HDFC Securities
Siemens (Reduce)
Target: ₹1,860
CMP: ₹2191.1
Siemens India delivered revenue/EBITDA/APAT miss of 14 per cent/38 per cent/40 per cent, impacted by disruptions induced by the second wave and the lock-down that followed. Gross margin improved q-o-q by 146 bps, under absorption of overheads led to EBITDA margin miss.
Margins across all segments increased y-o-y on a low base and dipped sequentially except for mobility. Strong demand for digital technologies, including cybersecurity solutions, helped the digital industries vertical grow 276 per cent y-o-y, the most among all segments. Digital industries and smart infrastructure verticals drove the quarterly outperformance.
Siemens commented on seeing the first benefit out of C&S business with integration still on track. With new orders at ₹4,300 crore (16 quarters high), the order book stands at an all-time high of ₹14,300 crore. All business segments recorded order inflow growth over the 2019 levels.
We roll forward our valuation (35x) to September 2023 and arrive at a target price of ₹1,860 vs ₹1,811 March 2023.
Given punchy valuations, we maintain ‘Reduce’ on Siemens. We have cut our FY21/22/23E EPS estimates by 22.5/7.8/1.7 per cent respectively on account of weak execution.