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MOSL: SIEMENS (Neutral)-Operating performance miss led by weak execution

Siemens: Operating performance miss led by weak execution

(SIEM IN, Mkt Cap USD5.6b, CMP INR1056, TP INR1185, 12% Upside, Neutral)

 

• 2QFY18 operating performance below expectations: On a reported basis, revenue grew 12% YoY to INR32.8b (our estimate: INR37.4b). The revenue miss can be attributed to weak performance in the mobility (-43% YoY), power and gas (-8% YoY) and process industries and drives (-2% YoY) segments. EBITDA grew 16% YoY to INR3.2b, with margin at 9.8% (+30bp YoY; our estimate: 10.8%). Adjusted net profit from operations increased 23% YoY to INR2.2b, below our estimate of INR2.8b.
• Operating margin improves 30bp YoY, below estimate of 10.8%: EBITDA margin was 9.8%, below of our estimate of 10.8%. The margin miss was on account of lower than estimated revenue. Margin expansion of 30bp was led by better cost management (other expenses down 50bp YoY to 10.4%; INR3.4b). EBIT margin expanded 60bp YoY to 8.3% on account of margin improvement across segments, barring power and gas, and process industries and drives. Sharp margin improvement was witnessed in the building technologies segment (+690bp to 8.9%) and mobility segment (+390bp to 7.5%).
• Order inflow declines 38% YoY, impacted by high base and absence of large ticket orders; book-to-bill at 1.2x: Order intake for the quarter was INR29.3b (-38% YoY; INR47.3b in 2QFY17). Sharp decline in the order inflow was on account of higher base of 2QFY17 (large HVDC order of INR16.8b for the Pugalar-Thrissur transmission system), excluding which order inflow declined 4% YoY. Base order inflow (orders with ticket size below INR1b) during the quarter was healthy, with 22% YoY growth. Ordering activity was supported by base orders and initial signs of ordering pickup are witnessed in the cement, oil and gas, and steel sectors. The company’s book-to-bill stood at 1.2x, with an order book position of INR129.2b.