Buy Siemens, target Rs 1,182: Emkay Global Financial Services

Emkay Global Financial Services has a buy call on Siemens with a target price of Rs 1,182.

The current market price of Siemens is Rs 914.25.

Time period given by the brokerage is one year when Siemens price can reach the defined target.

Investment rationale by the brokerage:
SIEM operational performance was ahead of our and Street expectations. Revenue increased by 25 per cent yoy, driven by robust performance in Power and Gas (PG), Mobility (MO) and Digital Factory (DF). EBITDAM increased by 53bps to 10.6 per cent and APAT increased by 39 per cent yoy

Order inflows increased by 38 per cent to Rs 37.2bn largely driven by growth in the base business. Despite the growth in inflows, the backlog of Rs 124bn (nearly 0.9x FY2018 sales) does not provide revenue visibility beyond 12 months. SIEM would have to post strong order inflows in the next 3-4 quarters to maintain revenue and profitability growth in FY19E/20E.

We downgrade FY19E/20E EPS estimates by 9 per cent/17 per cent respectively to factor in lower revenue and profitability assumptions. SIEM trades at 32x FY20E earnings. We maintain BUY with a Target Price of Rs 1,182 based on 40x FY20E earnings.

Maintain Buy: Management commentary indicate that while order finalisation for large projects have slowed down, the base business continue to report steady growth largely driven by Cement, Food & Beverages, Pharmaceuticals, Chemicals, Tyres etc., In the PG segment, majority of the new orders have come from smaller turbines (0-100MW) especially from the waste heat recovery and captive power plants. In the EM segments, while order flows from PGCIL declined by 70-75 per cent, the State utilities have been regularly finalising orders in the distribution segment. In the Mobility segment, the rapid change towards electrification has impacted SIEM growth prospects in the domestic markets, as large proportion of its offerings were attributable to the Diesel locomotive propulsion systems. In the DF segment, the focus will no longer be the mere supply of products; SIEM plans to offer its customers end-to-end solutions and accelerate the digitalisation of their business processes. We expect SIEM to post 10 per cent revenue CAGR over FY18-20E and 8.5 per cent APAT CAGR. At CMP, SIEM trades at 32x FY20E earnings. We maintain BUY with a target price of Rs 1,182 based on 40x FY20E earnings.

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