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Cost pressures impact margin

Siemens’ Q4FY21 revenues grew 14% YoY to Rs40bn on a low base, led by 37% YoY growth in ‘smart infrastructure’ segment to Rs12.6bn and 24% YoY growth in digital industries segment to Rs7.8bn. Order intake was up 5% YoY to Rs33.7bn during the quarter and the orderbook remained strong at Rs135bn, providing growth visibility. Cost pressures impacted the EBIDTA margin, which contracted 215bps YoY to 10.7%. Order pipeline is strong as the private sector is increasingly investing in automation and efficiency-related solutions. Factoring-in the better execution in Q4FY21, we marginally raise our earnings estimates by 4.4% and 4.5% for FY22E and FY23E, respectively. Maintain HOLD with a revised SoTPbased target price of Rs2,251 (earlier: Rs2,138).

* Healthy execution and order intake: Q4FY21 revenues witnessed healthy growth, especially in ‘smart infrastructure’ and digital industry (short-cycle orders) segments. On a full-year basis, revenues grew 31% to Rs129bn. EBITDA margin expanded 122bps to 11.3% due to 320bps and 240bps contraction in employee cost/sales and other expenditure/sales, respectively. However, growth in EBITDA was limited due to rise in commodity costs, which led to a 440bps expansion in raw material/sales.

* Cost pressures impact margins: For Q4FY21, EBIDTA margin contracted 215bps YoY to 10.7% due to increase in ‘other expenditure’ (+24% YoY) and raw material costs (+16% YoY). We believe, ‘other expenditure’ includes forex loss. Mobility/ ‘smart infrastructure’ / digital industries’ margins shrunk 450bps / 340bps / 120bps during the quarter.

* C&S Electric has booked implied loss due to impairment of goodwill: As per implied financials, during Q4FY21, subsidiary C&S Electric likely booked loss of Rs2.7bn in revenues and Rs179mn in EBIT due to impairment of goodwill.

* Maintain HOLD due to rich valuation and cost pressures: Green shoots in sectors like pharma, food & beverage, data centre, etc. will support base orders. However, given the cost pressures and rich valuations, we maintain HOLD on the stock. We value it by the SoTP methodology assigning P/E multiples to FY23E core PAT for each individual segment. Post this, we add back the cash. We have also accounted for C&S Electric separately. We arrive at an SoTP-based target price of Rs2,251 (previously: Rs2,138).

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