Docstoc

Siemens MoSL JAN 12

Document Sample
Siemens MoSL JAN 12 Powered By Docstoc
					                                                                                                                                       9 January 2012
                                                                                                       Annual Report Update | Sector: Capital Goods



                                                                                                                               Siemens
BSE SENSEX                            S&P CNX
15,815                                        4,743       CMP: INR678                        TP: INR743                                    Neutral
                                                          Reiterates growing importance of India for Siemens AG
                                                          Expansion plans on track
                                                             Siemens AG has identified Siemens India as a key partner in its global
                                                              footprint. Chairman, Mr Deepak Parekh says, "…the Indian market will
                                                              play a greater role in Siemens worldwide."
Bloomberg                                SIEM IN             Healthy mix of long-cycle and short-cycle business, particularly in the
Equity Shares (m)                             337.0           Industry segment, has helped Siemens to sustain growth.
52-Week Range (INR)                    951/627               Expansion plans are on track. The company has maintained healthy return
1,6,12 Rel. Perf. (%)                        1/-10/5          ratios despite ongoing capacity expansion.
M.Cap. (INR b)                                228.5          The stock trades at 23x FY12E and 18x FY13E EPS. Maintain Neutral.
M.Cap. (USD b)                                   4.4

Y/E Sept.               2011 2012E 2013E                  Chairman reiterates growing presence in parent's global footprint: Siemens
Sales (INR b) 120.7 133.5 163.5                           has adopted an investment-led growth strategy in India. Its parent, Siemens AG has
EBITDA (INR b) 12.9  15.7  19.6                           identified it as a key partner in its global footprint. In the annual report, Siemens India's
PAT (INR b)     8.5  10.0  12.5                           Chairman, Mr Deepak Parekh says, "It is significant to note that the company's parent
EPS (INR)      25.1  29.7  37.0                           Siemens AG increased its stake from 55% to 75% earlier in the year through an
EPS Gr. (%)     2.2  18.5  24.3
                                                          investment of approximately 1 billion Euros. This is a clear message that Siemens Ltd
BV/Sh. (INR) 113.2 131.3 154.2
P/E (x)        27.0  22.8  18.3
                                                          and the Indian market will play a greater role in Siemens worldwide."
P/BV (x)        6.0   5.2   4.4
                                                          New business verticals and base products to drive growth: The company is
EV/EBITDA (x) 16.8   13.2  10.4
EV/ Sales (x)   1.8   1.6   1.2                           building on its SMART (simple-to-use, maintenance-friendly, affordable, reliable and
RoE (%)        23.2  24.3  25.9                           timely-to-market) base-level product initiative. Increased local footprint, higher
RoCE (%)       24.5  25.5  26.9                           localization of products and increased outsourcing of base-level products from India
* Standalone                                              remains its key strategy. It is setting up six new hubs in India, with a planned expenditure
Shareholding pattern % (Sep-11)                           of INR12b-14b over the next 3-4 years. Four of these are for value-price products.
                Others,
                                                          Diversified business mix helps sustain growth: Healthy mix of long-cycle and
                 13.1
    Foreign,                                              short-cycle business, particularly in the Industry segment, has helped Siemens to
      3.6                                                 sustain growth. Its Product Business group, comprising of Building Technologies (BT),
Domestic                                                  Drive Technologies (DT) and Industry Automation (IA) posted healthy growth, mitigating
Inst, 8.3                                                 the sluggish growth in Industry Solutions. The Industry Solutions business saw sluggish
                                                          demand, with customers postponing turnkey projects and new orders.

                                                          Working capital deteriorates due to fall in creditors: Cash flow from operations
  Promoters
     75.0
                                                          before capex declined sharply due to increase in working capital. Sundry creditors
                                                          declined from 114 days in FY10 to 90 days in FY11, which we believe has resulted
Stock performance (1 year)                                from deterioration in vendor credit due to tightening liquidity conditions. The company
                                                          has maintained return ratios at healthy levels despite ongoing capacity expansion.
                    Siemens
                    Sensex - Rebased
980                                                       Valuation and view: With project award activity still not showing signs of meaningful
880                                                       pick-up, we see Siemens posting moderate order intake growth in FY12. Siemens is
780                                                       also a key partner in Siemens AG's global network, creating significant export
680                                                       opportunity. We believe that the company will continue to be Siemens AG's growth
580                                                       vehicle in the Middle East and North African markets due to cost advantage. The stock
      Jan-11




                           Jul-11


                                    Oct-11


                                                 Jan-12
               Apr-11




                                                          trades at 23x FY12E and 18x FY13E EPS. Our target price is INR743 (on 25x FY12E
                                                          EPS). Maintain Neutral.

Dhirendra Tiwari (Dhirendra.Tiwari@motilaloswal.com ) +91 22 3029 5127
Deepak Kumar Narnolia (Deepaknaranolia@MotilalOswal.com) +91 22 3029 5126
                                                                                                                                 Siemens



                                 Chairman reiterates growing presence in parent's global footprint
                                  Siemens has adopted an investment-led growth strategy in India. Its parent, Siemens
                                   AG has identified it as a key partner in its global footprint. In the annual report, Siemens
                                   India's Chairman, Mr Deepak Parekh says, "It is significant to note that the company's
                                   parent Siemens AG increased its stake from 55% to 75% earlier in the year through
                                   an investment of approximately 1 billion Euros. This is a clear message that Siemens
                                   Ltd and the Indian market will play a greater role in Siemens worldwide."
                                  On the current state of affairs, he says, "the current state of the economy, with a
                                   moderated pace of growth, is expected to spill over to the next financial year. Siemens
                                   Ltd, however, is ideally poised to meet the infrastructure needs of the country through
                                   its energy, industry and healthcare sectors." He remains positive on the company:
                                   "with the company's continued focus on generating sustainable value to its customers
                                   and stakeholders, I am confident that the company will continue to do well."
                                  Siemens India is emerging as a key partner in Siemens AG's global growth strategy.
                                   This is vindicated by growing investment by the Group in the country. Over the past 3-
                                   4 years, Siemens India has invested nearly INR10b and plans to invest an additional
                                   INR13b-14b over the next 3-4 years. It is also the key beneficiary of the Group's
                                   growing presence in other developing regions like the Middle East. Siemens India has
                                   meaningfully benefitted from ongoing infrastructure investments in the Middle East,
                                   particularly Qatar. Along with Siemens AG, it has bagged orders worth INR95b (Siemens
                                   India's share) from Qatar General Water and Electricity Corporation (Kahramaa),
                                   Qatar's monopoly power and water distribution company, and a project from Ezdan
                                   Real Estate QSC.
                                  The company is building on its SMART (simple-to-use, maintenance-friendly, affordable,
                                   reliable and timely-to-market) base-level product initiative. Nearly 70% of Siemens'
                                   addressable market is in the low and mid market segment, for which the company has
                                   developed the SMART strategy. It plans to launch 60 new products, of which 50-60%
                                   will be out in the market in the next 12-18 months. During FY11, Siemens launched 10
                                   value-priced products.

Capex on track; new business verticals to drive growth beyond FY12

                                                      New business verticals
                                               Proposed capex: INR13b (FY11-14)



         Valued-price Products                        Wind Power TG (INR5b)                            Power project EPC


       Signalling systems
                                           Gross block to double by FY13; will drive growth beyond FY12 (INR b)
                                                                                                                                   24.9
                                                                                                                        20.7
                                                                                                                17.2
       Ring main units                                                                                14.2
                                                                                              11.3
                                                                               8.7    9.9
                                               5.5     5.5             6.5
                                                               5.2
       Industrial steam turbines
       Upto 150 MW
                                                                                                                         FY12E


                                                                                                                                    FY13E
                                               FY03


                                                        FY04


                                                                FY05


                                                                       FY06


                                                                               FY07


                                                                                       FY08


                                                                                               FY09


                                                                                                         FY10


                                                                                                                 FY11




       Iron / steel making equipment

                                                                                                                Source: Company/MOSL

9 January 2012                                                                                                                              2
                                                                                                                         Siemens



                                During the year, the company added INR4b (excluding consolidation of Siemens
                                 Heathcare, Siemens Building Technology, Siemens Visa Securities and Siemens Rolling
                                 Stock) to its gross block, mainly in the Energy segment. It is building two factories in
                                 Goa for medium voltage products and energy automation relays, and a steam turbine
                                 and compressor manufacturing facility at Vadodara. It has also significantly ramped
                                 up its existing X-ray cathode rod production facility at Goa in the Healthcare segment.
                                The company is setting up a wind turbine factory, with capacity up to 2.3MW, at an
                                 investment of INR5b. We believe these new verticals will drive growth beyond FY12.

                               Capex in line with the company's target of INR13b-14b in the next 3-4 years

                                                                                 Capex (INR m)        % of sales         4.9
                                                                5.0

                                                                                                               3.7

                                                          2.5                   2.5
                                               1.9                                          1.8     2.0                  5,900

                                     0.8                                                                      3,469
                                                                   2,267       1,900        1,509   1,689
                                     109       337        700

                                    FY03      FY04       FY05      FY06        FY07         FY08    FY09      FY10       FY11

                                                                                                            Source: Company/MOSL

                               Diversified and healthy business mix helps sustain growth
                               Siemens India is a multi-dimensional company, with a strong product portfolio and servicing
                               capabilities in three core sectors of the Indian economy: Infrastructure, Industry and
                               Consumer (Healthcare, Water). With its strategy of aggressively widening its product
                               footprint in India, Siemens India stands to significantly benefit from the long-term growth


Diversified business mix provides growth stability

                                                                    Siemens
                                                         Revenues: INR119b; EBIT: INR12b




                                Energy                            Industry                           Healthcare
                                Rev: 50%, EBIT: 59%               Rev: 41%, EBIT: 33%                Rev: 9%, EBIT: 4%

    Diversified business mix
                                   Power Transmission                 A&D
 helping Siemens to sustain        Rev: 26%, EBIT: 33%                Rev: 21%, EBIT: 14%
   growth and profitability
                                   Power Distribution                 Industrial Sol & Serv.
                                   Rev: 9%, EBIT: 5%                  Rev: 10%, EBIT: 5%


                                   Power Generation                   Mobility
                                   Rev: 4%, EBIT: 5%                  Rev: 10%, EBIT: 10%


                                   Oil & Gas                          Building Technologies
                                   Rev: 11%, EBIT: 17%                Rev: 6%, EBIT: 4%

                                                                                                            Source: Company/MOSL

9 January 2012                                                                                                                   3
                                                                                                                    Siemens



                                opportunity in the country. The company is investing INR16b over the next 2-3 years,
                                which we believe would help ensure not only sustainable but also profitable growth through
                                enhanced indigenization and localization of products.

                                Healthy mix of long-cycle and short-cycle business, particularly in the Industry segment,
                                has helped Siemens to sustain growth. Its Product Business group, comprising of Building
                                Technologies (BT), Drive Technologies (DT) and Industry Automation (IA) posted healthy
                                growth, mitigating the sluggish growth in Industry Solutions. The Industry Solutions business
                                saw sluggish demand, with customers postponing turnkey projects and new orders.


                                New business structure aligned to global business verticals
                                The year FY12 will see major restructuring of businesses in terms of reporting and addition
                                of some new business segments, as the company is expanding into new business verticals.
                                It will now report under four separate segments - Energy, Industry, Health and Infrastructure
                                & Cities.

                                All infrastructure-related businesses will be transferred to the new segment, Infrastructure
                                & Cities, resulting in increased focus on Infrastructure, making Siemens better-positioned
                                to reap the benefit of rising infrastructure spend in the country. The division will comprise
                                of Railway Systems, Mobility, Low & Medium Voltage Systems, Smart Grid and Building
                                Technology. The Health segment will be further divided into three sub-segments - Imaging
                                & Therapy, Clinical Products, and Diagnostics.

                                Two new sub-segments, Wind and Solar, will be added in the Energy segment, in line with
                                Siemens' aggressive expansion plans in renewable energy. The company is in the process
                                of setting up a wind turbine factory, with a capacity up to 2.3MW at an investment of
                                INR5b. Production at Vadodara is slated to commence in 2013. The facility will have an
                                annual capacity of 250MW, which will be scaled up to 500MW by 2015 to meet market
                                demand.



                                                                   Siemens




                                      Energy                Industry              Healthcare         Infrastructure & Cities

    New business structure to
                                 Fossil               Industrial Solutions    Imaging & Therapy      Rail Systems
  have an increased focus on
   Infrastructure, Healthcare
                                 Oil & Gas            Drive Technologies      Clinical Products      Mobility
               and renewable
                                  Power               Customer Services       Diagnostics            Low & Medium
                                  Transmission                                                       Voltage Systems


                                 Wind                 Metals Technology                              Smart Grid


                                 Solar                                                               Build Technology




9 January 2012                                                                                                             4
                                                                                                  Siemens



                 Industry segment will see two new sub-segments - Customer Services and Metals
                 Technology. The newly acquired VAI Metals will be part of the Metals Technology business.
                 The company plans to make India its global hub for manufacturing key steel plant equipment.
                 VAI has ~20% market share in steel plant building/modernization in India. The company
                 hopes to increase its share to 25% in the next couple of years along with growth in market
                 size. VAI currently has one manufacturing facility in India at Thane, Maharashtra. Siemens
                 is planning to set up another manufacturing facility with an investment of around EUR40m
                 (INR2,400m).


                 Ongoing consolidation
                  Siemens has amalgamated its subsidiaries - Siemens Building Technologies, Visa
                   Securities Technics (both in building products), and Siemens Rolling Stock (bogie
                   manufacturing).
                  The company also acquired (from Siemens AG) and amalgamated with itself, Siemens
                   Healthcare Diagnostics (SHDL). The merger was first announced in October 2009.
                   SHDL focuses on Immunodiagnostics and the Clinical Chemistry business, with a
                   significant presence in Critical Care, Hematology, and Microbiology and Plasma Protein.
                   Siemens AG's wholly owned subsidiary, Siemens Diagnostic Holding II B.V.,
                   Netherlands holds 68.73% equity stake in SHDL. SHDL has been merged with
                   Siemens India, with the intention to strengthen its Healthcare portfolio and to provide
                   in-vitro and in-vivo diagnostic solutions in India. According to the company, the
                   complementary portfolios of the two companies will enable it to leverage a combined
                   customer base and expand its installed base in India.
                  In October 2011, the company announced its intention to merge Siemens VAI Metals
                   Technology, Kolkata (a 100% subsidiary of Siemens AG) and Morgan Construction
                   Company, Mumbai (a 100% subsidiary of VAI). The matter is awaiting shareholders'
                   approval.


                 Segment-wise highlights

                 Energy: Year ended with some milestone orders; outlook positive
                  During the year, new order intake was INR58.16b, down 24%. However, base orders
                    grew 11%, excluding large orders received in Power Generation and Transmission.
                    Sales grew 42% while profit from operations grew by 1%. Despite tough competition,
                    the company was able to retain its leadership.
                  Siemens received several milestone orders. This includes a contract from Torrent
                    Power to install a 1,100MW combined cycle power plant. It also launched a new wind
                    turbine (SWT-2.3-113) for the Indian market. The company is investing INR6b in
                    wind WTG manufacturing and aims to be a key player in India.
                  Siemens is positive on the Energy sector and believes that the government is addressing
                    the key issues of fuel production, linkages and environmental clearances. Siemens is
                    well positioned to capitalize on the opportunities.




9 January 2012                                                                                            5
                                                                                                                                                                                    Siemens



Energy: Revenue (INR b) and revenue growth (%)                                                Energy: EBIT (INR b) and EBIT margin (%)

                     T&D (INR b)                        Generation (INR b)                                        T&D (INR b)                              Generation (INR b)
  100                Oil & Gas (INR b)                  Energy (Grow th %) 44                                     Oil & Gas (INR b)                        Energy (EBIT Margin %)
                                                                                               12,000                                                                           16
   75                                                                                    33
                                                                                                9,000                                                                                           12
   50                                                                                    22
                                                                                                6,000                                                                                           8

   25                                                                                    11
                                                                                                3,000                                                                                           4

    0                                                                                    0             0                                                                                        0
            FY09            FY10            FY11       FY12E           FY13E                                      FY09         FY10        FY11            FY12E              FY13E

                                                                                                                                                             Source: Company/MOSL


                                             Industry & Railways: Healthy business mix driving growth
                                              Siemens continues to enjoy leadership across various industries. It has strong presence
                                                in motors, automation and drives and industrial turnkey projects. Railways accounts
                                                for a large chunk of the overall pie. Siemens is a dominant player in the sector, with
                                                local manufacturing capacity for traction motors, rolling stock and control panels. It
                                                has bagged several key railway projects and will continue to benefit from overall
                                                investments in the sector. The segment is underperforming since FY10 mainly due to
                                                delayed decision making in Railways.
                                              During the year, new order intake in the Industry segment was INR52.91b, up 35%.
                                                Sales grew 12%, while profit from operations grew 1%. FY11 was a challenging year
                                                for the industry, as rising interest rates led to companies taking a cautious approach
                                                towards new projects. Growth during the year was supported by the Products business
                                                (drives, building automation products), even as Industry Solutions (Projects business)
                                                saw sluggish demand, with turnkey projects and new order finalization getting delayed
                                                across sectors. The Mobility business was strengthened during the year by addition of
                                                bogie manufacturing capabilities.
                                              The market is expected to be in correction mode, with economic impasse. However,
                                                demand should improve, with the government facilitating investments. Margins are
                                                expected to be under pressure due to higher input costs, higher labor costs and increasing
                                                interest rates.

Industry (excluding Mobility): Revenue and growth                                             Industry (excluding Mobility): EBIT and EBIT margin

              Industry (INR b), excluding Mobility                   Grow th %                             Industry excluding Mobility (INR m)                       EBIT margin (%)
                                                                                                                                   10.2
                    50.3                                                        59.9                                  9.2
   44.4                     48.2                                                                                             8.1                             8.0
                                                                                                                 7.7                       7.3                                                7.6
                                                                      50.3                                                                                                      6.9
            35.8                                             45.7                              6.3         6.6
                                                                                                                                                                     6.0
                                                     38.2
                                             33.7
                                    32.4
                            27.1                             19.5               19.3
                    18.3                             13.6
            12.2                                                      10.0
                                                                                                                           1,678

                                                                                                                                   2,196

                                                                                                                                           3,302

                                                                                                                                                   2,469

                                                                                                                                                             3,054

                                                                                                                                                                      2,741

                                                                                                                                                                                FY12E 3,485

                                                                                                                                                                                              FY13E 4,558




    9.0                                       3.9
                                                                                                388

                                                                                                           595

                                                                                                                    934




                                    19.5
                                                                                                FY03

                                                                                                           FY04

                                                                                                                    FY05

                                                                                                                           FY06

                                                                                                                                   FY07

                                                                                                                                           FY08

                                                                                                                                                   FY09

                                                                                                                                                             FY10

                                                                                                                                                                      FY11
                                                                        FY12E

                                                                                 FY13E
     FY04

             FY05

                     FY06

                             FY07

                                     FY08

                                              FY09

                                                      FY10

                                                              FY11




                                                                                                                                                            Source: Company/MOSL

9 January 2012                                                                                                                                                                                              6
                                                                                                                                                                                                                    Siemens



Mobility: Revenue and growth                                                                                                     Mobility: EBIT and EBIT margin

                      Mobility Sales (INR b)                                           Grow th (%)                                                   Mobility (INR m)                 EBIT margin %
                                                                                   10.2                                           15.4
                                            100.5                                                                   9.9
                                                                                                                                             12.6    12.4                                                      12.0
                                                                         10.3                          8.3                                                                                            15.8                 10.0
                                                                                               7.5                                                           8.3                              8.4
                        36.6               39.7           7.0                                                                                                       6.5
                                                                          47.6
   19.4      18.4                                                                                                   20.0




                                                                                                                                                                                                       1,192
                                            3.5                                                        10.0




                                                                                                                                   198

                                                                                                                                              194

                                                                                                                                                      226

                                                                                                                                                             206

                                                                                                                                                                    226




                                                                                                                                                                                               858




                                                                                                                                                                                                                   994

                                                                                                                                                                                                                                994
                                                                                   -0.5
                         2.5                                                                                                                                                          -0.7
              1.8                                                                             -26.2                                                                          -2.7
     1.5




                                                                                                                                                                                       -77
                                                                                                                                                                               -184
                                                                                                        FY12E


                                                                                                                       FY13E
    FY04


               FY05


                             FY06


                                            FY07


                                                          FY08

                                                                         FY09


                                                                                   FY10


                                                                                               FY11




                                                                                                                                                                                                                   FY12E

                                                                                                                                                                                                                                FY13E
                                                                                                                                   FY03

                                                                                                                                              FY04

                                                                                                                                                      FY05

                                                                                                                                                             FY06

                                                                                                                                                                    FY07

                                                                                                                                                                           FY08

                                                                                                                                                                                       FY09

                                                                                                                                                                                               FY10

                                                                                                                                                                                                       FY11
                                                                                                                                                                                              Source: Company/MOSL


                                                                        Healthcare: a fast growing segment; new technologies, tier-2 cities to drive growth
                                                                         During the year, new order intake was INR11.20b, up 44%. Sales grew 39%, while
                                                                           profit from operations grew 1%.
                                                                         The Healthcare market grew at a healthy pace in FY11, despite a challenging
                                                                           macroeconomic environment, and is likely to maintain momentum on the back of rapid
                                                                           urbanization, increasing health insurance penetration, changing disease profiles, etc.
                                                                         The Indian medical equipment market, estimated at around INR40b, is expected to
                                                                           grow at over 15% in the next several years. Siemens, with a market share of 18-20%
                                                                           (source: industry) is the market leader in the space, followed by Wipro GE and Phillips.
                                                                           The company has a manufacturing base in Goa for high-end products like X-ray mobile
                                                                           machines. However, nearly 80% of products sold are sourced from the parent. We
                                                                           expect Siemens to enhance its product base in India, which will provide long-term
                                                                           growth opportunities in the space. We believe Siemens India will be a major sourcing
                                                                           destination for medical diagnostic products.
                                                                         Corporates across segments are expanding their presence in tier-2 and tier-3 cities,
                                                                           which will lead to affordable, personalized healthcare solutions.


Healthcare: Revenue and growth                                                                                                   Healthcare: EBIT and EBIT margin

                                    Healthcare (INR b)                                    Grow th %                                                    EBIT (INR m)                   EBIT margin %
                                                                                                                                                                                                               7.0
                      32.9                                                      38.8                                                                                                           6.9
                                               26.8                                           39.0     25.0                                                                            7.6                                 6.0
  21.1                                                                                                                                        5.4                            5.5
                                                                                                                    20.0                                                                              4.9
                                                            15.4
                                    12.4                                                                                                             4.2

                                                                                                                                                             2.4    2.2
           -10.2                                                          -10.3
                                                                                                                                  0.5
                                                                                                10.5

                                                                                                       FY12E 13.1

                                                                                                                    FY13E 15.7




                                                                                                                                              150

                                                                                                                                                     153

                                                                                                                                                             100

                                                                                                                                                                    113

                                                                                                                                                                              335

                                                                                                                                                                                       413

                                                                                                                                                                                              519

                                                                                                                                                                                                      516

                                                                                                                                                                                                               FY12E 917

                                                                                                                                                                                                                           FY13E 943
   3.1

           2.8

                      3.7

                                     4.1

                                                   5.2

                                                                 6.1

                                                                            5.4

                                                                                       7.5




                                                                                                                                   FY03 17

                                                                                                                                              FY04

                                                                                                                                                     FY05

                                                                                                                                                             FY06

                                                                                                                                                                    FY07

                                                                                                                                                                              FY08

                                                                                                                                                                                       FY09

                                                                                                                                                                                              FY10

                                                                                                                                                                                                      FY11
   FY03

            FY04

                      FY05

                                     FY06

                                                   FY07

                                                                 FY08

                                                                            FY09

                                                                                       FY10

                                                                                                FY11




                                                                                                                                                                                              Source: Company/MOSL




9 January 2012                                                                                                                                                                                                                          7
                                                                                                                                                                       Siemens



                                                  Balance sheet robust; working capital deteriorates due to fall in creditors
                                                   Cash flow from operations before capex was INR2b in FY11, down sharply from
                                                     INR9.6b in FY10 due to increase in working capital. Sundry creditors declined from
                                                     114 days in FY10 to 90 days in FY11, which we believe has resulted from deterioration
                                                     in vendor credit due to tightening liquidity conditions. As a result, cash balance declined
                                                     to INR12.8b in FY11 from INR18.5b in FY10.
                                                   During the year, debtor-days improved to 126 (129 in FY10). Inventories also improved
                                                     to 24 days from 27 days a year ago.
                                                   The company has maintained return ratios at healthy levels despite ongoing capacity
                                                     expansion. RoCE and RoE saw marginal declines, despite meaningful contraction in
                                                     EBITDA margin. Returns were positively impacted by improvement in asset-turnover,
                                                     which increased from 2.8x in FY10 to 3.3x in FY11.

Working capital deteriorated due to decrease in
sundry creditors                                                                      Debtors and inventories showed marginal improvement

             Net w orking capital (% of sales)                149             8%                       Debtors (days)                           146
                                               146
             Debtors (days)                                                                            Inventory (days)                                            129          126
                                                                      129                                                                                 149
                                                                              126                                                      110
                                            110                                         99     97
                                                              2%      1%                                                 97
                          97       89                                                                    89      83             89
   89          83                            1%       -1%
   -4%
                                                                                                                         43     39                         42
                                                                                                         30      34                    35        32
               -8%                                                                      22                                                                         27           24
                         -10%                                                                  21


                                   -17%
                                                                                        FY01

                                                                                                FY02

                                                                                                          FY03

                                                                                                                  FY04

                                                                                                                         FY05

                                                                                                                                FY06

                                                                                                                                        FY07

                                                                                                                                                  FY08

                                                                                                                                                           FY09

                                                                                                                                                                   FY10

                                                                                                                                                                                FY11
    FY03


                FY04


                           FY05


                                    FY06


                                             FY07


                                                      FY08


                                                               FY09


                                                                      FY10


                                                                              FY11




                                                                                                                                                 Source: Company/MOSL
                                                  Robust earnings outlook
                                                  We expect Siemens India to post earnings CAGR of 21% over FY11-13, on the back of
                                                  16% revenue CAGR and improving margins. Investment in new business verticals will
                                                  provide growth catalysts beyond FY12. Siemens has invested in cost restructuring and
                                                  project management, which will help the company to maintain margins, going forward.

                                                  Excluding the impact of two mega projects awarded by Torrent Power and Qatar General
                                                  Water & Electricity Corporation (Kaharamma) in FY10 and FY11, base orders registered
                                                  a growth of 25%.
                                                                                      Order book remained stagnant due to moderation in
Order intake moderate in FY11, base orders still robust                               order intake

                        Order intake (INR b)                    Grow th (%)                             Order book (INR b)                     BTB (x TTM sales)
                                    99                               124    123
                 80                                                                            1.2       1.3             1.2    1.2    1.2       1.5
                                             101                                                                 1.7                                       1.2
                                                       87      88                                                                                                  1.0
                                                                                                                                                                                0.9
     45                              82                                                0.6
                            37                                        41
                                             24
                 30         41
                                                                1             -1
     17                                               -14
                                                                                                                                        102

                                                                                                                                                  136

                                                                                                                                                            139

                                                                                                                                                                    FY12E 136

                                                                                                                                                                                 FY13E 141
                                                                                               21

                                                                                                         35

                                                                                                                  75

                                                                                                                         94

                                                                                                                                98
                                                                                        9
                                                                                        FY03

                                                                                               FY04

                                                                                                          FY05

                                                                                                                  FY06

                                                                                                                         FY07

                                                                                                                                FY08

                                                                                                                                         FY09

                                                                                                                                                   FY10

                                                                                                                                                            FY11
      FY03


                 FY04


                            FY05


                                     FY06


                                              FY07


                                                       FY08


                                                               FY09


                                                                       FY10


                                                                               FY11




                                                                                                                                                 Source: Company/MOSL
9 January 2012                                                                                                                                                                               8
                                                                                                                                                                                                         Siemens



Expect exports to remain robust                                                                                     Project sales to remain at 30-40% of sales

                        Exports (INR b)                             Exports (% of sales)                                          Project sales (INR b)          50
                                                                                                                                                                               49
                                       35               37                                                                        Projects (% of sales)
                                                                                                                                                                                          40
                                                                                                                                                                                                  37
                                                                    24                                                                               33                                                      31
                                                                                         22           22
                           20                                                    17                         24                              23                                 40
                   15                                                                                                               19                           39                                         38
                                                                                                                                                                                         34       35
                                                                                                                          16
           7
    5
                                                                                                                                                      15
               1    4           9        27     31           21          16           26      30           40
    1                                                                                                                     2          3           6




                                                                                              FY12E

                                                                                                           FY13E
    FY03

           FY04

                    FY05

                                FY06

                                         FY07

                                                 FY08

                                                             FY09

                                                                          FY10

                                                                                      FY11




                                                                                                                          FY03


                                                                                                                                     FY04


                                                                                                                                              FY05


                                                                                                                                                      FY06


                                                                                                                                                                 FY07


                                                                                                                                                                               FY08


                                                                                                                                                                                         FY09


                                                                                                                                                                                                  FY10


                                                                                                                                                                                                            FY11
                                                                                                                                                                                      Source: Company/MOSL


Received two mega-orders in FY10 and one mega-project in FY11
Client                                 Value (INR m)                     Date                    Execution                Project
Torrent Power                          20,000-25,000                     1QFY11                   36 Months               DGEN Gas based megha power project
Torrent Power                                           NA               2-Ju-10                  36 Months               Two CCPP with total 1600 MW capacity
Gurgaon Metro                                           NA               11-May-10                30 Months               Total rail Solutions for 6.1 km stretch of line
PGCIL, India                                     1,000                   2-Feb-10                 11 months               1 unit of 765 KV Substation job.
Kahramaa, Qatar                                 24,910                   19-Jan-10                36 months               Total order Rs. 29,560 million, with Siemens AG, substation works.
Kahramaa, Qatar                                  6,080                   10-Nov-09                24 months               Cables works.
Ezdan, Qatar                                     3,420                   8-Oct-09                 15 months               Ezdan Real Estate QSC, substation jobs, with SAG (Rs 610 million).
PGCIL, India                                     3,600                   30-Sep-09                27 months               2 units of 765 KV substation jobs.
PGCIL                                            1,090                   22-Jul-09                24 months               I unit of 765 KV substation job.
Vedanta Alumunium                                1,120                   22-Jun-09                          -             HV distribution system at Smelter plant at Jharsuguda, Orissa
Kahramaa, Qatar                                     790                  4-May-09                 24 months               Air insulated Circuit breakers.
Adani Power                                      7,200                   30-Apr-08                          -             With SAG (6,600 million), EPC contract to set up a bipolar 500 KV
                                                                           HVDC line, transmission capacity of 2,500 MW.
PWGR: Powergrid Corporation of India, Kahramaa: Qatar General Electricity & Water Corporation                      Source: Company/MOSL




                                                   Revenue to grow at 16% CAGR, also boosted by short-cycle sales and product exports
                                                                                                      FY05         FY06          FY07       FY08      FY09         FY10               FY11      FY12E      FY13E
                                                   Key earnings assumptions
                                                   Order intake (INR b) 41.2                                       82.0          101.4      87.2          88.0    124.3               122.9     129.0      167.7
                                                   Growth (%)                                         36.8         98.9           23.6      -14.0       0.9        41.3                -1.1       5.0       30.0
                                                   Order book (INR b)                                 35.1         75.3           94.1       98.3     102.3       135.8               139.2     135.6      140.7
                                                   BTB (x TTM sales)                                   1.3          1.7            1.2        1.2       1.2         1.5                 1.2       1.0        0.9
                                                   Revenues (INR b)                                   27.5         45.1           77.3       83.0      83.9        93.2               119.4     132.6      162.7
                                                   Execution Ratio (%)                                0.36         0.29           0.40       0.45      0.44        0.36                0.46      0.50       0.53
                                                   Book to bill (x)                                   1.28         1.67           1.22       1.19      1.22        1.46                1.17      1.02       0.86
                                                   Cost assumptions (%)
                                                   RM/sales                                           70.1         73.5           76.2      74.8          68.5          70.4           73.2    71.0    71.0
                                                   Employee cost/sales                                 7.4          6.2            5.1       5.2           6.5           6.8            7.6     8.2     8.1
                                                   Other Expenses/sales                               12.3         11.4            9.2      10.8          12.9           8.9            8.6     9.0     8.9
                                                   Total cost/sales                                   89.8         91.1           90.6      90.9          87.9          86.1           89.4    88.2    88.0
                                                   EBITDA margin                                      10.2          8.9            9.4       9.1          12.1          13.9          10.6     11.8    12.0
                                                                                                                                                                                      Source: Company/MOSL




9 January 2012                                                                                                                                                                                                     9
                                                                                                                                                                                                                                                                 Siemens



EBITDA margin to improve, driven by increased localization                                                                                 Expect PAT CAGR of 16% over FY11-13

                              EBITDA (INR b)                                      EBITDA margin                                                                             PAT (INRb)                              Grow th (%)
                                                                                                                                             76
                                                                    12.1                                     11.8             12.0
                                                                              13.9
       10.2                                                                               10.6
                                                                                                                                                          41         44                             39
                                       9.4              9.1
                      8.9
                                                                                                                                                                                                                    27                                                24
                                                                                                                                                                                                                                                    19
                                                                                                                              19.6
                                                                                                         15.7                                                                                                                       2




                                                                                                                                                 2.5
                                                                              12.9       12.9                                                                                     -10
                                                                    10.2




                                                                                                                                                                                                                                                    FY12E 10.0


                                                                                                                                                                                                                                                                      FY13E 12.5
                                       7.4              7.8




                                                                                                                                                          3.6


                                                                                                                                                                     5.2




                                                                                                                                                                                                    6.5


                                                                                                                                                                                                                    8.3


                                                                                                                                                                                                                                    8.5
       2.8          4.0




                                                                                                                                                                                4.7
                                                                                                                                              FY05


                                                                                                                                                          FY06


                                                                                                                                                                     FY07


                                                                                                                                                                                    FY08


                                                                                                                                                                                                    FY09


                                                                                                                                                                                                                    FY10


                                                                                                                                                                                                                                    FY11
                                                                                                             FY12E


                                                                                                                               FY13E
         FY05


                       FY06


                                        FY07


                                                         FY08


                                                                     FY09


                                                                                FY10


                                                                                             FY11



                                                                                                                                                                                                                           Source: Company/MOSL
                                                                                                                                              Siemens ended FY11, with just 2% growth in net profit,
                Increased localization and product leadership
                                                                                                                                            impacted by pressure on margins across business segments
                       to mitigate pressure on margins
                                                                                                                                                 due to headwinds from rising commodity prices

                                                                       Valuation and view
                                                                        We expect Siemens to post earnings CAGR of 21% over FY11-13 on the back of its
                                                                          diversified portfolio, increased outsourcing by parent and increased localization of
                                                                          products.
                                                                        With project award activity still not showing signs of meaningful pick-up, we see
                                                                          Siemens posting moderate order intake growth in FY12.
                                                                        Siemens is also a key partner in Siemens AG's global network, creating significant
                                                                          export opportunity. We believe that the company will continue to be Siemens AG's
                                                                          growth vehicle in the Middle East and North African markets due to cost advantage.
                                                                        Increased localization should keep margins intact at 12-13%, despite increasing
                                                                          completion and pricing pressure, particularly in the Power segment.
                                                                        The stock has outperformed the Sensex by 3% over the last 12 months and is now
                                                                          trading at 37% discount to its long-term 12-month forward P/E. The Capital Goods
                                                                          sector is trading at a much higher discount of 44% to its long-term 12-month forward
                                                                          P/E.
                                                                        We model an EPS of INR29.7 (up 18%) for FY12 and INR37 (up 24%) for FY13.
                                                                        The stock trades at 23x FY12E and 18x FY13E EPS. Our target price is INR743 (on
                                                                          25x FY12E EPS). Maintain Neutral.

Siemens: Long-term P/E (x)                                                                                                                 Engineering Sector: Long-term P/E (x)

                              P/E (x)                           Avg(x)                 Peak(x)                           Min(x)                                             Capital Goods Sector - PE (x)
  72                                                                                                                                        45
                                                                                68.2
  54                                                                                                                                        35

  36                                                                31.6                                                                    25

                                                                                                                                                                                                           LPA of 22.7x
  18                                                                                                                           20.6         15
                                                        11.2
   0                                                                                                                                         5
       Jan-07




                              Jan-08

                                               Jul-08

                                                           Jan-09

                                                                     Jul-09

                                                                              Jan-10

                                                                                        Jul-10

                                                                                                    Jan-11

                                                                                                                     Jul-11

                                                                                                                                  Jan-12




                                                                                                                                                 Jan-07




                                                                                                                                                                   Mar-08




                                                                                                                                                                                                           Nov-09


                                                                                                                                                                                                                           May-10


                                                                                                                                                                                                                                           Dec-10


                                                                                                                                                                                                                                                             Jul-11


                                                                                                                                                                                                                                                                            Jan-12
                                                                                                                                                                                Sep-08
                  Aug-07




                                                                                                                                                          Aug-07




                                                                                                                                                                                           Apr-09




                                                                                                                                                                                                                           Source: Company/MOSL

9 January 2012                                                                                                                                                                                                                                                                     10
                                                                                                   Siemens



                 Financials and Valuation


                 Income Statement (Standalone)                                             (INR Million)
                 Y/E September                2008      2009      2010       2011      2012E         2013E
                 Total Revenues             85,594    84,502    93,219    120,750    133,459       163,533
                    Change (%)                  8.7      -1.3      10.3      29.5        10.5          22.5
                 Raw Materials              64,052    57,866    65,663     88,350     94,756       116,108
                 Staff Cost                  4,476     5,499     6,325      9,174     11,009        13,211
                 SGA Expenses                9,276    10,906     8,299     10,368     11,963        14,627
                 EBITDA                      7,791    10,232    12,932     12,857     15,731        19,587
                    Change (%)                    5        31       26          -1         22            25
                    % of Total Revenues         9.1      12.1      13.9      10.6        11.8          12.0
                 Depreciation                  637       779     1,016      1,522      1,676          1,995
                 Interest                         0        59      106        127           0             0
                 Other Income                  519       635       776      1,542         900         1,000
                 EO Items (net)              1,246     4,289          0          0          0             0
                 PBT                         8,918    14,318    12,587     12,750     14,955        18,592
                 Tax                         2,984     3,870     4,315      4,295       4,935         6,135
                    Rate (%)                  33.5      27.0      34.3       33.7        33.0          33.0
                 PAT                         5,933    10,448     8,271      8,454     10,020        12,457
                 Adjusted PAT                4,687     6,538     8,271      8,454     10,020        12,457
                    Change (%)                 -9.5      39.5      26.5        2.2       18.5          24.3
                 Consolidated PAT            5,995     7,046     7,578      8,677     10,020        12,457
                 Con.Adjusted PAT            4,760     5,545     7,578      8,677     10,020        12,457
                    Change (%)               -22.3      16.5       36.7      14.5        15.5          24.3



                 Balance Sheet                                                                  (INR Million)
                 Y/E September                2008      2009      2010       2011      2012E          2013E
                 Share Capital                 674        674      674        681        681            681
                 Reserves                   20,017    28,492    34,103     37,481     43,558         51,283
                 Net Worth                  20,691    29,166    34,778     38,162     44,239         51,964
                 Loans                          11          6        2          0         30             30
                 Net Deferred Tax Liab        -910     -1,119   -1,313     -1,889     -1,889         -1,889
                 Capital Employed           19,791    28,053    33,467     36,273     42,380         50,105


                 Gross Fixed Assets          9,911    11,348    13,549     19,983     22,349         26,599
                 Less: Depreciation          4,339     5,053     6,209      8,289      9,407         11,402
                 Net Fixed Assets            5,572     6,295     7,340     11,694     12,942         15,197
                 Capital WIP                   870     1,057     2,465      2,489        400          1,000
                 Investments                 5,236     4,770     3,885          0          0              0

                 Curr. Assets               57,253    69,212    79,281     85,505    102,744       123,052
                 Inventory                   7,621     9,722     6,822      8,078     10,238        12,545
                 Debtors                    34,328    34,583    33,023     41,733     46,071        56,452
                 Cash & Bank Balance         9,131    14,449    18,534     12,750     21,262        25,575
                 Loans & Advances            6,173    10,458    12,390     14,060     15,000        16,000
                 Other Current assets                            8,512      8,883     10,173        12,480


                 Current Liab. & Prov.      49,140    53,281    59,505     63,415     73,705         89,144
                 Creditors                  36,002    23,527    29,151     28,342     36,564         44,804
                 Other Liabilities           5,867    16,129    14,704     17,034     14,626         17,921
                 Provisions                  7,272    13,625    15,651     18,039     22,516         26,419
                 Net Current Assets          8,113    15,931    19,776     22,090     29,038         33,908
                 Application of Funds       19,792    28,054    33,467     36,274     42,381         50,106
                 E: MOSL Estimates




9 January 2012                                                                                            11
                                                                                                 Siemens



                 Financials and Valuation


                 Ratios
                 Y/E September                   2008     2009     2010     2011    2012E          2013E
                 Basic (INR)
                 EPS                             13.9      19.4     24.5     25.1     29.7           37.0
                   Growth (%)                    -9.5      39.5     26.5      2.2     18.5           24.3
                 Consolidated EPS                14.1      16.5     22.5     25.7     29.7           37.0
                 Cash EPS                        15.8      21.7     27.6     29.6     34.7           42.9
                 Book Value                      61.4      86.5    103.2    113.2    131.3          154.2
                 DPS                              3.0       5.0      5.0      6.1     10.0           12.0
                 Payout (incl. Div. Tax.)        25.2      30.2     23.8     28.1     39.4           38.0

                 Valuation (x)
                 P/E (Standalone)                                            27.0     22.8           18.3
                 Cash P/E                                                    22.9     19.5           15.8
                 EV/EBITDA                                                   16.8     13.2           10.4
                 EV/Sales                                                     1.8      1.6            1.2
                 Price/Book Value                                             6.0      5.2            4.4
                 Dividend Yield (%)                                           0.9      1.5            1.8

                 Profitability Ratios (%)
                 RoE                              25.6     26.2     25.9     23.2     24.3           25.9
                 RoCE                             26.5     27.5     27.1     24.5     25.5           26.9

                 Turnover Ratios
                 Debtors (Days)                   146      149      129      126       126            126
                 Inventory (Days)                   32      42       27       24         28             28
                 Creditors. (Days)                154      102      114       86       100            100
                 Asset Turnover (x)                4.3      3.0      2.8      3.3       3.1            3.3

                 Leverage Ratio
                 Debt/Equity (x)                   0.0      0.0      0.0      0.0      0.0            0.0

                 Cash Flow Statement                                                          (INR Million)
                 Y/E September                   2008      2009     2010     2011    2012E          2013E
                 PBT before EO Items            7,672    10,029   12,587   12,750   14,955         18,592
                 Add: Depreciation                637       779    1,016    1,522     1,676          1,995
                       Interest                     0        59      106      127         0              0
                 Less: Direct taxes paid        2,984     3,870    4,315    4,295    4,935           6,135
                 (Inc)/Dec in WC                1,786    -2,500      240   -8,098     1,564           -557
                 CF from Operations             7,111     4,496    9,633    2,006   13,260         13,894

                 EO Income                      1,246     4,289        0        0        0              0
                 CF from oper. Incl. EO items   8,357     8,785    9,633    2,006   13,260         13,894

                 (Inc)/dec in FA                -1,509   -1,689   -3,469   -5,900     -835         -4,850
                 (Pur)/Sale of Investments        -561      467      885    3,885        0              0
                 CF from Investments            -2,069   -1,222   -2,584   -2,015     -835         -4,850

                 (Inc)/Dec in Networth            -605     -209     -888   -3,273        0              0
                 (Inc)/Dec in Debt                  -5       -5       -3       -2       30              0
                 Less: Interest Paid                 0       59      106      127        0              0
                       Dividend Paid              1183    1,972    1,966    2,373    3,943          4,731
                 CF from Fin. Activity          -1,793   -2,245   -2,963   -5,776   -3,913         -4,731

                 Inc/Dec of Cash                4,495     5,318    4,087   -5,785    8,512          4,313
                 Add: Beginning Balance         4,636     9,131   14,449   18,534   12,750         21,262
                 Closing Balance                9,131    14,449   18,536   12,749   21,262         25,575
                 E: MOSL Estimates


9 January 2012                                                                                          12
                             Siemens



                 N O T E S




9 January 2012                   13
Disclosures
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement
to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.

The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its
affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or
employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliates
or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness
for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.

This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest
Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.


        Disclosure of Interest Statement                                                                    Siemens
        1. Analyst ownership of the stock                                                                      No
        2. Group/Directors ownership of the stock                                                              No
        3. Broking relationship with company covered                                                           No
        4. Investment Banking relationship with company covered                                                No


Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For U.K.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.

For U.S.
MOSt is not a registered broker-dealer in the United States (U.S.) and, therefore, is not subject to U.S. rules. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange
Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S.,
Motilal Oswal has entered into a chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").

This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, Marco
Polo and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.




                                                                            Motilal Oswal Securities Ltd
                                                                3rd Floor, Hoechst House, Nariman Point, Mumbai 400 021
                                            Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: reports@motilaloswal.com

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:0
posted:2/21/2012
language:Latin
pages:14