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Buy Siemens; target of Rs 1687: Prabhudas Lilladher

November 28
15:24 2019

Prabhudas Lilladher’s research report on Siemens

Siemens Ltd.’s Annual (FY19) analyst meeting indicated of weakness in its core business from a near-to-medium term perspective on the back of delay in capex recovery across the segments and markets. However, Digitalization/Automation business continues witness a traction at a gradual pace. While there are little optimism as far as large orders are concern, SIEM continues to focus on base orders (80-90% of order backlog for FY19). Management has increased its focus on states capex due to slowdown witnessed by center government, which we believe can take more time due to weak financials of states. While there are visible signs of slowdown in the near-term, we remain positive on SIEM from a long-term positive as the company remain focused on 1) Digitization and localization 2) Creating smart infrastructure and 3) Increasing customer by leveraging its strong balance sheet (more than Rs50 bn of cash) and offering innovative financing. SIEM will continue to focus on Automation, Signaling and Electrification (Railways) in the Mobility division (10% of sales). We have cut our earnings estimates by 4%/5% for FY20/21E on the back of diminishing order backlog and lack of any large order visibility.

Outlook

We expect SIEM to deliver earnings CAGR of 20% over the next two years (FY19-21E). The stock is currently trading at 41/37x FY20/21E earnings. We maintain BUY with revised target price of Rs1687(Rs1722) on 40x FY21E as we believe strong balance sheet will support the valuations.

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