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MOSL: SIEMENS (Buy)-Mobility business sale on hold – A major relief

SIEMENS: Mobility business sale on hold – A major relief

(SIEM IN, Mkt Cap USD5.5b, CMP INR1101, TP INR1290, 17% Upside, Buy)

 

• In-line results: Revenues grew 4% YoY to INR32b (in line with est.); EBITDA margin came in at 11.1% (v/s est. of 11.0%) while net profit grew 21.4% YoY to INR2.5b (in line with est.). Order inflow during the quarter was up 6% YoY to INR30b.
• Siemens India decides against Mobility business sale: We recall that Siemen’s Mobility business sale was announced in tandem with the planned merger of the Rail business with Altstom globally. However, the same was disapproved by the European Commission on account of likely monopoly of the merged entity. There were apprehensions that the Mobility segment from Siemens India may still be carved out, resulting in an overhang on the stock performance. The company has decided not to pursue the matter for the time being, which comes as a big relief for the stock performance.
• Adopts new segmental reporting: Siemens has adopted the new classification for reporting purpose, in line with the parent company. For 3QFY19, revenue growth was subdued across key segments - Gas & Power (35% of net sales) at -1%, Smart Infrastructure (29% of net sales) at +1%, and Digital Industries (20% of net sales) at 6%. Mobility segment (8% of net sales) reported strong 17% growth, while Portfolio of Companies (9% of net sales) saw 30% growth. Segmental margins: Siemens continues to witness margin expansion. EBIT margin stood at 9.5% (+125bp YoY). Gas & Power saw margin expansion of 490bp, while the mobility business witnessed EBIT margin expansion of 440bp. (Please refer our detailed table inside for details on the new segment reporting).
• Maintain BUY with TP of INR1,290: We value the company at 35x Mar’21 EPS to arrive at target price of INR1,290/share. Maintain Buy.