14 May 2020 Results Review 2QFY20 Siemens HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters Headwinds remain We maintain REDUCE on Siemens India Ltd. (SIL) with a TP of Rs 1,104/sh (35x SIL Mar-22E EPS). The decline in Revenues across the businesses is primarily due to deferred offtake by customers and slow-down in short-cycle business owing to COVID-19 headwinds and continued weaker demand in large infrastructure projects. Lower revenue led to negative operating leverage and crack in margin across all segments except POC which saw benefits of cost rationalization impact in previous years. Weak financial performance: SIL delivered Revenue/EBIDTA/APAT miss of 11.6/34/34%. EBITDA margins came at 8.3% (275bps miss). Employees wage hikes was effected from 2QFY20 and also other expenses had Rs 500mn+ impact of forex loss. The combined cost increase led to EBIDTA margins crack by 300bps. Order backlog stood at Rs 125.5bn which is healthy and maintained at last 4 quarters average of Rs 125bn. Navigating through COVID-19 crisis: Post the complete lockdown in last week of Mar-20, SIL has shut all its factories, project sites and offices. This significantly impacted 2QFY20 revenues. SIL has resumed limited operations in six factories with another two expected to resume operations this week. Whilst short cycle orders headwinds remain, SIL is seeing heightened interest from clients on digitalization solutions to save costs and increase productivity. Social distancing is also driving these inquiries. Hiving of the Mechanical Drives Business: Siemens AG has made an announcement to integrate Portfolio Companies wind energy generation unit into Flender and subsequently publicly list the company via spin-off. SIL board has received a request from Siemens AG to consider the proposal of divesting the POC Mechanical drives business to subsidiary of Siemens AG. SIL board has in principle agreed to sell the mechanical drives business at a fair consideration (to be determined). Mechanical drives contributed 5% to FY19 revenue (~Rs 6,482mn) and 54% of POC segment revenue. EBIT margins for POC was 1.3/(7.1)% for FY18/19 and lower than SIL margins. Large non wind mechanical drives and motors will continue to be part of SIL POC business. Sale of less profitable business augurs well for SIL. SIL will face near to mid-term head winds on weak Govt/Private capex as businesses conserve cash and slow down capex on back of COVID-19 led disruption. Global growth contraction will result in lower exports and INR depreciation will make imports costlier. Tailwinds like digitalization opportunities and strong net cash Rs 45.8bn are priced in at current punchy valuations. Multiple re-rating is contingent on capex recovery. We maintain REDUCE on SIL. Key risks (1) Faster than expected Private/Government capex recovery, (2) Fiscal stimulus leading to recovery in private investments, and (3) Strong uptick in digitalization. Financial summary (Rs mn, Sep YE) 2Q FY20 2Q FY19 YoY (%) 1Q FY20 QoQ (%) FY19 FY20E FY21E FY22E Net Revenues 28,201 35,496 (20.6) 26,686 5.7 1,36,838 1,08,610 1,29,920 1,42,140 EBITDA 2,336 4,105 (43.1) 3,365 (30.6) 14,757 10,010 13,046 15,163 APAT 1,721 2,808 (38.7) 2,627 (34.5) 11,520 7,646 10,291 12,164 Diluted EPS (Rs) 4.8 7.9 (38.7) 7.4 (34.5) 32.4 21.5 28.9 34.2 P/E (x) 32.3 48.7 36.2 30.6 EV / EBITDA (x) 21.9 32.5 24.9 21.0 RoE (%) 13.3 8.3 10.6 11.7 Source: Company, HSIE Research REDUCE CMP (as on 13 May 2020) Rs 1,045 Target Price Rs 1,104 NIFTY 9,384 KEY CHANGES OLD NEW Rating Reduce Reduce Price Target Rs 1,104 Rs 1,104 EBITDA % FY21E FY22E - - KEY STOCK DATA Bloomberg code SIEM IN No. of Shares (mn) 356 MCap (Rs bn) / ($ mn) 372/4,940 6m avg traded value (Rs mn) 859 52 Week high / low Rs1,717/947 STOCK PERFORMANCE (%) 3M 6M 12M Absolute (%) (26.4) (36.1) (0.6) Relative (%) (3.6) (15.9) 13.1 SHAREHOLDING PATTERN (%) Dec-19 Mar-20 Promoters 75.0 75.0 FIs & Local MFs 9.90 10.20 FIIs 4.31 4.21 Public & Others 10.79 10.59 Pledged Shares 0.0 0.0 Source : BSE Parikshit D Kandpal, CFA [email protected]+91-22-6171-7317 Rohan Rustagi [email protected]+91-22-3021-7355
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14 May 2020 Results Review 2QFY20
Siemens
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Headwinds remain
We maintain REDUCE on Siemens India Ltd. (SIL) with a TP of Rs 1,104/sh
(35x SIL Mar-22E EPS). The decline in Revenues across the businesses is
primarily due to deferred offtake by customers and slow-down in short-cycle
business owing to COVID-19 headwinds and continued weaker demand in
large infrastructure projects. Lower revenue led to negative operating leverage
and crack in margin across all segments except POC which saw benefits of
cost rationalization impact in previous years.
Weak financial performance: SIL delivered Revenue/EBIDTA/APAT miss
of 11.6/34/34%. EBITDA margins came at 8.3% (275bps miss). Employees
wage hikes was effected from 2QFY20 and also other expenses had Rs
500mn+ impact of forex loss. The combined cost increase led to EBIDTA
margins crack by 300bps. Order backlog stood at Rs 125.5bn which is
healthy and maintained at last 4 quarters average of Rs 125bn.
Navigating through COVID-19 crisis: Post the complete lockdown in last
week of Mar-20, SIL has shut all its factories, project sites and offices. This
significantly impacted 2QFY20 revenues. SIL has resumed limited
operations in six factories with another two expected to resume operations
this week. Whilst short cycle orders headwinds remain, SIL is seeing
heightened interest from clients on digitalization solutions to save costs and
increase productivity. Social distancing is also driving these inquiries.
Hiving of the Mechanical Drives Business: Siemens AG has made an
announcement to integrate Portfolio Companies wind energy generation
unit into Flender and subsequently publicly list the company via spin-off.
SIL board has received a request from Siemens AG to consider the proposal
of divesting the POC Mechanical drives business to subsidiary of Siemens
AG. SIL board has in principle agreed to sell the mechanical drives business
at a fair consideration (to be determined). Mechanical drives contributed 5%
to FY19 revenue (~Rs 6,482mn) and 54% of POC segment revenue. EBIT
margins for POC was 1.3/(7.1)% for FY18/19 and lower than SIL margins.
Large non wind mechanical drives and motors will continue to be part of
SIL POC business. Sale of less profitable business augurs well for SIL.
SIL will face near to mid-term head winds on weak Govt/Private capex as
businesses conserve cash and slow down capex on back of COVID-19 led
disruption. Global growth contraction will result in lower exports and
INR depreciation will make imports costlier. Tailwinds like digitalization
opportunities and strong net cash Rs 45.8bn are priced in at current
punchy valuations. Multiple re-rating is contingent on capex recovery. We
maintain REDUCE on SIL. Key risks (1) Faster than expected
Private/Government capex recovery, (2) Fiscal stimulus leading to
recovery in private investments, and (3) Strong uptick in digitalization.
FCFE/Market Cap (%) 0.6 2.4 (0.4) 3.2 (0.2) 0.2 1.9
Dividend Yield (%) 4.3 0.7 0.8 0.8 1.1 1.1 1.3
Source: Company, HSIE Research
Page | 8
Siemens: Results Review 2QFY20
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
Date CMP Reco Target
17-May-19 1,130 NEU 1,165
29-May-19 1,262 NEU 1,165
11-Jul-19 1,236 NEU 1,165
8-Aug-19 1,101 NEU 1,197
22-Sep-19 1,328 NEU 1,280
10-Oct-19 1,572 NEU 1,463
22-Nov-19 1,544 NEU 1,463
10-Jan-20 1,510 NEU 1,463
25-Jan-20 1,625 NEU 1,463
12-Feb-20 1,496 NEU 1,463
2-Mar-20 1,304 ADD 1,533
24-Apr-20 1,147 REDUCE 1,104
5-May-20 1,090 REDUCE 1,104
14-May-20 1,045 REDUCE 1,104
From 2nd March 2020, we have moved to new rating system
RECOMMENDATION HISTORY
700
800
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1,000
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Siemens TP
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Siemens: Results Review 2QFY20
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