March 9, 2023
analysis123 analysis123
SIEMENS LTD, Execution momentum sustains; structurally positive
Call & Research Report by ICICI Securities
Sector: Electric Equipment
CMP Rs. 3125, Target Rs. 3462 (11% upside potential)
Target Period: 12 Months
Similar to its closest peer, ABB (which posted strong EBITDA margin of 15% in the latest quarter), Siemens (SIEM) has reported standalone EBITDA of Rs5.5bn (+66% YoY) in Q1FY23, which was ahead of our and street’s estimates. This was led by 13% YoY revenue growth and 482bps YoY expansion in EBITDA margin to 15.1%. Except mobility, all segment margins improved with digital industries outshining others (+1,500bps YoY). We believe there could be one of element in digital industries’ profitability and should normalise over coming quarters. ‘Other income’ increased by 66.2% YoY on account of robust cash balance (Rs57bn at FY22-end). PAT, thus, came in ~78.4% YoY higher at Rs4.4bn. Order inflow increased by 6% YoY to Rs54.5bn. Greater demand for automation and digitisation augurs well for the company’s strong digital offerings. We have marginally tweaked our estimates (factoring higher margin performance) and maintain our ADD rating on the stock due to its consistent performance and favourable outlook on incremental capex. We revise our SoTP-based target price to Rs3,462 (earlier: Rs3,375).
● Execution momentum sustains: In Q1FY23, total income witnessed 13% YoY growth to Rs36bn. This was led by digital industries / mobility / smart infrastructure / energy segments, which grew 29% / 23% / 19% / 6% YoY, respectively. We expect execution momentum to sustain in coming quarters with higher order backlog easing supply-chain challenges and softening commodity prices. We expect a total revenue CAGR of 20% over FY22-FY24E, with mobility and digital industries propelling the strong growth.
● Sharp increase in reported EBITDA margin: SIEM’s EBITDA margin rose sharply by 482bps YoY to its highest ever at 15.1% in Q1FY23 (last highest was 13.5% in FY10). This was mainly due to 135bps YoY expansion in gross margin and ‘other expenses’ and employee cost as proportion to sales declined 255bps to 5.3% and 90bps to 12.4%, respectively. Segment-wise, digital industries / smart infra witnessed margin expansion of 1,500bps / 400bps to 23.8% / 10.2%, respectively. Energy segment margin was flat at 11.5% while mobility profitability was subdued.
● Order intake sustains: Order inflow rose 6% YoY (+36% QoQ) to ~Rs54bn, led by a clear upswing in both public and private capex. We are optimistic on private capex coupled with investment by the Central government on infrastructure backed by higher capital outlay in the FY24 Union Budget. Demand for digital offerings continues to be upbeat with greater adoption of automation and digitisation by industries.
● Maintain ADD: The government’s impetus on infrastructure spend continues to translate into strong capital expenditure in the country, followed by investments in smart and green infrastructure, electrification, decarbonisation technologies, automation and digitisation. We believe the company is in a strong position to leverage these growth opportunities given its capabilities across the verticals.
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