>SIEMENS (MOTILAL OSWAL)

■ 2QFY10 performance below estimates: During 2QFY10, Siemens reported revenues of Rs22b (down 7% YoY) lower than our estimates of Rs25b (up 5%YoY). EBITDA margins at 12.9% (vs 14.6%YoY) were down 65bp versus our estimates of 13.5%. Net profit at Rs1.8b (down 19% YoY) is below our estimates of Rs2.2b (down 2.4%YoY).

■ Reported revenue / profit growth rates impacted by higher base effect, given cost updations in 2QFY09: The cost updations were a factor of the revision in commodity prices as the Qatar projects (Rs62b) had been awarded ~3/4 years back and thus a decline in commodity prices had led to improved profitability. Revision in project cost downwards also led to increased percentage completion, which resulted in higher revenues being booked in 2QFY09. Adjusted, 2QFY10 revenues are up 14% YoY and profit up 17% YoY.

■ Takeaways from analyst meet: (1) Margins favourably impacted by reduction in commodity prices on large Qatar projects (Rs62b received in FY06/FY07), (2) Market showing momentum in terms of pick up in short cycle products, large projects to witness delayed recovery, (3) Capex plans of Rs16b till FY12, India to be an outsourcing hub; size of the investment is meaningful given that gross block as at Sep-09 stood at Rs11.3b and (4) Siemens India to be a
major centre for value priced products, target revenues of Rs65b by FY20.

■ Valuation and view, muted earnings growth in FY11: Our EPS estimates for FY11E stands at Rs27 (+12% YoY) and for FY12E at Rs34 (+27% YoY). Muted earnings growth in FY11 is a function of: Expected Revenue growth of 14% YoY as incremental orders entail long gestation period and margin contraction of 160bp YoY given FY10 margins are favourably impacted by lower commodity prices on Qatar projects. Maintain Neutral with price target of Rs765 (24x average of FY11E and FY12E).

To read the full report: SIEMENS