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MOSL: SIEMENS (Neutral)-Short cycle orders strong; cost inflation persists

SIEMENS: Short cycle orders strong; cost inflation persists

(SIEM IN, Mkt Cap USD10.4b, CMP INR2186, TP INR2065, 6% Downside, Neutral)

 

• End markets see recovery: After the brief resumption of execution over 1HFY21, the second COVID wave once again disrupted the end markets. While capex in the Automobile sector remained subdued in FY21, end markets such as Pharmaceuticals, Food and Beverages, Metro, Railways, Steel and Cement, and Power T&D saw an uptick in ordering activity. In the Buildings segment, while ordering activity declined for the industry, it stood flat YoY for Siemens (SIEM) as it was able to tap certain pockets of growth.
• Central government and private capex robust: Central government and private capex were robust, although the state government capex is yet to revive. For SIEM, the private sector forms ~84% of its order book, while the government accounts for the remainder. Currently, the utilization level in the private sector is ~70%; hence, any possibility of greenfield capex is some time away. However, with the current momentum in execution, capacity levels could scale up quickly, leading to newer capex.
• Short cycle orders lead to quicker execution cycle: Despite the second COVID wave disrupting execution, orders inflows stood robust in FY21; they were up 32% YoY, led by strong growth in short cycle orders (execution period of up to a year). This led to revenue growth of ~33% YoY in FY21. While ordering in the Projects segment remained subdued, the Services segment witnessed healthy ordering.