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Siemens Ltd Results Review 25 November 2010Siemens LtdEncouraging order flows and margin profileSiemens’ (SIEM) FY10 results were in line with our expectations at theconsolidated level, even as they were significantly ahead of our estimates forthe parent company (SA) driven by healthy growth in the industry andhealthcare segments. Consolidated revenues/EBITDA/PAT for FY10 were up by4.2%/25.5%/36.7% YoY to Rs 97.4bn/Rs 13.2bn/ Rs 7.6bn, while that for theparent by 11.1%/26.4%/26.5% YoY to Rs 94bn/Rs 12.9bn/ Rs 8.2bn. Theimplied sales and EBITDA for the parent company in Q4FY10 stood atRs 30.6bn (up 21.6% YoY) and Rs 4bn (up 62.9% YoY) respectively. SIEM’sFY10 EBITDA margin expanded 170bps to 13.8%, propelled by sharp marginimprovement in the industry segment. Order intake for the year was atRs 124bn, a growth of 41% YoY, while order backlog at FY10-end came in at~Rs 136bn, higher 32% YoY. We expect growth in order inflows and upgradesin earnings to drive up stock valuations, going ahead. Maintain BUY.Broad-based growth encouraging: SIEM’s industry and energy segments reporteda growth of 10.3% and 8.4% YoY for FY10 respectively, while the healthcaresegment saw a commendable 38.8% growth for the year. On a sub-segmentlevel, industry automation and power transmission businesses showed animpressive revenue expansion of 25% YoY and 18% YoY respectively.EBITDA margin expands 170bps: The company’s FY10 EBITDA margin increased170bps YoY to 13.8%, fuelled by sharp margin expansion in the industrysegment. Within this segment, the EBIT margin for drive technology soared by>160bps YoY to 7.9%. EBIT margin for energy segment also went up by 137bpsYoY to 15%, driven by higher margins in the fossil power generation business.Order inflows pick up: Order inflows for the year were at Rs 124bn, higher 41%YoY. Order backlog at FY10-end came in at ~Rs 136bn, up 32% YoY; this, in ourview, gives comfortable visibility on the company’s future revenue growth.Set to develop India as a global sourcing hub: Earlier in Dec ’09, SIEM hademphasised that over the next three years, it intends to undertake capacityexpansion across six product lines at an outlay of Rs 16bn in India. In our view,apart from its maintaining its leadership in certain high technology product lines,SIEM is also focusing on developing India as a global sourcing hub for valueproducts. We believe this diversification can lend an additional growth lever toSIEM’s Indian operations.Scope for further upside; maintain BUY: At our current estimates, the stocktrades at a P/E of 28.3x/23.5x for FY11E/FY12E. We restate a BUY on the stockwith a Sep ’11 target price of Rs 1,000.What’s New? Target Rating EstimatesCMP TARGET RATING RISKRs 787 Rs 1,000 BUY LOWBSE NSE BLOOMBERG500550 SIEMENS SIEM INCompany dataMarket cap (Rs mn / US$ mn) 266,238/5,319Outstanding equity shares (mn) 337Free float (%) 31.3Dividend yield (%) 0.6%52-week high/low (Rs) 857 / 4922-month average daily volume 468,615Stock performanceReturns (%) CMP 1-mth 3-mth 6-mthSiemens 787 (5.7) 10.5 17.2BSE CG 15,435 (4.0) 3.8 14.1Sensex 19,460 (3.5) 6.3 18.2P/E comparison(x)Siemens Industry40 35.13025.928.42021.123.617.9100F Y10E F Y11E F Y12EValuation matrix(x) FY10E FY11E FY12E FY13EP/E @ CMP 35.1 28.3 23.5 20.9P/E @ Target 44.5 35.9 29.9 26.5EV/EBITDA @ CMP 19.1 16.7 13.8 12.1Financial highlights(Rs mn) FY10 FY11E FY12E FY13ERevenue 97,430 117,858 145,510 165,640Growth (%) 4.2 21.0 23.5 13.8Adj net income 7,578 9,388 11,287 12,733Growth (%) 36.7 23.9 20.2 12.8FDEPS (Rs) 22.5 27.8 33.5 37.8Growth (%) 36.7 23.9 20.2 12.8Profitability and return ratios(%) FY10E FY11E FY12E FY13EEBITDA margin 13.5 12.8 12.6 12.6EBIT margin 11.8 11.2 10.9 10.8Adj PAT margin 7.8 8.0 7.8 7.7ROE 24.6 24.9 24.5 22.6ROIC 37.3 34.9 34.4 31.7ROCE 37.3 34.9 34.4 31.7Misal SinghAbhishek Raj(91-22) 6766 3466 (91-22) 6766 3485misal.singh@religare.in abhishek.raj@religare.in8