs500mn in H1FY20. Hence, the overall exceptional net swing in H1FY21 stood at Rs1.1bn. Adjusted for this, H1FY21 EBIDTA margin was at 12.2% vs reported margins of 13%.

Maintain HOLD due to rich valuation limiting near-term upside:

Management is confident regarding demand recovery driven by public investment in infrastructure and industrial demand pick-up. Healthy demand from sectors like pharma, food & beverages, data centres, steel, etc. will support base orders. However, we believe, the recent run-up in stock price has made valuations expensive; hence, we maintain HOLD. We value the stock using the SoTP methodology assigning multiples to FY23E core PAT for each individual segment; post this, we add back the cash. We have also accounted for C&S businesses separately. We arrive at an SoTP-based target price of Rs2,156 (previously: Rs1,860). We roll forward our valuation to FY23E earnings; our target price implies 50x P/E to FY23 earnings of Rs43.3.

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