>Siemens (INDIABULLS)

SIEMENS INDIA LIMITED

Short term headwinds; long term growth intact
In January 2009, Siemens India Limited (SIEM) decided to sell its wholly owned subsidiary Siemens Information System (SISL) to its parent company Siemens AG. We believe SIEM stands to lose from this deal as it received less-than-adequate consideration in exchange for SISL; the deal valued at an EV/Sales of 0.5x, much below the industry average of 1.4x, resulting in a potential loss of value for the investors. Though our near-term outlook for SIEM has weakened following the SISL deal, we believe that the current market price (CMP) of SIEM’s stock more than factors the negatives. However, given its technological advantage, a diversified business model, and the strong financial position, we believe the Company is well poised to grow in the long run. Hence, we reiterate our Hold rating on the stock.

Top line to remain muted in the near term: We expect net sales to fall ~20% in FY09; excluding SISL, we expect the fall to be in the range of 15-18%. We expect the major segments - Industrial and Power to show a negative growth of ~7% and ~25%, respectively. The Power segment’s revenue is likely to fall due to the completion of several big-ticket projects in FY08, and we do not expect any mega order inflows in the near term. Meanwhile, we believe that strong growth in small segments such as Transportation, Healthcare, and BPO will help in cushioning the downside in revenue. However, we expect revenue to grow substantially post FY10 once the orders in the Power segment start coming in from the 12th Five Year plan.

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