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Hold Siemens; target of Rs 1165: Edelweiss

May 16
07:25 2018

Edelweiss’ research report on Siemens

Siemens’ (SIEM) Q2FY18 revenue and PAT surpassed estimates 4% each driven by energy (up 25% YoY) and digital (up 23% YoY) segments for second consecutive quarter. Key highlights: a) building / mobility EBIT margin improved 690/380bps YoY, albeit, on a low base; and b) while overall order inflow fell 38%, adjusted for large orders, base orders grew 22% YoY; this led to  2% YoY rise in order book to INR127bn. However, we believe, the recent correction in the stock price is warranted given weak commentary on large projects and sale of growth driving businesses to parent company—mobility division, rail traction drives and mechanical drives—resulting in medium term growth challenges. Maintain ‘HOLD’ with revised TP of INR1,165 (INR1,400 earlier) as we prune our target multiple to 42x (50x earlier) given the declining product portfolio and continue to prefer ABB over SIEM.

Outlook

While SIEM’s focus on leveraging the rising digitisation trend and base business are likely to drive 18% earnings CAGR over FY17-19E, the sale of mobility and rail traction division are likely to result in growth challenges over the medium term. We maintain ‘HOLD/SP’ with revised TP of INR1,165. At CMP, the stock trades at 48x and 41x FY18E and FY19E EPS, respectively.

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