EUR 120.00 For Business Accounts Only

MOSL: SIEMENS (Buy)-Order inflow disappoints; focus on profitable growth

(SIEM IN, Mkt Cap USD7.7b, CMP INR1544, TP INR1792, 16% Upside, Buy)

** Earnings underperformance attributed to margin miss: Revenue grew 4.8% to INR41.3b (in-line) in 4QFY19 (year ending September). EBITDA margin shrank 80bp YoY to 9.8% (our estimate: 11.0%). Thus, EBITDA declined 3.1% YoY to INR4.1b (13% miss). Adjusted for one-off income of INR473m toward monetization of property, PBT was flat YoY at INR4.3b. Due to re-measurement of DTA, the effective tax rate was at 32.2%. Adj. PAT was up 5.7% YoY to INR2.9b.

** For FY19, revenue/EBITDA/adj. PAT grew 7.5%/17.9%/26.1%. Operating cash flow was strong at INR12.3b v/s INR422m last year, led by an improvement in working capital. Net working capital as a percentage of sales improved to 69.6 days from 83.9 days in FY18.

** Segmental performance: (a) Gas & Power revenue grew 11.9% YoY to INR16.3b; PBIT margin expanded 40bp YoY to 10.8%. (b) Smart Infrastructure revenue was down 9.2% YoY to INR11b; PBIT margin was at 9.3% (+230bp YoY). (c) Mobility revenue was flattish at INR3.6b; PBIT margin shrank 510bp YoY to 10.5%. (d) Digital Industries revenue grew at a paltry 3.8% to INR7.2b; PBIT margin expanded 140bp YoY to 7.8%. (e) Portfolio of Companies revenue grew 17.6% YoY to INR3.9b, but PBIT margin was at -6.2% v/s +6.3% last year due to one-off employee expense (led by VRS and inventory led provision).

** Lower order inflow, stable book-to-bill ratio: Order inflow declined 14.3% YoY to INR31.9b in 4QFY19. SIEM let go some large orders which would have affected profitability. For FY19, order book was down 3.8% YoY at INR119b. However, book to bill stood at 1x, which management believes is stable to drive growth (peak book to bill was 1.2x).