EUR 120.00 For Business Accounts Only

MOSL: SIEMENS (Neutral)-Strong margins in a weak environment

SIEMENS: Strong margins in a weak environment

(SIEM IN, Mkt Cap USD7.5b, CMP INR1496, TP INR1685, 13% Upside, Neutral)

 

Operating performance in line; awaiting better entry-point 

• Siemens reported in-line 1QFY20 operating performance; strong margins offset the weakness in revenue growth, which is a reflection of the weak economic environment. Given the short-cycle nature of the business (as two-third of the business is related to products/services), we believe that revenue growth will be back as the economy recovers.
• On account of higher depreciation and lower other income, we trim our EPS estimates over FY21/FY22E by 4%/1%. Maintain Neutral rating with lower TP of INR1,685 (Prior: INR1,705) as we await a better entry point in the stock. 

Revenue decline suggests muted capex environment; margins surprise 

• 1QFY20 revenue declined 5% YoY to INR26.7b (10% below est.). The miss in revenues was more than offset by strong EBITDA margins (+170bp YoY) to 12.6% (v/s est. 11.5%). Thus, EBITDA grew 9.8% to INR3.4b (in-line).
• On account of higher depreciation and lower other income, PBT growth was muted at 4% to INR3.5b. Helped by lower tax rates according to the new corporate tax rates, PAT grew 15% to INR2.6b and was 9% below est. Order book stood at INR124b. Implied order inflow stood at INR32b (-5% YoY).